<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1999
REGISTRATION NO. 333-91263
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
EL SITIO, INC.
(Exact name of Registrant as specified in its charter)
THE SITE, INC.
(Translation of Registrant's name into English)
<TABLE>
<S> <C> <C>
BRITISH VIRGIN ISLANDS 7379 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or organization) Classification Code Number) Number)
</TABLE>
------------------------
EL SITIO, INC.
AVENIDA BELGRANO 845
1092 BUENOS AIRES, ARGENTINA
(011) 5411-4343-6700
(Address, including zip code, and telephone number of registrant's principal
executive offices)
--------------------------
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(Name, address, including zip code, and telephone number, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
NEIL A. TORPEY, ESQ. GLENN M. REITER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP SIMPSON THACHER & BARTLETT
399 PARK AVENUE 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
TELEPHONE: (212) 318-6000 TELEPHONE: (212) 455-2000
</TABLE>
--------------------------
Approximate date of commencement of proposed sale of the securities to the
public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1999
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
PROSPECTUS
8,200,000 SHARES
[LOGO]
WWW.ELSITIO.COM
EL SITIO, INC.
(INCORPORATED IN THE BRITISH VIRGIN ISLANDS)
COMMON SHARES
----------------------------------------------------------------
This is our initial public offering of common shares. We are offering 8,200,000
common shares. No public market currently exists for our common shares.
We propose to list the common shares on the Nasdaq National Market under the
symbol "LCTO." We expect the public offering price to be between $11.00 and
$13.00 per share.
INVESTING IN THE COMMON SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 12.
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 1,230,000
additional common shares from us on the same terms and conditions set forth
above solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We expect to deliver the common shares on or about December , 1999.
- --------------------------------------------------------------------------------
JOINT LEAD MANAGERS
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
--------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
WIT CAPITAL CORPORATION
December , 1999
<PAGE>
[Artwork consisting of El Sitio's medallion, a pre-Colombian stone, and a brief
description of El Sitio.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................... 5
RISK FACTORS.......................... 12
USE OF PROCEEDS....................... 28
DIVIDEND POLICY....................... 28
CAPITALIZATION........................ 29
DILUTION.............................. 31
SELECTED FINANCIAL DATA............... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 35
BUSINESS.............................. 50
MANAGEMENT............................ 71
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPAL SHAREHOLDERS................ 77
RELATED PARTY TRANSACTIONS............ 80
SHARES ELIGIBLE FOR FUTURE SALE....... 82
DESCRIPTION OF SHARE CAPITAL.......... 84
TAXATION.............................. 87
UNDERWRITING.......................... 92
NOTICE TO CANADIAN RESIDENTS.......... 95
LEGAL MATTERS......................... 96
EXPERTS............................... 96
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 96
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER WE NOR ANY UNDERWRITER HAS AUTHORIZED ANY PERSON TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE SUCH
OFFER OR SALE IS NOT PERMITTED.
DEALER PROSPECTUS DELIVERY REQUIREMENT
UNTIL JANUARY , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
[This Page Intentionally Left Blank.]
4
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED OR AS THE CONTEXT MAY OTHERWISE REQUIRE, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AND ASSUMES THAT ALL OF OUR OUTSTANDING CLASS A
CONVERTIBLE PREFERRED SHARES HAVE CONVERTED INTO OUR COMMON SHARES, WHICH WILL
AUTOMATICALLY OCCUR UPON THE CLOSING OF THIS OFFERING.
ALL INFORMATION IN THIS PROSPECTUS, UNLESS OTHERWISE INDICATED, GIVES EFFECT
TO A 2-FOR-1 SHARE SPLIT WHICH WILL BE COMPLETED PRIOR TO THE CLOSING OF THIS
OFFERING.
"EL SITIO" AND THE MEDALLION DESIGN ARE TRADEMARKS OF EL SITIO, INC. THIS
PROSPECTUS ALSO INCLUDES TRADEMARKS, SERVICE MARKS AND TRADE NAMES OF OTHER
COMPANIES.
EL SITIO, INC.
OUR BUSINESS
We are an Internet network providing country-specific and regional content
for Spanish- and Portuguese-speaking audiences in Latin America and the United
States. Recognizing that the countries in the Americas are diverse, we have
designed our network to consist of country Websites as well as a global Website.
We currently have country Websites for, and sales and content production offices
in, Argentina, Brazil, Mexico, the United States and Uruguay. We plan to
establish sales and content production offices in Colombia before the end of
1999, and sales and content production offices in Chile and Venezuela during
2000. By offering content and interactive resources designed to be responsive to
our users' preferences, we seek to make our network their "home on the Internet"
and, in so doing, to create communities of users, develop user loyalty and
increase traffic on our Websites. The launch of each country Website represents
a potential new community of users. By building substantial communities of
users, we are developing a platform for generating revenues from advertising,
branded retail dial-up Internet access, or "connectivity", service and, in the
future, e-commerce. We recently began to offer connectivity services in
Argentina and Brazil and expect to offer similar services in Colombia before the
end of 1999. We are also beginning to develop e-commerce services for Spanish-
and Portuguese-speaking audiences in Latin America and the United States.
Our founders believed that a scarcity of Spanish- and Portuguese-language
content was the principal factor limiting the growth of Internet usage in Latin
America. As a result, from our inception in mid-1997, we initially concentrated
on the development of a pilot Website for Argentina with quality content and
interactive resources in Spanish and, at the same time, carried out extensive
market testing to understand users' preferences. We then began to roll-out our
network of country Websites during 1998 and, most recently, launched our Website
in the United States in September 1999. Our registered users (meaning users who
have provided personal information such as name, e-mail address and address)
grew from 54,132 persons in June 1998 to 291,567 persons in July 1999. From
June 1998 to July 1999, the number of pages viewed by our users increased from
3.0 million to 21.0 million per month. On August 1, 1999, we launched our first
mass media-based branding and advertising campaign in Argentina, Brazil, Mexico
and Uruguay and, on September 9, 1999, launched the campaign in the United
States. In the first three months of this campaign (through October 31, 1999),
our registered users increased by approximately 69% to 498,515 at October 31,
1999 and the number of pages viewed per month by our users increased by over
250% to 73.9 million in that month. In March 1999, we also commenced measuring
unique visitors (meaning users who visit our Websites multiple times but who are
counted in the relevant period as having visited the Websites only one time).
The number of unique visitors has increased from 174,800 in March 1999 to
approximately 1.6 million in October 1999. We
5
<PAGE>
attribute this recent growth principally to our mass media-based branding and
advertising campaign, and cannot predict whether such growth will continue.
Our network is located at WWW.ELSITIO.COM for all of our Spanish-language
Websites and at WWW.OSITE.COM.BR for our Portuguese-language Website. An on-line
user accessing our network in any of the countries for which we operate a
country Website is directly linked to our Website for that user's home country;
other users are linked to our global Website. Our users encounter appealing
content and interactive resources in their native language and organized
according to eleven themes, which we call channels. These channels include,
among others, movies, music, news, parenting, relationships, shows, sports and
technology. Our users also receive access to free e-mail, chat rooms, bulletin
boards, personal home pages, contests and prizes. We regularly enhance our
Websites' features in response to user suggestions and our own service, content
and product developments. We provide content and community features on our
Websites to our users (including our registered users) free of charge.
Each of our country Websites is supported by a team of management,
marketing, sales and content production personnel based in the relevant country.
Each team is responsible for providing country-specific content and community
features adapted to the cultural and other tastes of the relevant market. Our
in-country teams are supported by our global team, which provides technical and
design support and global content for our network. This structure affords our
users the dual advantages of, first, the size and resources of our network and,
second, the country-specific content and community features most useful to them.
Operationally, it permits us to maximize economies of scale to efficiently
support multiple markets with differing content and features from a single
global platform.
In order to offer our users a broader range of Internet services and to
further foster user loyalty, we recently acquired IMPSAT Corporation's retail
dial-up access customers in Argentina and Brazil and are in the process of
acquiring its retail dial-up access customers in Colombia. The aggregate
purchase price for these acquisitions is $21.5 million. As a result of these
acquisitions, we expect to receive approximately 73,000 dial-up customers in the
three countries. These acquisitions should enable us to utilize our Websites in
Argentina, Brazil and Colombia as portals for our dial-up access customers, as
our connectivity customers will be directly linked to our Websites upon
connecting to the Internet, and to cross-market connectivity services to the
users of our network of Websites. To subscribe to our connectivity services, a
user pays a monthly fee to us in exchange for connectivity to the Internet. A
dial-up access subscriber automatically becomes a registered user of El Sitio's
network, although not vice versa. We will not acquire the telecommunications
infrastructure required to provide these services, but will instead outsource
that infrastructure from third-party providers--initially, under three-year
agreements with subsidiaries of IMPSAT Corporation. In conjunction with these
acquisitions, IMPSAT Corporation, which is a provider of private networks of
integrated data and voice communications systems in a number of countries of
Latin America, has become one of our major shareholders. We do not now offer or
intend to offer connectivity services in countries other than Argentina, Brazil
and Colombia.
Our results of operations for the nine months ended September 30, 1999
reflect that we continue to be in an early stage of operations. We continue to
build sales and marketing teams, establish advertising and sales offices, and
implement our media-based branding and advertising campaigns. We incurred
increased expenses that more than offset revenue growth during the nine months
ended September 30, 1999. We recorded net revenues of $1.5 million and a net
loss of $13.9 million in the nine months ended September 30, 1999, compared to
net revenues of $609,000 and a net loss of $1.8 million in the corresponding
period of 1998. Our increased net losses for the nine-month period ended
September 30, 1999 were primarily attributable to an increase in personnel and
other expenses necessary to support the roll-out or expansion of offices and
Websites in Brazil, Mexico and the United States and in anticipation of the
launch of commercial operations in these and other countries during the period.
For the nine months ended September 30, 1999, El Sitio generated 46.9%, 29.9%
and 22.2% of its revenues from Argentina, Uruguay and Mexico, respectively.
After taking into account our
6
<PAGE>
acquisitions of the three dial-up access businesses, approximately 50% of our
revenues in this nine-month period would have been generated from Brazil, 31%
from Argentina, 12% from Colombia, 4% from Uruguay and 3% from Mexico.
We were incorporated in July 1997 in the British Virgin Islands. We are a
holding company with operating subsidiaries in Argentina, Brazil, Mexico, the
United States and Uruguay. Our principal executive offices are located at
Avenida Belgrano 845, 1092 Buenos Aires, Argentina, and our telephone number is
011-5411-4343-6700.
OUR MARKET OPPORTUNITY
The Spanish- and Portuguese-speaking audiences in Latin America and the
United States together represent one of the fastest growing user groups on the
Web today. While we do not expect to have country Websites or operations for
every country in Latin America, our network is targeted to the entire Latin
American region. In the United States, we are currently targeting the
Spanish-speaking populations in Chicago, Houston, Los Angeles, Miami, New York,
San Antonio and San Diego. We are primarily targeting individual users, although
we anticipate that business and other entities will become important
participants in our communities of users.
We believe a large and growing market consisting of Spanish- and
Portuguese-speaking audiences exists in Latin America and the United States for
content, connectivity and e-commerce services, and that this market presents us
with a significant opportunity. Latin America had a total population at the end
of 1998 of 492.4 million people, of whom more than two-thirds are under
35 years of age. The region had an aggregate gross domestic product in 1998 of
$2.0 trillion, of which Brazil, Mexico and Argentina accounted for more than
three-fourths. The wealthiest 20% of the Latin American population accounts for
approximately two-thirds of the overall buying power in the region and
constitutes our primary target market in Latin America. Internet use in Latin
America is expected to increase from an estimated 4.8 million users in 1998 to
19.1 million users in 2003. Internet advertising targeting Latin America is
projected to grow from approximately $23.6 million in 1998 to approximately
$948.9 million in 2003. Similarly, on-line sales in Latin America are projected
to increase from approximately $166.8 million in 1998 to approximately
$8.0 billion in 2003. Internet penetration rates for 1999 are expected to be
1.5% in Argentina, 2.0% in Brazil, 0.6% in Colombia, 1.0% in Mexico and 2.9% in
Chile.
The United States has a total Hispanic population of approximately
31.4 million people, which has grown at a compound annual rate of 3.7% between
1996 and 1999. By 2000, the U.S. Hispanic population is expected to constitute
approximately 11% of the total U.S. population. Advertising targeting U.S.
Hispanics was $1.7 billion in 1998. As of January 1, 1998, U.S. Hispanics
represented $273.2 billion in annual buying power. As of May 1999, the Internet
penetration rate for the U.S. Hispanics was approximately 19.0%.
OUR STRATEGY
Our goal is to become the leading Internet network for Spanish- and
Portuguese-speaking audiences in Latin America and the United States. To achieve
our goal, and to take advantage of our market opportunity, we continue to
implement a strategy consisting of the following principal elements:
- BUILDING A MARKET-LEADING NETWORK. We seek to build a leading Internet
network by:
V further developing country-specific and regional content;
V incorporating additional community-building features; and
V strengthening our brand identity.
7
<PAGE>
- GENERATING REVENUES FROM OUR NETWORK. We seek to increase substantially
revenues from our network by:
V forging one-on-one relationships with advertisers;
V integrating connectivity services into our network; and
V developing our e-commerce business.
- LEVERAGING STRATEGIC RELATIONSHIPS. We intend to leverage our existing
relationships with shareholders and enter into new strategic relationships
to expand our network and enhance our content, marketing and sales.
OUR SHAREHOLDERS
Roberto Vivo-Chaneton, our chairman, and Roberto Cibrian-Campoy, our chief
executive officer, founded our company in 1997. Mr. Vivo is a co-founder and
deputy chief executive officer of IMPSAT Corporation. Mr. Cibrian was the
founder and the president of Cibrian-Campoy Creativos, S.A., an Argentine
company which engaged in electronic arts, computer animation and multimedia and
which was the predecessor entity for our Argentine subsidiary.
In July 1999, we completed a private placement of 6,334,004 Class A
convertible preferred shares for a gross purchase price of $44.4 million,
consisting of 5,477,088 shares sold for $38.4 million in cash and 856,916 shares
to be issued on a quarterly basis through January 2001 in exchange for
$6.0 million in non-cash advertising time credits. Each Class A convertible
preferred share will, after giving effect to a 2-for-1 share split, convert
automatically into two common shares upon completion of this offering.
Our principal shareholders, in addition to Mr. Vivo and Mr. Cibrian,
include:
- IAMP (El Sitio) Investments Ltd., an investment fund jointly controlled by
Hicks, Muse, Tate & Furst Incorporated and the Cisneros Group of
Companies;
- SLI.Com, an investment fund controlled by Guillermo Liberman, an Argentine
entrepreneur with interests in agribusiness, fisheries, telecommunications
and hotel development;
- GCC Investments, LLC, an indirect subsidiary of GC Companies Inc., which
owns and operates General Cinema Theatres; and
- IMPSAT Corporation, a Latin American telecommunications company.
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10.0 million in cash, or
$9.00 per Class B convertible preferred share. Purchasers of the Class B
convertible preferred shares consisted of Intel Atlantic, Inc., a subsidiary of
Intel Corporation, and Latinvest Asset Management do Brasil, Ltda., an affiliate
of Globalvest Management Company, L.P. The Class B convertible preferred shares
have an annual dividend rate of 8%. Each Class B convertible preferred share
will automatically convert, on the date six months after the closing of this
offering, into one common share. The difference between the initial public
offering price per common share and $9.00 price per Class B convertible
preferred share will be amortized as a deemed dividend during the same six-month
period.
8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares offered..................... 8,200,000 shares
Common shares outstanding immediately
after this offering..................... 38,574,460 shares (1)
Underwriters' over-allotment option....... Common shares offered and common shares outstanding
after this offering would each increase by 1,230,000
shares if the underwriters' over-allotment option is
exercised in full.
Use of proceeds........................... We intend to use the net proceeds from this offering as
follows:
- approximately $48.0 million to fund our sales and
marketing, and branding and advertising
activities;
- approximately $20.0 million to develop new
services and products, and to develop our network
infrastructure;
- approximately $1.3 million to pay dividends in
respect of our Class A convertible preferred shares
accrued as of the closing date of this offering;
and
- the balance for general corporate and working
capital requirements.
We have not definitively allocated any portion of the
net proceeds for the above specified purposes. We will
retain complete discretion in applying the proceeds of
this offering.
Proposed Nasdaq National Market symbol.... "LCTO"
</TABLE>
- ------------------------
(1) Excludes the following:
- 2,268,600 common shares reserved for issuance upon exercise of options
granted under our 1999 share option plan at a weighted average exercise
price of $5.73 per share;
- 971,400 common shares reserved for issuance upon the exercise of options
that we may grant under our 1999 share option plan;
- 1,713,832 common shares issuable upon conversion of our Class A
convertible preferred shares, which will be issued on a quarterly basis
through January 2001 in exchange for $6.0 million of non-cash advertising
time credits;
- 239,936 common shares issuable upon exercise of a warrant issued to Bear,
Stearns & Co. Inc. as part of its fee in connection with the July 1999
private placement of our Class A convertible preferred shares; and
- 1,111,111 common shares issuable upon conversion of our Class B
convertible preferred shares, which were sold in a private placement in
mid-November 1999 for an aggregate purchase price of $10.0 million in
cash.
9
<PAGE>
SUMMARY FINANCIAL DATA
The following financial data should be read in conjunction with the
consolidated financial statements and the unaudited pro forma financial
information, "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in this prospectus.
The pro forma financial information reflects:
- our acquisitions of the retail dial-up access customers in Argentina and
Brazil from IMPSAT Corporation, and our pending acquisition of its retail
dial-up access customers in Colombia, for approximately $21.5 million in
the aggregate and the related purchase by IMPSAT Corporation of 3,070,615
of our Class A convertible preferred shares for $21.5 million; and
- the private placement in mid-November 1999 of 1,111,111 Class B
convertible preferred shares for an aggregate purchase price of
$10.0 million in cash.
The selected pro forma as adjusted balance sheet data give effect to the
sale of the common shares in, and the receipt of the net proceeds from, this
offering. We have assumed an initial public offering price of $12.00 per share,
which is the mid-point of the estimated range of offering prices presented on
the cover page of this prospectus. The pro forma as adjusted data also assume
that all of our outstanding Class A convertible preferred shares have been
converted into our common shares, which will automatically occur upon the
closing of this offering.
We prepare our consolidated financial statements and the pro forma financial
information in U.S. dollars in accordance with generally accepted accounting
principles in the United States, which is commonly called "U.S. GAAP."
Results of operations for the periods presented are not necessarily
indicative of results of our operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ---------------------------------------
1997 1998 1998 1999
----------- ------------------------- ----------- -------------------------
ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 267 $ 780 $ 17,287 $ 609 $ 1,524 $ 11,541
Total costs and expenses... 1,171 4,277 22,784 2,371 14,909 27,068
Operating income (loss).... (904) (3,497) (5,497) (1,762) (13,385) (15,527)
Net loss attributable to
common shareholders...... (1,014) (3,517) (11,370) (1,792) (13,903) (21,268)
Basic and diluted net loss
per common share......... (10.14) (1.15) (3.73) (.87) (1.18) (1.81)
Shares used in computing
basic and diluted loss
per common share......... 100,000 3,050,000 3,050,000 2,066,667 11,777,516 11,777,516
</TABLE>
10
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<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1999
------------------- ----------------------------------
PRO FORMA
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
-------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 89 $ 246 $ 24,393 $ 34,493 $123,505
Working capital (deficit).................... (1,146) (42) 20,257 29,851 118,863
Total assets................................. 396 1,481 33,120 64,776 153,788
Total liabilities............................ 1,360 712 6,349 7,305 7,305
Class A convertible preferred shares......... -- -- 38,327 59,827 --
Class B convertible preferred shares......... -- -- -- 9,200 9,200
Total shareholder's equity (deficit)......... (964) 769 (11,556) (11,556) 137,283
</TABLE>
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RISK FACTORS
AN INVESTMENT IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION
IN THIS PROSPECTUS BEFORE PURCHASING OUR SHARES.
FOR PURPOSES OF THIS "RISK FACTORS" SECTION OF THIS PROSPECTUS, WHEN WE
STATE THAT A RISK, UNCERTAINTY OR PROBLEM MAY, COULD OR WOULD HAVE AN "ADVERSE
EFFECT ON OUR COMPANY," WE MEAN THAT THE RISK, UNCERTAINTY OR PROBLEM MAY, COULD
OR WOULD HAVE AN "ADVERSE EFFECT ON THE BUSINESS, RESULTS OF OPERATIONS,
FINANCIAL CONDITION, CASH FLOW OR PROSPECTS OF OUR COMPANY," IN EACH CASE EXCEPT
AS OTHERWISE INDICATED OR AS THE CONTEXT MAY OTHERWISE REQUIRE. YOU SHOULD VIEW
SIMILAR EXPRESSIONS IN THIS SECTION AS HAVING A SIMILAR MEANING.
RISKS RELATED TO OUR COMPANY
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, SO YOUR BASIS FOR
EVALUATING OUR COMPANY IS LIMITED.
We commenced operations in July 1997 and began the roll-out of our network
during 1998. We commenced our first mass media-based branding and advertising
campaign in August 1999 in an effort to generate a high volume of user traffic
on our Websites. Accordingly, we have a limited operating and financial history
upon which you can base your evaluation of an investment in our common shares.
We are subject to the risks, uncertainties and problems frequently
encountered by companies in early stages of operations, particularly companies
in new and rapidly developing markets, such as the Internet industry.
These risks, uncertainties and problems include, among others, the
following:
- any inability to maintain and increase levels of traffic on our Websites;
- any failure to continue to develop and extend the EL SITIO (in Brazil, O
SITE) brand;
- any inability to meet minimum guaranteed impressions under our advertising
agreements;
- any failure to anticipate and adapt to developing markets;
- any inability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
- any failure of our network to handle efficiently our Web traffic;
- any inability to generate significant revenues from e-commerce;
- any failure to manage rapidly expanding operations; and
- the level of use of the Internet and online services and consumer
acceptance of the Internet and other online services.
We cannot assure you that we will be successful or that we will be able
effectively to compete and achieve market acceptance or otherwise address the
risk factors disclosed in this prospectus.
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WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR INCREASING LOSSES IN
THE NEXT SEVERAL YEARS.
We have not achieved profitability to date, and we anticipate that we will
incur substantial and increasing losses through 2002. We expect to incur a net
loss of approximately $30 million in 1999. Our business plan contemplates that
we will first become profitable in 2003. We believe that our revenues, chiefly
from advertising and connectivity services, will exceed our expenses in 2003 as
a result of our branding and advertising campaigns and related marketing efforts
prior to that year and the further development of our communities of users.
Until that year, we will continue to incur losses and negative cash flow as we
fund operating and capital expenditures in areas such as content and service
development, marketing and brand promotion, additional personnel and network
infrastructure. The extent of these losses will depend, in part, on the amount
of growth in our revenues. We cannot assure you that our losses will not further
increase in the future or that we will ever achieve or sustain profitability.
WE MAY FAIL TO IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY.
Our business strategy relies upon the creation of high quality content for
our Website for each country in which we operate and for each of our targeted
metropolitan areas in the United States. Our strategy assumes that consumers
will be attracted to the country-specific content and community features on our
Websites, which will, in turn, allow us to sell advertising, sponsorships and
connectivity services and, in the future, to develop relationships with
merchants for e-commerce designed to reach those consumers. Our strategy remains
unproven and, among other things, could entail higher operating expenses than
are or may be incurred by competitors which are pursuing a more pan-Latin
American approach with limited country-specific content.
Our strategy may not be successful, and if not successful, we may not be
able to modify it in a timely and successful manner in the rapidly evolving
Internet industry. In addition, we could fail to develop strategies to
capitalize on opportunities in new and unproven areas.
WE WILL NOT BECOME PROFITABLE IF WE DO NOT ATTRACT A SUBSTANTIAL NUMBER OF USERS
AND ADVERTISERS.
We must continually enhance and improve our Website content and services to
attract, and to meet the expectations of, our users and advertisers. We also
must continue to:
- improve the features and functionality of our Websites and our dial-up
access businesses; and
- develop other services and products to attract users, advertisers and
e-commerce partners.
In the countries for which we establish new Websites, we believe we will
encounter the same challenges in attracting users and advertisers as in the
countries where we currently conduct operations.
We constantly seek to deliver the content, features and functionality
desired by our target audience. If other Websites or networks, or Internet
service providers, present more desirable content, features or functionality,
our user traffic could be adversely affected. We cannot assure you that we can
successfully identify new service opportunities and develop and bring new
services and products to market in a cost-efficient and timely manner. Any
failure to develop and introduce new services and service enhancements that are
compatible with industry standards and satisfy customer requirements would have
a material adverse effect on our company.
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WE MUST DEVELOP OUR BRAND AND GENERATE INCREASED ADVERTISING REVENUES IN ORDER
TO CREATE A VIABLE BUSINESS.
We must continue to establish and develop our EL SITIO (in Brazil, O SITE)
brand. Brand loyalty is critical to our ability to expand our user base and our
advertising, connectivity services and e-commerce revenues. We believe that the
importance of brand recognition will increase as the number of Spanish-and
Portuguese-language Websites targeting Latin America and the U.S.
Spanish-speaking market increases. We intend to devote considerable resources
for marketing campaigns, both on-line and in traditional media, to promote our
brand. However, unlike our on-line advertising, which gives us immediate
feedback and allows us to adjust promptly our marketing messages, the
effectiveness of advertising in traditional print and broadcast media is more
difficult to assess. If our marketing efforts are unsuccessful, we may fail to
establish EL SITIO and O SITE as leading brands in our markets. We cannot assure
you that our brand building initiatives and expenditures for this purpose will
prove effective.
Our success in promoting and enhancing our brand will also depend on our
ability to provide high quality content, features and functionality. If we fail
to promote successfully our brand, if users of our Websites, or our connectivity
services or if advertisers or e-commerce partners do not perceive our services
to be of high quality, the value of our brand could be diminished, which would
have a material adverse effect on our company.
OUR GROWTH AND EXPANSION MAY STRAIN OUR ABILITY TO MANAGE OUR OPERATIONS AND OUR
FINANCIAL RESOURCES.
We are undergoing rapid growth and plan to continue to grow rapidly, both in
existing markets and by means of expansion into new geographic markets. Rapid
growth places significant strains on our network infrastructure, our managerial,
technical and editorial personnel, and our financial and other resources. To
support growth, we must implement new or upgraded operating and financial
systems, procedures and controls for our existing operations in Argentina,
Brazil, Mexico, the United States and Uruguay, as well as in additional
countries in which we may seek to develop our business. Any failure to expand
and integrate these areas in an efficient manner could have a material adverse
effect on our company.
We have acquired the retail dial-up access customers of IMPSAT Corporation
in Argentina and Brazil and are in the process of acquiring its retail dial-up
access customers in Colombia. We expect to complete the Colombia acquisition by
the end of 1999. Prior to these acquisitions, our company had no experience in
operating a connectivity services business. In addition, any failure to
integrate these acquisitions, or any other acquired business, could have an
adverse effect on our company.
The aggregate $21.5 million purchase price for the acquisitions of these
retail dial-up access customers has been allocated principally to an intangible
asset consisting of the newly acquired customer base. This intangible asset will
be amortized over the next five years and, as such, will be reflected as an
expense in our statement of operations in future periods. To the extent that we
fail to retain this customer base during this period, this intangible asset
could be deemed to be impaired, in which case an amount in excess of the
anticipated amortization expense would be charged to our results of operations
and could result in substantially increased losses or, in later years, reduced
profits. As a result, our future financial performance could be materially and
adversely affected if we are not successful in preserving and developing our
newly acquired connectivity customer base.
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Our ability to achieve and to manage planned growth will depend upon, among
other factors, our success in:
- hiring and retaining qualified management, technical and marketing
personnel;
- maintaining the high levels of customer service required to retain users
while undertaking expansion; and
- expanding our network infrastructure to service a growing user base.
If we fail to achieve and manage growth, our company, as well as the market
price of our common shares, could be adversely affected.
WE MUST INCREASE OUR ADVERTISING AND OTHER REVENUES IN CASH IN ORDER TO EXPAND
OUR BUSINESS.
As a network of Websites, our business model is predicated upon our ability
to increase significantly our advertising revenues. Although we will derive
subscriber-based revenues from our acquisitions of the retail dial-up access
customers of IMPSAT Corporation in Argentina and Brazil and our pending
acquisition of its retail dial-up access customers in Colombia, our branded
connectivity services are complementary to the development of communities of
users. Our business model emphasizes growth in advertising revenues through
country-specific and regional advertising agreements. Our growth of advertising
revenues will depend, among other factors, on:
- the level of acceptance that Internet advertising achieves in Latin
America, and the growth of the aggregate amount spent on Internet
advertising in our markets;
- the market recognition and prestige of our brand and trademarks;
- the attractiveness of our advertising pricing schedules;
- the effectiveness of our advertising sales personnel in each of our
markets; and
- our ability to generate and continue to grow a large community of loyal
users in our markets.
Our five largest advertisers accounted for approximately 40.7% of our total
revenues in the nine months ended September 30, 1999 and approximately 77% of
our total revenues for the nine months ended 1998. Our largest advertiser alone
accounted for approximately 12.8% and 20.4% of our total revenues in the first
nine months of 1999 and 1998, respectively. The loss of any of our major
existing advertisers, unless replaced by other advertisers, could have a
material adverse effect on our company.
We have received a significant portion of our historical net revenues from
reciprocal services arrangements, pursuant to which we exchange advertising
space on our network for advertising space on television and radio or for
telecommunications services, in lieu of cash payments. In the nine months ended
September 30, 1999, we derived advertising revenues valued at approximately
$554,000, or 36% of our total net revenues for this period, from these non-cash
reciprocal services arrangements. For the year ended December 31, 1998, we
derived approximately $180,000, or 23% of our total net revenues, from these
arrangements. We expect that non-cash revenues from reciprocal services
arrangements will continue to account for a significant portion of our revenues
in the foreseeable future.
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WE MUST MAINTAIN ACCESS TO QUALITY CONTENT PROVIDED BY THIRD PARTIES IN ORDER TO
DEVELOP OUR SUBSCRIBER BASE.
Although we seek to produce or edit a substantial portion of the content for
our Websites, we continue to rely upon third parties, such as Reuters, Agence
France-Presse and CBS Sportsline, to provide global content to complement our
own content and thus make our Websites more attractive to users and, by
extension, advertisers. Most of our arrangements with third-party providers of
content are not exclusive, are short-term and may be terminated at the
discretion of the other party. Any termination of any of our arrangements with
some of these providers of content could have an adverse effect on our company.
OUR BUSINESS DEPENDS UPON STABLE RELATIONSHIPS WITH KEY SUPPLIERS.
We have no long-term contracts with our suppliers. We are dependent on
third-party suppliers for our leased-line connections and bandwidth. Some of
these suppliers are or may become competitors of our company, and they are not
subject to any contractual restrictions upon their ability to compete with us.
If these suppliers change their pricing structures, we may be adversely
affected. Moreover, any failure or delay on the part of our network providers to
deliver bandwidth to us or to provide operations, maintenance and other services
with respect to such bandwidth in a timely or adequate fashion could adversely
affect our company.
In connection with our acquisitions of retail dial-up access customers from
IMPSAT Corporation, we are not acquiring the telecommunications infrastructure
to provide these services and will instead outsource that infrastructure from
third-party providers--initially, under three-year services agreements with
subsidiaries of IMPSAT Corporation. Our agreements with these subsidiaries of
IMPSAT Corporation, pursuant to which they will provide telecommunications
infrastructure for our dial-up access customers, do not restrict IMPSAT
Corporation from competing directly with us or providing better rates to other
dial-up access providers. These agreements, however, permit us to terminate the
agreements without any penalties after one year if we receive an offer from a
lower-price service provider and IMPSAT Corporation does not match that service
provider's price. If IMPSAT Corporation competes directly with us, charges us
above-market rates for telecommunications infrastructure or offers cut-rate
telecommunications infrastructure to our competitors in the retail dial-up
access business, our business could be adversely affected.
WE MUST FURTHER DEVELOP STRATEGIC RELATIONSHIPS TO STRENGTHEN OUR COMPETITIVE
POSITION.
In our initial stage of operations, we focused upon understanding our target
markets and delivering high quality services and products designed for such
markets. More recently, we have sought to establish strategic relationships with
leading content providers, dial-up access providers, e-commerce partners, and
technology and infrastructure providers. To date, our principal strategic
relationships have been with our shareholders and their affiliates, such as
Hicks, Muse, Tate & Furst Incorporated, the Cisneros Group of Companies, and
IMPSAT Corporation. We may depend, in part, upon strategic relationships to help
to develop our business. Our future growth will depend upon maintaining our
existing strategic relationships as well as our ability to establish new
relationships.
WE COULD EXPERIENCE CAPACITY CONSTRAINTS AND UNEXPECTED SYSTEM INTERRUPTIONS,
WHICH COULD IMPEDE THE DEVELOPMENT OF OUR BUSINESS.
The number of pages of information transmitted over our network, commonly
referred to as "page views," has continued to increase over time. We are
actively trying to increase our level of page views.
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As a result, our network must accommodate a high volume of traffic, often at
unexpected times. We have, to date, experienced limited capacity constraints in
terms of our ability to serve our increasing user volumes. We are in the process
of improving our network infrastructure to ensure that we will be able to handle
future increases in traffic. We are migrating our platform and our applications
to a Unix platform using Sun Microsystems servers. We do not anticipate that
this migration process, which is expected to be completed before the end of
1999, will affect the continuous operations of our network. However, any break
in the continuous operations of our network could have a material adverse effect
on our company.
We make our Websites available using 17 Microsoft Windows NT servers and 3
Linux servers as our central production servers, which servers are currently
located at the server farm facilities of Exodus Communications in New Jersey. We
also have a redundant server located at the Miami, Florida server farm
facilities of IMPSAT Corporation. Any failure by Exodus Communications or IMPSAT
Corporation to protect our systems against damage from fire, weather, power
loss, telecommunications failure, break-ins or other events could have a
material adverse effect on our company.
We may also, from time to time, experience interruptions due to hardware
failures, unsolicited bulk e-mail and operating system failures. Because our
revenues depend on the number of users of our network, we will be adversely
affected if we experience frequent or long system delays or interruptions. If
delays or interruptions continue to occur:
- our users could perceive our network as being unreliable;
- traffic on our Website could deteriorate; and
- our brand could be adversely affected.
Any failure on our part to minimize or prevent capacity constraints or
system interruptions could have an adverse effect on our company.
WE MAY HAVE DIFFICULTY IN OBTAINING THE ADDITIONAL FINANCING REQUIRED TO DEVELOP
OUR BUSINESS.
As a company in an early stage of operations, and in order to develop and
expand our business, we anticipate that we will require substantial additional
equity and debt financing after this offering. Under our business plan, we
expect to require up to approximately $50 million of additional financing during
the period through 2003 to provide sufficient working capital until we become
profitable, which is anticipated in the latter year. Obtaining additional
financing will be subject to a number of factors, including, without limitation,
the following:
- the stage of operations of our company;
- our actual or anticipated results of operations, financial condition and
cash flow;
- investor sentiment towards companies conducting business in Latin America;
and
- generally prevailing market conditions.
These factors may make the timing, amount, terms and conditions of additional
financing unattractive for us.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our then current shareholders will be reduced, and
the new equity securities may have rights,
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preferences or privileges senior to those of the holders of our common shares.
If additional funds are raised through the issuance of debt securities, these
securities would have some rights, preferences and privileges senior to those of
the holders of our common shares, and the terms of this debt could impose
restrictions on our operations and result in significant interest expense to us.
In the event that we are unable to raise sufficient financing on
satisfactory terms and conditions in the future, our company would be adversely
affected.
WE MUST RETAIN KEY MANAGERS AND REQUIRE ADDITIONAL QUALIFIED PERSONNEL TO
DEVELOP OUR BUSINESS IN AN INDUSTRY IN WHICH IT IS DIFFICULT TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL.
Our future performance depends, in large part, on the continued service of
our senior management. We rely, in particular, on the strategic guidance of
Roberto Vivo-Chaneton, co-founder and chairman of our company, and on the
services of Roberto Cibrian-Campoy, co-founder and chief executive officer of
our company. The loss, for any reason, of the services of either of these
individuals could have a material adverse effect on our company.
Our strategy of emphasizing country-specific content and advertising also
requires the hiring and retention of highly qualified personnel in each market.
After they are employed, the knowledge, expertise and relationships of our
personnel makes their retention important to our success. We expect to continue
to enter into share option and non-competition agreements with key personnel.
However, we cannot assure you that we will be able to retain our key personnel
or that we will be able to attract and retain such additional highly qualified
technical and managerial personnel in the future. Any inability to attract and
retain the personnel necessary to support the growth of our business could have
an adverse effect on our company.
WE WILL BE CONTROLLED AFTER THIS OFFERING BY A SMALL GROUP OF EXISTING
SHAREHOLDERS, WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER SHAREHOLDERS.
Prior to this offering, our directors and officers and their respective
affiliates beneficially owned, in the aggregate, a significant majority of our
issued and outstanding share capital. We expect that these shareholders will
continue to own a significant portion of our share capital after this offering.
As a result, these shareholders will be able to control the outcome of all
matters requiring shareholder approval, including the election of directors and
approval of mergers, acquisitions and other significant corporate transactions.
You should understand that there may be circumstances in which interests of
these shareholders may conflict with your interests.
Commercial and other transactions between our company, on the one hand, and
our directors, officers and controlling shareholders and their affiliates, on
the other, create the potential for, or could result in, conflicting interests.
For example, Roberto Vivo-Chaneton, Ricardo Verdaguer and Sofia Pescarmona,
three of our directors, also serve as directors and senior officers of IMPSAT
Corporation. These relationships may give rise to conflicts of interest from
time to time relating to contracts, such as the telecommunications services
agreements that we are entering into with IMPSAT Corporation, corporate
opportunities and use of directors' time and expertise. We also have acquired
IMPSAT Corporation's retail dial-up access customers in Argentina and Brazil and
are in the process of acquiring its retail dial-up access customers in Colombia,
which are transactions involving our company and this related party. Our board
of directors is in the process of developing procedures with a view to
minimizing such potential conflicts of interest and has adopted guidelines
regarding related party transactions. We intend to enter into all related party
transactions on an arm's length basis (measured against terms that would be
offered by an unaffiliated third party). We cannot assure you, however, that all
of these future transactions will be free of conflicting interests.
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WE MUST PRESERVE OUR INTELLECTUAL PROPERTY RIGHTS, WHICH ARE ESSENTIAL TO THE
DEVELOPMENT OF OUR BUSINESS.
We consider our EL SITIO, O SITE and medallion design trademarks and service
marks to be important to our success. We are pursuing the registration of our
trademarks and service marks in the United States and in key countries of Latin
America as well as in Spain and Portugal. Although some of these countries have
registered our marks, we cannot predict with certainty whether the trademark
offices of the remaining countries will do the same. If we are unable to obtain
a registration in a particular country, we would have trademark or service mark
rights to the extent that we use the mark, but the rights would not be as strong
as if they were registered. Some companies, including other participants in the
Internet industry, use and/or may use trademarks or service marks in English or
other languages which, when translated, are similar or identical to certain of
our core marks. Usage of these marks by other parties could hinder our ability
to build a unique brand identity and may possibly lead to trademark disputes, in
that we may be sued for trademark infringement in court or we may have the
validity of our applications and/or registrations challenged at government
agencies. Although we do not believe that any proceedings against us ultimately
would be meritorious, we cannot provide any assurances to you in this regard. A
judgment against us in an intellectual property-based proceeding could result in
the loss of our ability to use one or more of our marks, as well as the
imposition of monetary damages. Should we lose the right to use a trademark or
service mark, we may be forced to adopt a new mark, which would result in the
loss of substantial resources and brand identity. In any event, whether
successful or not, litigating a trademark dispute would result in the
expenditure of monetary resources and the diversion of executives' time. Any
inability to protect, enforce or use our trademarks, service marks or other
intellectual property may have a material adverse effect on our company.
We also depend upon technology licensed from third parties for chat,
homepage, search and related Web services. Any dispute with a licensor of the
technology may result in our inability to continue to use that particular
technology. Additionally, there may be patents issued or pending that are held
by third parties and that cover significant parts of the technology, products,
business methods or services used to conduct our business. We cannot be certain
that our technology, products, business methods or services do not or will not
infringe valid patents or other intellectual property rights held by third
parties. In the event that a third party alleges infringement, we may be forced
to take a license, which we may not be able to obtain on commercially reasonable
terms. We may also incur substantial expenses in defending our company against
third-party infringement claims regardless of the merit of these claims.
Successful infringement claims against us could result in substantial monetary
liability and/or being prevented by a court from conducting all or a part of our
business that falls within the scope of the asserted patent, leading to
substantial expenditures to redesign and/or license technology.
OUR RESULTS OF OPERATIONS MAY FLUCTUATE DUE TO SEASONALITY.
The level of use of our network may be seasonal in nature. Historically,
telecommunications use in Latin America has been significantly lower during the
first calendar quarter of the year because:
- it includes the summer months in much of Latin America;
- affluent segments of the population tend to take extended vacations during
these months; and
- schools and universities are generally closed.
Our advertising revenues may also be subject to seasonal fluctuations.
Advertisers in traditional media have spent less in the first and second
calendar quarters. We believe that these seasonal trends may affect our results
of operations.
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THE MULTI-COUNTRY NATURE OF OUR BUSINESS EXPOSES US TO ADDITIONAL
INTERNATIONAL-BASED RISKS.
We are subject to a broad range of risks inherent in businesses with
operations in multiple countries, including, among others, the following:
- unexpected changes in governmental laws and regulations;
- difficulties and costs of staffing and managing international operations;
- potentially adverse tax consequences;
- uncertain protection for intellectual property rights;
- trade barriers for goods which may be sold over our network;
- difficulties in maintaining and upgrading our systems;
- export restrictions and controls;
- currency fluctuation and exchange risks; and
- economic, political and other conditions in the countries in which we
currently, or may seek to, conduct business.
Any of these factors, many of which are outside our control, could have a
material adverse effect on our company.
RISKS RELATED TO OUR INDUSTRY
WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET AND FACE COMPETITION FROM MORE
DEVELOPED COMPANIES WITH GREATER RESOURCES.
Many companies already provide Website and on-line destinations targeted to
Spanish- and Portuguese-speaking audiences in Latin America, the United States
and elsewhere. Competition for users, advertisers and e-commerce partners is
intense and is expected to increase significantly in the future, particularly
because there are no substantial barriers to entry in our industry.
We face competition on both country and regional levels. Our primary
competitors include, among others, StarMedia and Terra Networks (in most of
Latin America and the United States), Quepasa.com and Yupi (in the United
States), Clarin Digital (in Argentina) and Universo Online (in Brazil). We also
face competition from Spanish- and/or Portuguese-language versions of services,
such as Yahoo!, America Online and Prodigy Communications. Our competitors may
develop content that is better than ours or that achieves greater market
acceptance. It is also possible that new competitors may emerge and acquire
significant market share. Some of our established competitors and potential new
competitors may have better brand recognition and significantly greater
financial, technical, and marketing resources than our company. Any significant
loss of users to our competitors could have a material adverse effect on our
company.
As a result of our completed or pending acquisitions of the retail dial-up
access customers in Argentina, Brazil and Colombia of IMPSAT Corporation, we
will be entering the connectivity services market, which is extremely
competitive and is characterized by rapidly changing technology and evolving
standards. As a result of these acquisitions, we will be amortizing an
intangible asset relating to our customer base in subsequent periods. To the
extent that we fail to retain this customer base, this intangible asset could be
deemed to be impaired, in which case we could sustain substantially increased
losses or, in later years, reduced profits. We also do not own
telecommunications assets and will, therefore, depend upon telecommunications
providers to carry our Internet traffic. Increased competition could require us
to lower our prices, increase our selling and marketing expenses, and raise
subscriber acquisition costs. New technologies permitting faster connectivity
may make our newly acquired retail dial-up access businesses obsolete. We may
not be able to retain our subscribers or, if we do, we may not be able to offset
the effect of increased costs through an increase in subscribers, subscriber
revenues or revenues from other sources.
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If low-cost or free connectivity is offered in Latin America, our
subscribers will have cost-effective alternatives to our service, and they may
have more than one Internet account or may switch to another dial-up access
provider in their country if they are unable to gain access to our service. As a
result, usage of our services by subscribers may decrease; our customer
turnover, which is known as "churn," could increase; and we may be compelled to
reduce our prices further.
Recently, various cable and telephone companies have made announcements
regarding the planned deployment of broadband services for high-speed Internet
access. These services would include new technologies, such as cable modems,
wireless communications and digital subscriber line, commonly known as DSL. In
addition, a number of free Internet access services have recently been
introduced, particularly in non-U.S. markets, and some Internet access providers
are now offering subsidized or free personal computers to their subscribers.
These trends, if they materialize in Latin America or the U.S., could have a
material adverse effect on our company.
WE WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME WIDELY ACCEPTED AS
A MEDIUM FOR ADVERTISING AND E-COMMERCE.
Advertising revenues will continue to be an important component of our total
revenues. In order for us to generate these revenues, advertisers and
advertising agencies must direct a portion of their advertising budgets to the
Internet and, specifically, to our network. Many of our current or potential
advertising and e-commerce partners have limited experience using the Internet
to advertise or to sell their products and services and have not devoted a
significant portion of their budgets to Internet-based advertising and commerce.
The adoption of Internet advertising, particularly in Latin America, requires
the acceptance of a new method of conducting business and exchanging
information. Advertisers that have invested substantial resources in other media
forms may be reluctant to adopt a new method that may limit or compete with
their existing efforts. These businesses may find Internet advertising to be
less effective for promoting and selling their products and services than is
traditional print and broadcast media. We will be adversely affected if Internet
advertising and e-commerce fail to develop or develop slowly in Latin America.
CHANGES IN THE LEGAL AND REGULATORY ENVIRONMENT FOR OUR INDUSTRY COULD INCREASE
OUR COSTS AND LENGTHEN THE PERIOD FOR US TO BECOME PROFITABLE.
Government regulation has not materially restricted use of the Internet in
our markets to date. However, the legal and regulatory environment pertaining to
the Internet remains relatively undeveloped and may change. New laws and
regulations could be adopted, and existing laws and regulations could be applied
to the Internet and, in particular, to e-commerce. New and existing laws and
regulations could cover issues, including, among others, the following:
- sales and other taxes;
- user privacy;
- pricing controls;
- characteristics and quality of products and services;
- consumer protection;
- cross-border commerce;
- libel and defamation;
- copyright, trademark and patent infringement; and
- other claims based on the nature and content of Internet materials.
Changes in government regulation in any of the countries in which we operate
could increase our costs and prevent us from delivering our services and
products over the Internet. It could also slow the
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growth of the Internet, which could, in turn, delay growth in demand for our
network and adversely affect our company.
WE MAY BECOME SUBJECT TO LEGAL LIABILITY BASED ON THE CONTENT PROVIDED THROUGH,
AND THE PRODUCTS SOLD OVER, OUR NETWORK.
The laws in the United States and in Latin American countries relating to
the liability of on-line service providers, such as our company, for activities
of their users remains unsettled. Claims have been made against other on-line
service providers for defamation, negligence, copyright or trademark
infringement, obscenity or other grounds based on the nature and content of
information that was posted on-line by these providers or their visitors. We
could become subject to similar claims. It is also possible that, if information
provided through our services contains errors, third parties could make claims
against us for losses incurred in reliance on the information. Finally, we could
face personal injury or other product liability claims arising from the use of
products sold through our Website.
We offer e-mail services, which expose us to potential liabilities or claims
resulting from:
- unsolicited e-mail;
- lost or misdirected messages;
- illegal or fraudulent use of e-mail; or
- interruptions or delays in e-mail service.
Investigating and defending these claims may involve substantial expenses, even
if they do not result in liability.
Although we carry general liability insurance, our insurance may not cover
all potential claims to which we are exposed or may not be adequate to indemnify
us for all liabilities that may be imposed. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on our company. In addition, the increased attention
focused on liability issues as a result of these lawsuits and legislative
proposals could impact the overall growth of Internet use.
WE WILL BE ADVERSELY AFFECTED IF WE FAIL TO RESPOND EFFECTIVELY AND ON A TIMELY
BASIS TO RAPID TECHNOLOGICAL CHANGE.
The Internet industry is characterized by rapidly changing technology,
evolving industry standards, frequent new product and service announcements,
introductions and enhancements, and changing consumer demands. Our future
success will depend on our ongoing ability to improve the performance, features
and reliability of our Internet services and products in response to competitive
product, feature and service offerings and the evolving demands of the
marketplace. New services, products and technologies may be superior to the
services and technologies that we use, and may render our services and
technologies obsolete or require us to incur substantial expenditures to modify
or adapt our services, products or technologies.
OUR NETWORK OPERATIONS MAY BE VULNERABLE TO HACKING, VIRUSES AND OTHER
DISRUPTIONS.
Internet usage could decline if any well-publicized compromise of security
occurs. "Hacking" involves efforts to gain unauthorized access to information or
systems or to cause intentional malfunctions or loss or corruption of data,
software, hardware or other computer equipment. Hackers, if successful, could
misappropriate proprietary information or cause disruptions in our services. In
August 1999, the Microsoft Windows NT operating system employed by our servers
was subject to a disruption, which may have been caused by either unusually
heavy traffic on our network or a hacking attack. This disruption, which
occurred intermittently over a two-day period, caused a significant
22
<PAGE>
reduction in the speed at which our servers could transmit data, resulting in
delays for our users in accessing our Websites and features on our Websites. To
address this particular situation, we implemented a number of general security
measures, including migrating our operating system to a Unix platform that we
consider more stable and hiring an Internet security company. We cannot assure
you that these measures will be effective. Security breaches could have a
material adverse effect on our business. In addition, the inadvertent
transmission of computer viruses could expose us to a material risk of loss or
litigation and possible liability.
OUR COMPUTER SYSTEMS AND THOSE OF OUR BUSINESS PARTNERS MAY NOT BE YEAR 2000
COMPLIANT, WHICH MAY CAUSE SYSTEM FAILURES AND DISRUPTIONS OF OPERATIONS.
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies need to be upgraded to
comply with such Year 2000 requirements or risk system failure or
miscalculations which may cause disruptions to normal business activities.
We have conducted an inventory, and developed testing procedures, for all
software and other systems that we believe might be affected by Year 2000
issues. We have tested our computers, servers and other equipment. If we
discover any Year 2000 issues with our equipment or the equipment acquired from
IMPSAT, we expect to replace the necessary hardware and/or software with
versions that will resolve the difficulties. Because third parties developed and
currently support many of these systems that we use, a significant part of this
effort is directed to ensuring that these third-party systems are Year 2000
compliant. We are unable to test certain systems, such as our telephone centers
and routers. We are seeking certification from these third parties as to the
Year 2000 compliance status of their products. We anticipate that we will have
the certification of all relevant third parties in December 1999.
The failure of any of our systems or systems maintained by third parties to
be Year 2000 compliant could:
- cause us to incur major expenses to remedy any problems;
- affect the availability and performance of our network; or
- otherwise significantly damage our operations.
Year 2000-related disruptions to our network could cause our users,
advertisers or e-commerce partners to become dissatisfied with our network or
could impose an unmanageable burden on our technical support staff. Any failure
by us to correct a major Year 2000 problem would have a material adverse effect
on our company.
RISKS RELATED TO LATIN AMERICA
OUR FUTURE SUCCESS DEPENDS UPON SUBSTANTIAL GROWTH IN USE OF THE INTERNET IN
LATIN AMERICA.
The timing and the degree of our future success will depend on the continued
growth of the market for on-line content, services and e-commerce in Latin
America. The market in the region for our services has only recently begun to
develop and is evolving. The commercial potential for the Internet in Latin
America also remains uncertain. Major issues concerning the use of the Internet,
such as security, intellectual property rights, reliability, cost, ease of
deployment and administration, and quality of service, remain largely unresolved
and may adversely affect our growth and market acceptance.
23
<PAGE>
Each country in Latin America has its own telephone rate tariff regime
which, if too costly, may make consumers less likely to sign up for and access
the Internet. As a result of broad privatization and deregulation of the
telecommunications industry in Latin America and increased competition, tariffs
have been reduced recently in some countries. However, we cannot assure you that
this trend will continue. Unfavorable tariff developments could have a material
adverse effect on our company.
E-COMMERCE TRANSACTIONS IN LATIN AMERICA CONTINUE TO BE IMPEDED BY THE LACK OF
SECURE PAYMENT METHODS, HIGH CUSTOMS DUTIES AND UNRELIABLE PARCEL DELIVERY
SYSTEMS.
Unlike in the United States, consumers and merchants in Latin America can be
held fully liable for credit card and other losses due to third-party fraud. As
secure methods of payment for e-commerce transactions have not been widely
adopted in Latin America, both consumers and merchants generally have a
relatively low confidence level in the integrity of e-commerce transactions. In
addition, many banks and other financial institutions have generally been
reluctant to give merchants the right to process on-line transactions due to
these concerns about credit card fraud. Unless consumer fraud laws in Latin
American countries are modified to protect e-commerce merchants and consumers,
and until secure, integrated on-line payment processing methods are fully
implemented across the region, our ability to generate revenues from e-commerce
may be limited, which could have a material adverse effect on our company.
Heavy customs duties and taxes are imposed on deliveries of international
parcels in many countries in Latin America. Many countries also do not have
systems in place to ensure speedy and reliable delivery of parcels once they
have cleared customs. These problems may deter many merchants and consumers from
engaging in e-commerce transactions. For example, merchants who are familiar
with these barriers to the development of e-commerce may not seek to advertise
or sell their products and services until these problems are addressed. If
governmental authorities in Latin American countries fail to deregulate customs
duties, or if deregulation occurs slowly, our ability to generate meaningful
revenues from e-commerce will be reduced, which could have a material adverse
effect on our company.
ADVERSE LATIN AMERICAN POLITICAL AND ECONOMIC CONDITIONS COULD AFFECT OUR
FINANCIAL PERFORMANCE.
We currently operate in Argentina, Brazil, Mexico, the United States and
Uruguay. We are planning to expand into Chile, Colombia and Venezuela in the
near future, and we are also considering other markets in Latin America. Our
financial performance and the market price for our common shares may be affected
generally by inflation, exchange rates and controls, price controls, interest
rates, changes in governmental economic policy, taxation and other political,
economic or other developments in or affecting the Latin American countries in
which we operate.
LOCAL CURRENCIES USED IN THE CONDUCT OF OUR BUSINESS ARE SUBJECT TO DEPRECIATION
AND VOLATILITY.
The currencies of many countries in Latin America have experienced
substantial depreciation and volatility, particularly against the U.S. dollar,
in recent years. Currency movements, as well as higher interest rates, have
materially and adversely affected the economies of many Latin American
countries, including countries which account or are expected to account for a
significant portion of our revenues.
Our reporting currency is the U.S. dollar. However, customers of our
connectivity services and some advertisers in Latin America may be billed in
local currencies. In Brazil, for example, commercial billing is required to be
in REAIS, the local currency. Our accounts receivable from these subscribers and
advertisers will decline in value if the local currencies depreciate relative to
the U.S. dollar. Similarly, any decline in the value of local currencies
relative to the U.S. dollar is likely to reduce the U.S. dollar prices that we
will be able to charge our advertisers. In addition, we may be subject to
exchange control
24
<PAGE>
regulations which might restrict our ability to convert local currencies into
U.S. dollars. Any imposition of exchange controls could adversely affect our
company.
RISKS RELATED TO OUR COMMON SHARES
MARKET PRICES OF, AND TRADING VOLUMES IN, OUR COMMON SHARES MAY BE VOLATILE.
This offering constitutes the initial public offering of our common shares,
and no public market for our common shares currently exists. We cannot assure
you that an active trading market will develop or be sustained after the
offering is completed. The initial public offering price will be determined
through negotiations between us and the underwriters based on several factors
and may not be indicative of the market price for the common shares after the
offering.
The market price of our common shares may be significantly affected by,
among others, the following factors:
- our actual or anticipated results of operations;
- new services or products offered, or new contracts entered into, by our
company or our competitors;
- changes in, or our failure to meet, securities analysts' expectations;
- legislative and regulatory developments affecting the Internet industry;
- developments in the Internet industry and technological innovations;
- investor perceptions of investments relating to Latin America; and
- general market conditions and other factors beyond our control.
U.S. and non-U.S. stock markets have periodically experienced significant
price and volume fluctuations that have especially affected the market prices of
common shares of Internet companies. These changes have often been unrelated to
the financial performance of particular companies. These broad market
developments may also adversely affect the market price of our common shares.
WE WILL RETAIN COMPLETE DISCRETION AS TO THE USE OF THE NET PROCEEDS OF THIS
OFFERING.
We intend to use the net proceeds from this offering for a broad range of
corporate purposes to support and accelerate the development of our company. We
will retain complete discretion in using the net proceeds, including uses with
which shareholders may disagree. Any failure to apply the net proceeds of this
offering in an effective manner could adversely affect our company.
OUR SHAREHOLDERS MAY FACE DIFFICULTIES IN PROTECTING THEIR INTERESTS BECAUSE WE
ARE A BRITISH VIRGIN ISLANDS COMPANY.
Corporate governance matters for our company are principally determined by
our memorandum of association and articles of association and the International
Business Companies Act, 1984 (Cap. 291) of the British Virgin Islands. The
rights of shareholders and the fiduciary responsibilities of directors, officers
and controlling shareholders under British Virgin Islands law have not been
extensively developed, particularly when compared with statutes and judicial
precedents of most states and other jurisdictions in the United States. As a
result, our shareholders may have more difficulty in protecting their interests
in the case of actions by our directors, officers or controlling shareholders
than would shareholders of a corporation incorporated in a state or other
jurisdiction in the United States.
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<PAGE>
YOU MAY EXPERIENCE DIFFICULTY IN ENFORCING CIVIL LIABILITIES AGAINST OUR
COMPANY.
We are a British Virgin Islands company, and a substantial portion of our
assets is located outside of the United States. In addition, most of our
directors and executive officers, as well as other persons controlling our
company, reside or are located outside of the United States. As a result, it may
not be possible for investors to effect service of process within the United
States upon us or these persons or to enforce judgments obtained against us or
these persons in U.S. courts predicated solely upon the civil liability
provisions of the U.S. federal or state securities laws. We have been advised by
Conyers Dill & Pearman, our British Virgin Islands counsel, that there is doubt
as to the enforceability in the British Virgin Islands in original actions or in
actions for enforcement of judgments of U.S. courts, of civil liabilities
predicated upon the U.S. federal or state securities laws. There is also doubt
as to enforceability of judgments of this nature in several of the jurisdictions
in which we operate and our assets are located.
FUTURE SALES OF OUR COMMON SHARES COULD ADVERSELY AFFECT MARKET PRICES OF OUR
COMMON SHARES.
Upon the closing of this offering, we will have outstanding 38,574,460
common shares, or 39,804,460 common shares if the underwriters' over-allotment
option is exercised in full. Of these shares, the common shares sold in this
offering will be freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act of 1933. Of the
remaining common shares held by our existing shareholders, 27,121,294 common
shares will be subject to 180-day "lock-up" agreements with the underwriters
and, in addition, will be eligible for sale only if registered or if they
qualify for an exemption from registration under the Securities Act of 1933.
After the 180-day lockup period, these shares may be sold in the public market,
subject to prior registration or qualification for an exemption from
registration and, in the case of shares held by affiliates, to compliance with
applicable volume restrictions. Some of our shareholders are entitled, pursuant
to contractual provisions providing for registration rights, to require our
company to register our securities owned by them for public sale. Sales of a
large number of shares could have an adverse effect on the market price of our
common shares.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing our common shares in this offering will suffer
immediate and substantial dilution of their investment. The initial public
offering price per share will significantly exceed the net tangible book value
per share. You will, in other words, pay a higher price per share than the
amount of our total tangible assets, minus our total liabilities, divided by the
total number of outstanding shares. In addition, you and other investors
participating in this offering will provide approximately 60.7% of the total
equity contributions made to our company, but will own only approximately 21.3%
of our total outstanding shares. If we issue additional common shares in the
future for any reason, or if outstanding or future options or warrants to
purchase our common shares are exercised, you could suffer further dilution.
DATA REGARDING USAGE OF, AND GROWTH PROSPECTS FOR, THE INTERNET MAY NOT BE
ACCURATE.
The general market and similar data in this prospectus relating to the
Internet industry in Latin America and the United States, including with respect
to projected increases in users of, and advertising and e-commerce on, the
Internet, have been based upon information published by or obtained from
independent market research firms, in each case, except as otherwise indicated.
These research firms include International Data Corporation and Forrester
Research. The market forecasts by these firms are based to a large extent upon
assumptions, including assumptions about the growing acceptance of the Internet
as a medium for commercial activity and continuing advances in computing and
telecommunications technology. We cannot assure you that these assumptions will
prove to be correct or, even if they do, that the forecasts will prove to be
accurate.
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<PAGE>
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT BE REALIZED.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements relate to, among other things,
our business model, strategy, plans and timing for the introduction or
enhancement of our services and products, plans for entering into strategic
relationships and joint ventures, and other expectations, intentions and plans
contained in this prospectus that are not historical fact.
When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "may," "believes," "seeks," "estimates" and similar expressions
generally identify forward-looking statements. These statements reflect our
current expectations. They are subject to a number of risks and uncertainties,
including but not limited to, changes in technology and changes in the Internet
marketplace. In light of the many risks and uncertainties surrounding the
Internet marketplace, you should understand that we cannot assure you that the
forward-looking statements contained in this prospectus will be realized.
27
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common shares in this offering are
estimated to be approximately $89.0 million (after deduction of underwriting
discounts and estimated transaction expenses). This estimate is based on an
assumed initial public offering price of $12.00 per share, which is the
mid-point of the estimated range of offering prices presented on the cover page
of this prospectus. The term "net proceeds" represents the amount that we will
receive after payment of underwriting discounts and commissions and other
transaction expenses related to this offering.
We also received net proceeds (after payment of a private placement fee to
the agent and transaction expenses) of $9.2 million from the private placement
of our Class B convertible preferred shares in mid-November 1999.
We intend to use the net proceeds from this offering and the private
placement as follows:
- approximately $48.0 million to fund our sales and marketing, and
branding and advertising activities;
- approximately $20.0 million to develop new services and products, and
our network infrastructure;
- approximately $1.3 million to pay dividends in respect of the Class A
convertible preferred shares accrued as of the closing date of this
offering; and
- the balance for general corporate and working capital requirements,
including strategic investments.
We have not definitively allocated any portion of these net proceeds for the
above specified purposes. Instead, we will retain complete discretion in
applying the proceeds of this offering. Pending any use, we intend to invest the
net proceeds in short-term money market and other market-rate instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common shares. We
currently intend to retain our future earnings, if any, to fund the development
and growth of our business and, therefore, do not anticipate paying any cash
dividends on common shares in the foreseeable future.
The declaration and payment of any dividends on our common shares, whether
in cash or shares, will be subject to the discretion of our board of directors.
We anticipate that any future dividends would be paid in U.S. dollars. Any
future determination to pay dividends, will depend on our results of operations,
financial condition, capital requirements, contractual restrictions and other
factors considered relevant by our board of directors.
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<PAGE>
CAPITALIZATION
The following table presents our capitalization:
- at September 30, 1999;
- at September 30, 1999 on a pro forma basis to give effect to:
V our acquisitions from IMPSAT Corporation of its retail dial-up access
customers in Argentina and Brazil and our pending acquisition of its
retail dial-up access customers in Colombia for an aggregate purchase
price of $21.5 million and the related purchase by IMPSAT Corporation
of 3,070,615 of our Class A convertible preferred shares for
$21.5 million; and
V the private placement in mid-November 1999 of 1,111,111 Class B
convertible preferred shares for an aggregate purchase price of
$10.0 million; and
- at September 30, 1999 on a pro forma basis as adjusted to give effect to:
V the sale of 8,200,000 common shares in, and the receipt of the net
proceeds from, this offering. We have assumed an initial public
offering price of $12.00 per share, which is the mid-point of the
estimated range of offering prices presented on the cover page of this
prospectus; and
V the conversion of all of our outstanding Class A convertible preferred
shares into common shares. Each Class A convertible preferred share
will convert automatically into two common shares upon completion of
this offering.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 24,393 $ 34,493 $123,505
======== ======== ========
Long-term debt, installment loan............................ $ 22 $ 472 $ 472
======== ======== ========
Class A convertible preferred shares--redeemable, $.01 par
value, 40,000,000 shares authorized, 5,832,566 shares
outstanding on an actual basis and 8,903,181 shares
outstanding on a pro forma basis.......................... 38,327 59,827 --
Class B convertible preferred shares--redeemable, $.01 par
value, 1,888,889 shares authorized, no shares outstanding
on an actual basis and 1,111,111 shares outstanding on a
pro forma and pro forma as adjusted basis................. -- 9,200 9,200
Shareholders' equity (deficit):
Common shares, $.01 par value, 200,000,000 shares
authorized, 12,568,098 outstanding on an actual and pro
forma basis and 38,574,460 outstanding on a pro forma as
adjusted basis............................................ 126 126 386
Additional paid-in capital.................................. 13,943 17,276 165,855
Deferred share-based compensation........................... (7,286) (7,286) (7,286)
Accumulated other comprehensive income...................... 95 95 95
Accumulated deficit......................................... (18,434) (18,434) (18,434)
Discount on Class B convertible preferred shares............ -- (3,333) (3,333)
-------- -------- --------
Total shareholders' equity (deficit).................. $(11,556) $(11,556) $137,283
-------- -------- --------
Total capitalization (Class A convertible preferred
shares, Class B convertible preferred shares plus
shareholders' equity (deficit))..................... $ 26,771 $ 57,471 $146,483
======== ======== ========
</TABLE>
The deferred share-based compensation in the above table relates to share
options that were granted in August and September 1999. This deferred
compensation will be amortized for financial reporting purposes over the vesting
periods for these options. See note 11 to our consolidated financial statements.
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<PAGE>
Each Class B convertible preferred share will automatically convert, on the
date six months after the closing date of this offering, into one common share.
The difference between the initial public offering price per common share and
the $9.00 price per Class B convertible preferred share will be amortized as a
deemed dividend during the same six-month period.
The above table assumes that none of the options outstanding at
September 30, 1999 or proposed to be granted prior to the closing of this
offering has been or will be exercisable prior to the closing of this offering.
See "Management--1999 Share Option Plan."
The above table should be read in conjunction with the financial statements
and pro forma financial information included elsewhere in this prospectus.
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<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of common shares in this offering exceeds the net tangible book
value per share after this offering. Net tangible book value per share is
determined by subtracting our total liabilities from the total book value of our
tangible assets and dividing the difference by the number of common shares
deemed to be outstanding on the date as of which the book value is determined.
The pro forma net tangible book value deficit at September 30, 1999 has been
determined as follows (dollars in thousands):
<TABLE>
<S> <C>
Historical book value (deficit)............................. $(11,556)
Less: licenses and permits held by us....................... (98)
--------
Historical net tangible book value (deficit)................ $(11,654)
Less: intangible assets acquired or to be acquired from
IMPSAT Corporation........................................ (21,440)
--------
Pro forma net tangible book value (deficit)................. $(33,094)
========
</TABLE>
Pro forma net tangible book value per share is determined by using
12,568,098 common shares outstanding on a pro forma basis and before giving
effect to this offering and the conversion of our Class A convertible preferred
shares into common shares. Pro forma as adjusted net tangible book value per
share is determined by using 38,574,460 common shares outstanding, which is the
sum of:
- the common shares outstanding on a pro forma basis;
- the 8,200,000 common shares to be sold in this offering; and
- the 17,806,362 common shares issuable upon conversion of all of our
outstanding Class A convertible preferred shares.
The pro forma net tangible book value deficit of our shares at
September 30, 1999 was approximately $2.63 per share. After giving effect to the
receipt of the net proceeds of this offering based upon an initial public
offering price of $12.00 per share (which is the mid-point of the estimated
range of offering prices on the cover of this prospectus) and the conversion of
the Class A convertible preferred shares into common shares, our pro forma as
adjusted net tangible book value at September 30, 1999 would have been
$115.7 million, or $3.00 per share. These transactions represent an immediate
increase in net tangible book value of $5.63 per share to existing holders of
common shares and an immediate dilution of $9.00 per share to new public
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share...... $12.00
Pro forma net tangible book value (deficit) per share at
September 30, 1999...................................... $(2.63)
Increase attributable to new public investors............. 5.63
------
Pro forma as adjusted net tangible book value............... 3.00
------
Dilution to new public investors............................ $ 9.00
======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the pro
forma as adjusted net tangible book value per common share after giving effect
to this offering would be $3.25 per share. After deducting underwriting
discounts and commissions and estimated transaction expenses, the increase in
the net tangible book value per share to existing shareholders would be $5.88,
and the dilution to new public investors would be $8.75 per share.
After giving further effect to the conversion of all of our Class B
convertible preferred shares into common shares (which will automatically occur
on the date six months after the closing date of this
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<PAGE>
offering), the pro forma as adjusted net tangible book value per common share
would be $3.39 per share and the dilution to new investors would be $8.61 per
share.
The following table summarizes, on a pro forma as adjusted basis, at
September 30, 1999, after giving effect to the sale of common shares in this
offering, the number of common shares purchased from our company, the total
consideration paid and the average price per share paid by the existing
shareholders and new public investors:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
--------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 30,374,460 78.7% $ 63,654,000 39.3% $ 2.10
New public investors........................ 8,200,000 21.3% 98,400,000 60.7% $12.00
---------- ----- ------------ -----
Total................................... 38,574,460 100.0% $162,054,000 100.0%
========== ===== ============ =====
</TABLE>
After giving effect to the conversion of all of our Class B convertible
preferred shares into common shares (which will automatically occur on the date
six months after the closing date of this offering), the number of common shares
purchased by existing shareholders, including the holders of the converted Class
B convertible preferred shares, would increase to 31,485,572 shares, the total
consideration paid by them would increase to $72,854,000 and the average price
per share paid by them would increase to $2.31 per share.
The above tables and calculations assume that none of the options
outstanding at November 1, 1999 have been or will be exercised prior to
completion of this offering and exclude common shares reserved for future
issuance under our 1999 share option plan. At November 1, 1999, there were
2,268,600 options outstanding to purchase a total of common shares with a
weighted average exercise price of $5.73 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
32
<PAGE>
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with the
consolidated financial statements, the unaudited pro forma consolidated
financial information, "Summary Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this prospectus.
The selected balance sheet data at December 31, 1997 and 1998 and
September 30, 1999 and the selected statement of operations data for the period
from July 16, 1997 (date of inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1999 have been derived
from our audited consolidated balance sheets and statements of operations
included elsewhere in this prospectus. The statement of operations data for the
nine months ended September 30, 1998 have been derived from our unaudited
consolidated statement of operations included elsewhere in this prospectus. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, which in the opinion of management, are necessary
for the fair presentation of our consolidated financial condition and results of
operations for those periods. Results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year or for any future period.
The selected pro forma balance sheet data and the pro forma statement of
operations data at and for the nine months ended September 30, 1999 and at and
for the year ended December 31, 1998 have been derived from the unaudited pro
forma consolidated financial information included elsewhere in this prospectus.
The pro forma financial information reflects:
- our recent acquisitions of retail dial-up access customers of IMPSAT
Corporation in Argentina and Brazil and our pending acquisition of its
retail dial-up access customers in Colombia from IMPSAT Corporation for an
aggregate purchase price of $21.5 million and the related purchase by
IMPSAT Corporation of 3,070,615 of our Class A convertible preferred
shares for $21.5 million; and
- the private placement in mid-November 1999 of 1,111,111 Class B
convertible preferred shares for an aggregate purchase price of
$10.0 million.
The selected pro forma as adjusted balance sheet data give effect to the
sale of the common shares in, and the receipt of the net proceeds from, this
offering. We have assumed an initial public offering price of $12.00 per share,
which is the mid-point of the estimated range of offering prices presented on
the cover page of this prospectus. The pro forma as adjusted data also assume
that all of our outstanding Class A convertible preferred shares have been
converted into our common shares. The conversion will automatically occur upon
the closing of this offering.
We prepare our financial statements and the pro forma financial statements
in U.S. dollars in accordance with generally accepted accounting principles in
the United States, which is commonly called "U.S. GAAP."
33
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ------------------------------------
1997 1998 1998 1999
---------- ----------------------- ---------- -----------------------
ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................. $ 267 $ 780 $ 17,287 $ 609 $ 1,524 $ 11,541
Costs and expenses:
Product, content and
technology............... 221 1,556 10,988 848 3,181 9,608
Marketing and sales........ 142 674 2,815 320 7,157 8,614
Corporate, general and
administrative........... 727 1,940 4,574 1,144 3,736 4,786
Depreciation and
amortization............. 81 107 4,407 59 336 3,561
Share-based compensation... -- -- -- -- 499 499
---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses............. 1,171 4,277 22,784 2,371 14,909 27,068
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)...... (904) (3,497) (5,497) (1,762) (13,385) (15,527)
Total other income
(expense).................. (110) (20) (20) (30) 266 266
Dividends on Class A and
Class B convertible
preferred shares (1)....... -- -- (5,853) -- (784) (6,007)
---------- ---------- ---------- ---------- ---------- ----------
Net loss attributable to
common shareholders........ $ (1,014) $ (3,517) $ (11,370) $ (1,792) $ (13,903) $ (21,268)
========== ========== ========== ========== ========== ==========
Basic and diluted net loss
per common share........... $ (10.14) $ (1.15) $ (3.73) $ (.87) $ (1.18) $ (1.81)
Shares used in computing
basic and diluted loss per
common share............... 100,000 3,050,000 3,050,000 2,066,667 11,777,516 11,777,516
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1999
------------------- ---------------------------------
PRO
PRO FORMA
1997 1998 ACTUAL FORMA AS ADJUSTED
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 89 $ 246 $ 24,393 $ 34,493 $123,505
Working capital (deficit).................... (1,146) (42) 20,257 29,851 118,863
Total assets................................. 396 1,481 33,120 64,776 153,788
Total liabilities............................ 1,360 712 6,349 7,305 7,305
Class A convertible preferred shares......... -- -- 38,327 59,827 --
Class B convertible preferred shares (1)..... -- -- -- 9,200 9,200
Total shareholder's equity (deficit)......... (964) 769 (11,556) (11,556) 137,283
</TABLE>
- ------------------------
(1) The difference between the initial public offering price per common share
and the $9.00 price per Class B convertible preferred share will be
amortized as a deemed dividend during the six-month period after the closing
of this offering.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated
financial statements, the unaudited pro forma financial information and the
other information appearing elsewhere in this prospectus.
OVERVIEW
We are an Internet network providing country-specific and regional content
for Spanish- and Portuguese-speaking audiences in Latin America and the United
States. Recognizing that the countries in the Americas are diverse, we have
designed our network to consist of country Websites as well as a global Website.
We currently have country Websites for, and sales and content production offices
in, Argentina, Brazil, Mexico, the United States and Uruguay. We plan to
establish sales and content production offices in Colombia before the end of
1999, and sales and content production offices in Chile and Venezuela during
2000. By offering content and interactive resources designed to be responsive to
our users' preferences, we seek to make our network their "home on the Internet"
and, in so doing, to create communities of users, develop user loyalty and
increase traffic on our Websites. The launch of each country Website represents
a potential new community of users. By building substantial communities of
users, we are developing a platform for generating revenues from advertising,
branded retail dial-up Internet access, or "connectivity", service and, in the
future, e-commerce. We recently began to offer connectivity services in
Argentina and Brazil and expect to offer similar services in Colombia before the
end of 1999. We are also beginning to develop e-commerce for Spanish- and
Portuguese-speaking audiences in Latin America and the United States.
We were incorporated in the British Virgin Islands, and commenced commercial
operations in Argentina, in 1997. For the period from inception through
October 1998, we focused our activities on developing our network of Websites
and opening content production and sales offices in Brazil, Mexico, the United
States and Uruguay.
Prior to the commercial roll-out of our network of Websites in
November 1998, we did not generate meaningful revenues, but achieved growth in
terms of registered users and monthly page views by users. Since that time, we
have focused on developing our network to incorporate new content channels and
value-added and interactive resources, recruiting sales and marketing staff,
raising capital, preparing our first mass media-based branding and advertising
campaign and expanding our technological infrastructure. Our registered users
(meaning users who have provided personal information such as name, e-mail
address and address) grew from 54,132 persons in June 1998 to 291,567 persons in
July 1999. From June 1998 to July 1999, the number of pages viewed by our users
increased from 3.0 million to 21.0 million per month. On August 1, 1999, we
launched our first mass media-based branding and advertising campaign in
Argentina, Brazil, Mexico and Uruguay and, on September 9, 1999, in the United
States. In the first three months of this campaign, our registered users
increased by approximately 69% to 498,515 on October 31, 1999 and the number of
pages viewed per month by our users increased by over 250% to 73.9 million pages
in that month. In addition, we commenced measuring unique visitors in March
1999. The number of unique visitors has increased from 174,800 in March 1999 to
approximately 1.6 million in October 1999. We attribute this recent growth
principally to our media-based branding and advertising campaign and cannot
predict whether such growth will continue.
In July 1999, we completed a private placement of 6,334,004 Class A
convertible preferred shares for a gross purchase price of $44.4 million in
cash, consisting of 5,477,088 shares sold for $38.4 million in cash and an
additional 856,916 shares to be issued on a quarterly basis through
January 2001 in exchange for $6.0 million in non-cash advertising time credits.
Strategic investors in the private placement included Hicks, Muse, Tate & Furst
Incorporated and the Cisneros Group of Companies (through IAMP (El Sitio)
Investments Ltd.) and GC Companies Inc. (through GCC Investments, LLC).
35
<PAGE>
Some of our founders purchased $6.5 million of our Class A convertible preferred
shares in the private placement.
In August 1999, we entered into a framework agreement with IMPSAT
Corporation, a provider of private networks of integrated data and voice
communications systems in a number of countries in Latin America, to acquire its
retail dial-up access customers in Argentina, Brazil and Colombia. Under this
agreement, we have acquired or will acquire these customers for an aggregate of
$21.5 million, which is based on a price of approximately $294 per subscriber.
IMPSAT Corporation will be purchasing a total of 3,070,615 Class A convertible
preferred shares for an aggregate purchase price of $21.5 million. The Argentine
and Brazilian acquisitions were consummated in November and October 1999,
respectively, and we expect to close the acquisition in Colombia before the end
of 1999. We are not acquiring the telecommunications infrastructure required to
provide connectivity services, which we intend to outsource from third-party
telecommunications providers--initially, under services agreements with
subsidiaries of IMPSAT Corporation under which they will provide us with
telecommunications infrastructure for a three-year term for agreed-upon fees.
Our connectivity customers subscribe to our dial-up operations by paying a
monthly fee to us in exchange for connectivity to the Internet.
In August 1999, we also entered into an arrangement with TV Azteca, S.A. de
C.V., the second leading television network in Mexico, under which we issued to
TV Azteca 355,478 shares of our Class A convertible preferred shares, then
valued at approximately $2.5 million, in exchange for $3.5 million in
advertising time on TV Azteca. This advertising time will be made available over
a three-year period.
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10.0 million in cash, or
$9.00 per Class B convertible preferred share. Purchasers of the Class B
convertible preferred shares consisted of Intel Atlantic, Inc., a subsidiary of
Intel Corporation, and Latinvest Asset Management do Brasil, Ltda., an affiliate
of Globalvest Management Company, L.P. The Class B convertible preferred shares
have an annual dividend rate of 8%. Each Class B convertible preferred share
will automatically convert, on the date six months after the closing date of
this offering, into one common share. The difference between the initial public
offering price per common share and the $9.00 price per Class B convertible
preferred share will be amortized as a deemed dividend during the same six-month
period.
We have a limited operating and financial history for you to use as a basis
for evaluating an investment in our common shares. We are subject to the risks,
uncertainties and problems frequently encountered by companies in early stages
of development, particularly companies in new and rapidly developing markets,
such as the Internet industry. Our historical results of operations are not
necessarily indicative of the results of operations to be expected in the
future.
INTRODUCTION TO RESULTS OF OPERATIONS
NET REVENUES
We expect to derive our future net revenues from three principal sources:
- advertising on our network of Websites;
- connectivity to the Internet; and
- e-commerce.
ADVERTISING. To date, we have derived substantially all of our net revenues
from the sale of advertisements and sponsorships on our network. Advertising
revenues are received principally from:
- advertising arrangements under which we receive fixed fees for banners
placed on our Websites for specified periods of time;
- reciprocal services arrangements, under which we exchange advertising
space on our network for advertising or services from other parties;
36
<PAGE>
- sponsorship arrangements which allow advertisers to sponsor an area on our
network in exchange for a fixed payment; and
- Web design and Web hosting services.
As the Latin American Internet market continues to develop, we believe that an
increasing proportion of our advertising revenues will be derived from
cost-per-thousand impression-based arrangements, under which advertisers will
pay us a specified amount for every 1,000 times their advertisements are viewed
on our network. We expect that our revenues derived from Web design or hosting
activities for other companies will decline significantly beginning in the
fourth quarter of 1999. In future periods, we expect to outsource these
activities and, in any event, intend to offer these services only to customers
purchasing at least $120,000 in yearly advertising on our Websites.
Advertising revenues are recognized ratably in the period in which the
advertisement is displayed, so long as no significant obligations remain and
collection of the resulting receivable is probable. To the extent that minimum
guaranteed impression levels are not met, we defer recognition of the
corresponding revenues until guaranteed levels are achieved. Payments received
from advertisers prior to displaying their advertisements on our network are
recorded as deferred revenues. Revenues from exclusive sponsorship arrangements
are also recognized ratably. Our contracts with advertisers and advertising
agencies range from one to twelve months in length.
We have entered into reciprocal services arrangements with various media
companies, such as MGM Networks Latin America, pursuant to which we exchange
advertising on our network for advertising or other services from these media
companies. We do not receive any cash payments pursuant to these arrangements.
Revenues and expenses relating to these arrangements are recorded at the
estimated fair value of the goods or services received or the estimated fair
value of the advertisements given, whichever is more readily determinable.
Expenses are recorded when services are received, which is typically in the same
period as the advertisements are run on our network. These expenses are included
in our marketing and sales expenses.
CONNECTIVITY. We have recently taken steps to expand our revenue base
through our acquisitions of the retail dial-up access customers of IMPSAT
Corporation in Argentina and Brazil and our pending acquisition of its retail
dial-up access customers in Colombia. Under these acquisitions, we have a total
of approximately 66,000 dial-up access customers in Argentina and Brazil and
expect to acquire approximately 7,000 customers in Colombia. We expect to derive
revenues from monthly access fees charged to our dial-up access subscribers.
Approximately 70% of our dial-up access subscribers are expected to be billed on
a monthly basis to subscribers' credit cards, which should result in automatic
payment to us by the relevant credit card provider of the billed amounts.
E-COMMERCE. We currently do not derive revenues from e-commerce. We are
evaluating several joint venture opportunities with e-commerce merchants in the
United States and Latin America to develop electronic retail operations in the
flower, gifts, books, music and software and hardware businesses. We recently
added a "shopping channel" to our Websites, through which a limited offering of
books, flowers, music, gifts and technology products will be made available from
local and U.S.-based e-merchants. Despite our pending e-commerce initiatives, we
do not expect to derive meaningful revenues from e-commerce activities until at
least 2001.
OPERATING EXPENSES
Our principal operating costs and expenses consist of:
- product, content and technology expenses;
- marketing and sales expenses;
- corporate, general and administrative expenses; and
- depreciation and amortization expenses.
37
<PAGE>
PRODUCT, CONTENT AND TECHNOLOGY EXPENSES. Product, content and technology
expenses consist of personnel costs associated with the development, testing and
upgrading of our network of Websites and systems, purchases of content and
specific technology, particularly software, and telecommunications links and
access charges. As a result of our recent acquisitions of the retail dial-up
access customers in Argentina and Brazil from IMPSAT Corporation and our pending
acquisition of its retail dial-up access customers in Colombia, we expect to
incur, in the future, significant expenses relating to telecommunications. In
connection with these acquisitions, we have entered into services agreements
with subsidiaries of IMPSAT Corporation under which, in exchange for an access
fee linked to a number of dial-up access customers and levels of usage, IMPSAT
Corporation will provide the connections and the telecommunication
infrastructure necessary for our users to connect to the Internet. We currently
estimate that the aggregate fee payable to subsidiaries of IMPSAT Corporation
for these services will be approximately $500,000 per month. Except for hardware
(which is depreciated), we expense product, content and technology costs and
telecommunications infrastructure costs as they are incurred. We believe that
increased investment in new and enhanced features and technology is critical to
attaining our strategic objectives and remaining competitive. Accordingly, we
intend to continue recruiting and hiring experienced product, content and
technology personnel and to make additional investments in product, content and
technology development. We expect that product, content and technology expenses
will continue to increase significantly in future periods.
MARKETING AND SALES EXPENSES. Our marketing and sales expenses consist
primarily of salaries and expenses of marketing and sales personnel,
commissions, and sales force and other marketing-related expenses including,
most significantly, our mass media-based branding and advertising activities. We
expect these marketing and sales expenses to continue to increase significantly
for the foreseeable future as a result of:
- our mass media-based branding and advertising strategy; and
- the expansion of our sales force and marketing personnel.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate, general and
administrative expenses consist primarily of costs related to corporate
personnel, occupancy costs, general operating costs and corporate professional
fee expenses, such as legal and accounting fees. We expect that we will incur
additional corporate, general and administrative expenses as we hire additional
personnel and incur additional costs related to the growth of our business and,
after this offering, our operation as a public company. Accordingly, we
anticipate that these expenses will continue to increase significantly in future
periods.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of servers and other computer equipment,
office furniture and leasehold improvements. Investments in property, plant and
equipment are recorded at cost and depreciated using the straight-line method
over the following estimated useful lives:
<TABLE>
<S> <C>
- - computers, software and other equipment 3 years
- - leasehold improvements 5 years (lease term)
- - furniture, fixtures and other fixed assets 5 - 10 years
</TABLE>
As a result of our recent acquisitions of retail dial-up access customers of
IMPSAT Corporation in Argentina and Brazil and our pending acquisition of its
retail dial-up access customers in Colombia, we expect to incur significant
amortization expense related to intangible assets, consisting primarily of the
newly acquired customer base. The aggregate $21.5 million purchase price for the
acquisitions of these retail dial-up access customers has been allocated
principally to this intangible asset. This intangible asset will be amortized
over the next five years on a straight-line basis and, as such, will be
reflected as an expense in our statement of operations in future periods. To the
extent that we fail to retain this customer base during this period, this
intangible asset could be deemed to be impaired, in which case
38
<PAGE>
an amount in excess of the anticipated amortization expense would be charged to
our results of operations and could result in substantially increased losses or,
in later years, reduced profitability. As a result, our future financial
performance could be materially and adversely affected if we are not successful
in preserving and developing our newly acquired connectivity customer base.
SHARE-BASED COMPENSATION. Our share-based compensation expense relates to
share options granted in August and September 1999. These options were granted
at an exercise price based on the purchase price paid by investors in our July
1999 private placement of Class A convertible preferred shares. Because this
exercise price is well below the initial public offering price for this
offering, we recorded total deferred share-based compensation expense of
$7.8 million, which we will amortize over the respective three-year vesting
periods for these options. See note 11 to our consolidated financial statements.
The total deferred share-based compensation amount and the expense for future
periods may increase depending upon the exercise prices and other terms for
subsequent grants of options. See note 14 to our consolidated financial
statements.
OTHER INCOME (EXPENSE)
Other income (expenses) consists primarily of interest expense, net of
interest earned, foreign exchange losses, net of any gains, and other
miscellaneous income and expense items. As a result of the net proceeds of the
offering, we expect that for the foreseeable future our interest income will
exceed our interest expense. Immediately after this offering most of our assets
will be in cash or cash equivalents, which we expect to principally maintain in
U.S. dollars. As our assets in each country of operation increase, so will our
exposure to foreign exchange losses on the translation of assets into U.S.
dollars.
NET LOSSES
We have incurred net losses and have experienced negative cash flow from
operations in each quarterly and annual period since our inception. Our overall
strategy is to develop our position as a full-service Internet network providing
country-specific content, connectivity services and e-commerce targeting
Spanish- and Portugese-speaking audiences in Latin America and the United
States. This strategy contemplates that we will make significant expenditures
for, among other things, marketing and sales, equipment, customer support and
personnel. This strategy also envisions that we may make significant investments
involving acquisitions, strategic relationships and joint ventures. Because of
this strategy, we expect that our net losses and negative cash flows from
operations on a quarterly and annual basis will increase significantly for at
least the next several years.
HISTORICAL RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Our results of operations for the nine months ended September 30, 1999 were
characterized by increased expenses that more than offset revenue growth during
the period. We recorded a net loss of $13.9 million for the nine months ended
September 30, 1999, compared to a net loss of $1.8 million for the corresponding
period of 1998. During the first nine months of 1999, in addition to the
continued development of quality, content and interactive resources, we expanded
our operations and hired additional personnel to support the roll-out of offices
and Websites in Brazil, Mexico and the United States and the launch of our first
mass media-based branding and advertising campaign. We plan to establish new
sales and content production offices in Chile and Venezuela during 2000. We have
recently acquired a total of approximately 66,000 retail dial-up access
customers from IMPSAT Corporation in Argentina and Brazil, and expect to acquire
approximately 7,000 customers in Colombia by the end of 1999. We anticipate that
these recent developments will contribute to an increase in our revenues in
future periods.
39
<PAGE>
NET REVENUES
Our net revenues increased by 146% to $1.5 million for the nine months ended
September 30, 1999 from $609,000 for the corresponding period in 1998. Of our
net revenues for the first nine months of 1999, approximately 78% was comprised
of advertising and the balance to Web design or hosting services. We expect that
our revenues derived from Web design or hosting activities for other companies
will decline significantly in the fourth quarter of 1999. In future periods, we
expect to outsource these activities and, in any event, will offer these
services only to customers who agree to purchase at least $120,000 in yearly
advertising on our Websites. Although most of our advertising revenues are
currently derived from fixed banners and page sponsorships, we believe that an
increasing portion of our advertising revenues will be derived from
cost-per-thousand impression-based arrangements. Under these arrangements
advertisers pay us a specified amount for every 1,000 times their advertisements
are viewed on our network.
We attribute the increase in advertising revenues principally to the growth
of our network in terms of registered users and page views together with the
expansion of our marketing and sales force. Of these revenues 47% was derived
from Argentina, 22% from Mexico and 30% from Uruguay, as our operations in other
countries were still in the early stages of operations. In the future, we also
expect to derive significant revenues from Brazil, Mexico and the United States
where we have launched commercial operations during 1999. In the nine months
ended September 30, 1999, our largest client, TV Azteca, accounted for 13% of
total net revenues. During this period, 36% of our total net revenues was
derived from reciprocal services arrangements compared to 22% of total net
revenues in the corresponding period in 1998. We do not receive any cash
payments from these arrangements.
COSTS AND EXPENSES
PRODUCT, CONTENT AND TECHNOLOGY EXPENSES. Our product, content and
technology expenses increased to $3.2 million for the nine months ended
September 30, 1999 from $848,000 for the corresponding period in 1998. Our
product, content and technology expenses as a percentage of revenues increased
to 209% for the nine months ended September 30, 1999 from 139% in the
corresponding period in 1998. The period-to-period increase was principally
attributable to:
- an increase in personnel costs relating to the development of content and
technological support to $2.2 million in the nine months ended
September 30, 1999 from $600,000 in the corresponding period in 1998;
- an increase in expenses for telecommunications links to $385,000 in the
nine months ended September 30, 1999 from $165,000 in the corresponding
period in 1998; and
- an increase of third-party content expenses to $130,000 in the nine months
ended September 30, 1999 from no such expense in the corresponding period
in 1998.
We believe that continued development of, and increased investment in, new
and enhanced features and technology is critical to attaining our strategic
objectives and remaining competitive. Accordingly, we intend to continue
recruiting and hiring experienced product, content and technology personnel and
to make additional investments in product, content and technology development.
We expect that product, content and technology expenses will continue to
increase significantly in future periods.
MARKETING AND SALES EXPENSES. Our marketing and sales expenses increased to
$7.2 million for the nine months ended September 30, 1999 from $320,000 for the
corresponding period in 1998. Our marketing and sales expenses as a percentage
of net revenues increased to 470% for the nine months ended September 30, 1999
from 53% in the corresponding period in 1998. This increase was principally
attributable to:
- $5.9 million in costs of our initial mass media-based branding and
advertising campaign; and
40
<PAGE>
- an increase in marketing and sales personnel costs to $784,000 in the nine
months ended September 30, 1999 from $34,000 in the corresponding period
in 1998, due mainly to opening or expanding offices in Mexico, Brazil and
the United States.
We expect these sales expenses to continue to increase significantly for the
foreseeable future as a result of:
- our mass media-based branding and advertising strategy; and
- the expansion of our sales force and marketing personnel.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Our corporate, general and
administrative expenses increased to $3.7 million for the nine months ended
September 30, 1999 from $1.1 million for the corresponding period in 1998. Our
corporate, general and administrative expenses as a percentage of net revenues
increased to 245% for the nine months ended September 30, 1999 from 188% in the
corresponding period in 1998. This increase was principally attributable to:
- an increase in corporate and administrative personnel costs to
$1.3 million in the nine months ended September 30, 1999 from $320,000 in
the corresponding period in 1998, which resulted primarily from the
expansion of our network and financing activities; and
- an increase in overhead costs to support the expansion of our business
activities.
We expect that we will incur additional corporate, general and
administrative expenses as we hire additional personnel and incur additional
costs related to the growth of our business. Accordingly, we anticipate that
these expenses will continue to increase significantly in future periods.
DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expenses
increased to $336,000 for the nine months ended September 30, 1999 from $59,000
for the corresponding period in 1998. Our depreciation and amortization expenses
as a percentage of net revenues increased to 22% for the nine months ended
September 30, 1999 from 9.7% in the corresponding period in 1998. This increase
was principally attributable to an increase of $1.7 million in fixed assets
(principally servers and personal computers).
As a result of our acquisitions of retail dial-up access customers of IMPSAT
Corporation in Argentina and Brazil and our pending acquisition of its retail
dial-up access customers in Colombia, we expect to incur significant
amortization expense related to intangible assets, consisting primarily of this
newly acquired customer base.
SHARE-BASED COMPENSATION. We incurred share-based compensation expense of
$499,000 for the nine months ended September 30, 1999. This amount represents
the amortization in this period of our total deferred share-based compensation
relating to share options granted in August and September 1999. See notes 11 and
14 to our consolidated financial statements. We did not incur share-based
compensation expense in the corresponding period in 1998.
OTHER INCOME (EXPENSE)
Other income (expense), which consists of net interest income (expense),
foreign exchange gain or loss, and other income (expense), net, consisted of
income of $266,000 for the nine months ended September 30, 1999 compared with a
loss of $30,000 for the corresponding period in 1998. This change resulted
primarily from interest income earned on the proceeds of the July 1999 private
placement. We expect that for the foreseeable future our interest income will
exceed our interest expense. As our assets in each country of operation
increase, so will our exposure to foreign exchange losses on the translation of
assets into U.S. dollars.
41
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PARTIAL YEAR 1997 (FROM INCEPTION IN
JULY 1997 THROUGH DECEMBER 31, 1997)
Following our inception in July 1997 until the roll-out of our network of
country Websites during 1998, we concentrated on the development of quality
content and interactive resources in Spanish, and on market testing to
understand users' preferences. As a result, our results of operations for 1998
were characterized by increasing expenses and mostly flat revenues on a
quarter-to-quarter basis. We recorded a net loss of $3.5 million for 1998,
compared to a net loss of $1.0 million for 1997. Our results of operations for
1997 reflect a partial year consisting of six months.
NET REVENUES
Our net revenues increased 192% to $780,000 for 1998 from $267,000 for
partial year 1997. The increase in revenues resulted from the expansion of our
marketing efforts and sales force, as well as the increase in the number of
channels and services available on our network. For 1998, we had four customers,
Arcor S.A., Compaq Corporation, IMPSAT S.A. and Antel (Uruguay), which each
exceeded 10% of total revenues and in the aggregate represented 72% of total
revenues. By contrast, for partial year 1997, we had five customers, Miniphone,
Compaq Corporation, Arcor S.A., Telam S.A., and IMPSAT S.A., which each exceeded
10% of total revenues and in the aggregate represented 89% of total revenues.
Non-cash reciprocal services arrangements accounted for approximately 23% of our
total revenues in 1998 as compared with approximately 14% for partial year 1997.
COST AND EXPENSES
PRODUCT, CONTENT AND TECHNOLOGY EXPENSES. Our product, content and
technology expenses increased to $1,556,000 for 1998 from $221,000 for partial
year 1997. Our product, content and technology expenses as a percentage of net
revenues increased to 200% for 1998 from 83% for partial year 1997. The
year-to-year increase was principally attributable to:
- an increase in personnel costs dedicated to the development of content and
technological support to $1.1 million in 1998 from $167,000 in partial
year 1997; and
- an increase in expenses for telecommunications links for our network to
$284,000 in 1998 from $30,000 in partial year 1997.
MARKETING AND SALES EXPENSES. Our marketing and sales expenses increased to
$674,000 for 1998 from $142,000 for partial year 1997. Our marketing and sales
expenses as a percentage of revenues increased to 86% for 1998 from 53% for
partial year 1997. The year-to-year increase was principally attributable to:
- an increase in personnel costs dedicated to marketing and sales to
$274,000 in 1998 from $7,000 in partial year 1997; and
- an increase in advertising expenses and sales commissions to $209,000 in
1998 from $29,000 in partial year 1997.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES. Our corporate, general and
administrative expenses increased to $1.9 million for 1998 from $727,000 for
partial year 1997. Our corporate, general and administrative expenses as a
percentage of net revenues amounted to 249% for 1998 from 272% for partial year
ended 1997. The year-to-year increase was principally attributable to:
- an increase in personnel costs in corporate and administrative functions
to $480,000 in 1998 from $61,000 in partial year 1997; and
- increases to $627,000 from $362,000 in professional fees, to $373,000 from
$104,000 in rent and utilities and to $215,000 from $40,000 in travel and
entertainment expenses.
42
<PAGE>
DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expenses
increased to $107,000 for 1998 from $81,000 for partial year 1997. However, our
depreciation and amortization expenses as a percentage of net revenues decreased
to 14% for 1998 from 30% for partial year 1997. The absolute increase in these
expenses was principally attributable to an increase of $508,000 in fixed assets
(principally servers and personal computers). The relative decrease in
depreciation and amortization expenses was attributable to a more substantial
increase in net revenues when compared with the absolute increase in these
expenses.
OTHER INCOME (EXPENSE).
Other expenses decreased to $20,000 for 1998 from $110,000 for partial year
1997. This decrease primarily reflected a decrease in interest expense in 1998
due to a decrease in the debt.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated statement of
operations data for each of the seven quarters ended September 30, 1999. This
data has been derived from unaudited interim consolidated financial statements
prepared on the same basis as the audited consolidated financial statements
contained in this prospectus. In the opinion of management, this data includes
all adjustments, consisting only of normal recurring adjustments, that are
considered necessary for a fair presentation of this information when read in
conjunction with the consolidated financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED (UNAUDITED)
-------------------------------------------------------------------------------
1998 1999
-------------------------------------------- --------------------------------
MARCH JUNE SEPTEMBER DECEMBER MARCH JUNE SEPTEMBER
31 30 30 31 31 30 30
-------- -------- ---------- --------- -------- -------- ----------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net revenues.................................... $ 196 $ 229 $ 184 $ 171 $ 276 $ 488 $ 760
Costs and expenses:
Product, content and technology............... 156 237 455 708 616 1,066 1,499
Marketing and sales........................... 38 93 189 354 355 672 6,130
Corporate, general and administrative......... 186 373 585 796 740 1,013 1,983
Depreciation and amortization................. 16 19 24 48 66 101 169
Share-based compensation...................... -- -- -- -- -- -- 499
----- ----- ------- ------- ------- ------- -------
Total costs and expenses........................ 396 722 1,253 1,906 1,777 2,852 10,280
----- ----- ------- ------- ------- ------- -------
Loss from operations............................ (200) (493) (1,069) (1,735) (1,501) (2,364) (9,520)
Total other income (expense) net................ (6) (8) (16) 10 (14) 56 224
----- ----- ------- ------- ------- ------- -------
Net loss before dividends on Class A convertible
preferred shares.............................. $(206) $(501) $(1,085) $(1,725) $(1,515) $(2,308) $(9,296)
===== ===== ======= ======= ======= ======= =======
</TABLE>
The results of operations for any quarter are not necessarily indicative of
the results of operations for any future period. In particular, because of our
limited operating and financial history, we have limited meaningful financial
data to estimate revenues and operating expenses.
OVERVIEW OF RESULTS OF OPERATIONS FOR NEWLY-ACQUIRED CONNECTIVITY OPERATIONS
We have acquired IMPSAT Corporation's retail dial-up access customers in
Argentina and Brazil and are in the process of acquiring its retail dial-up
access customers in Colombia. The aggregate purchase price of these three
acquisitions is $21.5 million. As a result of these acquisitions, we recently
began to provide connectivity services in Argentina and Brazil and expect to
provide connectivity services in Colombia by the end of 1999. In connection with
these acquisitions, we have acquired approximately 66,000 retail dial-up access
customers in Argentina and Brazil and expect to acquire an aggregate of
approximately 7,000 dial-up customers in Colombia. We hired a total of 48
employees who previously worked for IMPSAT Corporation in Argentina and Brazil
and expect to hire an additional
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five employees from IMPSAT Corporation in Colombia. These employees will perform
tasks which they previously performed for IMPSAT Corporation and which are not
currently performed by our employees. Because of the significance of these
acquisitions relative to our company's current assets and results of operations,
we have included the following brief discussion of the results of operations for
these acquisitions for 1998 and for the nine months ended September 30, 1999.
The stand-alone financial information for these businesses included in this
prospectus was derived from IMPSAT Corporation's accounting records and based
upon the estimates of IMPSAT Corporation's management. This discussion should be
read in conjunction with the stand-alone audited financial information for the
acquired businesses and the unaudited pro forma consolidated financial
information included elsewhere in this prospectus. The historical results of
operations of these businesses are not necessarily indicative of the results of
operations to be expected in the future. However, in the brief period (since
October 7, 1999) during which we have provided connectivity services to our
retail dial-up access customers, we have generated net revenues and incurred
costs and expenses which are consistent with those reflected in the audited
financial information for the acquired dial-up access businesses included in
this prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES.
For the three dial-up access businesses of IMPSAT Corporation, total net
revenues decreased to $10.0 million for the nine months ended September 30, 1999
from $12.1 million for the corresponding period in 1998.
In Argentina, net revenues for the dial-up access business increased to
$2.9 million for the nine months ended September 30, 1999 from $2.3 million for
the corresponding period in 1998. This increase resulted from the following
factors:
- an increase in paying subscribers to 15,646 at September 30, 1999 from
13,223 at September 30, 1998; and
- a partially offsetting decline in the average gross subscription fee per
customer to $24.80 for the month of September 1999 from $33.29 for the
month of September 1998.
The number of paying subscribers in Argentina increased by 9.2% during the
course of the nine months ended September 30, 1999 (as measured from the
beginning to the end of such nine-month period) as compared with a 13.3%
increase during the course of the corresponding period of 1998.
In Brazil, net revenues for the dial-up access business decreased to
$5.8 million for the nine months ended September 30, 1999 from $8.0 million for
the corresponding period in 1998. This decrease resulted from the following
factors:
- a decline in the average gross subscription fee per customer (in U.S.
dollar terms) to $12.39 for the month of September 1999 from $22.19 for
the month of September 1998, which decline was largely due to a 63%
decline in the value of the Brazilian REAL to 1.94 REAIS per U.S. dollar
at September 30, 1999 from 1.19 REAIS per U.S. dollar at September 30,
1998; and
- a partially offsetting increase in paying subscribers to 55,449 at
September 30, 1999 from 48,960 at September 30, 1998.
The number of paying subscribers in Brazil increased by 14% during the course of
the nine months ended September 30, 1999 (as measured from the beginning to the
end of such nine-month period) as compared with a 57% increase during the course
of the corresponding period of 1998.
In Colombia, net revenues for the dial-up access business decreased to
$1.4 million for the nine months ended September 30, 1999 from $1.7 million for
the corresponding period in 1998. This decrease resulted from the following
factors:
44
<PAGE>
- a decline in the average gross subscription fee per customer (in U.S.
dollar terms) to $19.95 for the month of September 1999 from $25.80 for
the month of September 1998, partially due to a 29.3% decline in the value
of the Colombian PESO to 2005 PESOS per U.S. dollar at September 30, 1999
from 1550 PESOS per U.S. dollar at September 30, 1998; and
- a decrease in paying subscribers to 6,817 at September 30, 1999 from 6,899
at September 30, 1998.
We anticipate that our connectivity services business will experience
declining average subscription fees in the future. We cannot predict the rate of
decline. However, we believe that our connectivity services business will
benefit from our overall mass media-based branding and advertising campaigns. We
also intend to dedicate significant resources to increasing our base of
connectivity customers. Accordingly, we believe that the rate of growth in
paying subscribers should increase within the next few months. We also
anticipate that the cost of telecommunications infrastructure services provided
by third parties should decrease in future periods. We believe that the retail
dial-up access businesses were not core businesses of IMPSAT Corporation and, as
a result, did not receive managerial focus during the months leading up to our
acquisition of these businesses. We cannot predict the actual rate of increase
in paying customers or whether any increase will occur or, if it occurs, will
continue.
DIRECT COSTS AND EXPENSES.
The principal direct costs and expenses of our dial-up access businesses
consist of product, content and technology costs and marketing and sales
expenses. These costs and expenses together include costs of telecommunications
infrastructure to provide the services, personnel costs, outsourced product
support, such as a 24-hour help desk, and administrative costs. Direct costs and
expenses for these businesses decreased to $8.9 million for the nine months
ended September 30, 1999 from $10.3 million for the corresponding period in
1998. Direct costs and expenses as a percentage of total net revenues was 88%
for the nine months ended September 30, 1999 and 85% for the corresponding
period in 1998.
EXCESS OF NET REVENUES OVER DIRECT COSTS AND EXPENSES.
Excess of net revenues over direct costs and expenses decreased to
$1.2 million for the nine months ended September 30, 1999 from $1.8 million for
the corresponding period in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PARTIAL YEAR ENDED DECEMBER 31, 1997.
NET REVENUES. Total net revenues for the three dial-up access businesses of
IMPSAT Corporation increased to $16.5 million for 1998 from $11.5 million in
partial year 1997. Total paying subscribers increased to 68,646 at December 31,
1998, representing a 40% increase from 48,909 at December 31, 1997.
In Argentina, net revenues for the dial-up access business increased to
$3.0 million in 1998 from $2.6 million for partial year 1997. This increase
resulted from the following factors:
- an increase in paying subscribers to 14,329 at December 31, 1998 from
11,668 at December 31, 1997; and
- a partially offsetting decline in the average gross subscription fee per
customer to $30.78 for December 1998 from $36.98 for December 1997.
In Brazil, net revenues for the dial-up access business increased to
$11.4 million for 1998 from $7.0 million for partial year 1997. This increase
resulted from the following factors:
- an increase in paying subscribers to 48,603 at December 31, 1998 from
31,119 at December 31, 1997;
- a partially offsetting decline in the average gross subscription fee (in
U.S. dollar terms) per customer to $23.31 for December 1998 from $27.79
for December 1997, partially due to a 8.0%
45
<PAGE>
decline in the value of the Brazilian REAL to 1.21 REAIS per U.S. dollar
at December 31, 1998 from 1.12 REAIS per U.S. dollar at December 31, 1997.
In Colombia, net revenues for the dial-up access business increased to
$2.1 million for 1998 from $1.8 million for partial year 1997. This decrease was
primarily attributable to the following factors:
- a decline in the average gross subscription fee per customer to $25.80 for
December 1998 from $32.43 for December 1997 partially due to a 20% decline
in the value of the Colombian PESO to 1,550 PESOS per U.S. dollar at
December 31, 1998 from 1,295 PESOS per U.S. dollar at December 31, 1997;
and
- a decrease in paying subscribers to 5,714 at December 31, 1998 from 6,122
at December 31, 1997.
DIRECT COSTS AND EXPENSES. Direct costs and expenses for these businesses
increased to $14.1 million for 1998 from $9.7 million for partial year 1997.
Direct costs and expenses as a percentage of total net revenues was 86% for 1998
as compared to 84% in partial year 1997.
EXCESS OF NET REVENUES OVER DIRECT COSTS AND EXPENSES. Due to the factors
noted above, the excess of net revenues over direct costs and expenses was
$2.4 million for 1998 as compared to $1.8 million for partial year 1997.
LIQUIDITY AND CAPITAL RESOURCES
We continue to be a company in an early stage of operations. We have
substantial liquidity and capital resource requirements, but limited sources of
liquidity and capital resources. We have generated net losses and negative cash
flows from our inception and anticipate that we will experience substantial and
increasing net losses and negative cash flows for at least the next several
years. As we implement our strategy and seek to take advantage of our market
opportunity, we anticipate that our liquidity and capital resource requirements
will increase significantly.
From our inception to date, we have relied principally upon equity
investments to support the development of our business. We expect to continue to
rely mainly on further equity offerings to provide financing, including this
offering which constitutes, by far, the major capital-raising initiative in our
history.
We received total capital contributions of approximately $1.2 million in
1997 and $4.1 million in 1998. In the nine months ended September 30, 1999 we
received total capital contributions in cash of $36.8 million, which consisted
primarily of the proceeds of a private placement of 6,334,004 Class A
convertible preferred shares for a total purchase price of $44.4 million. This
private placement consisted of 5,477,088 shares sold for $38.4 million in cash
in July 1999 and 856,916 shares to be issued on a quarterly basis through
January 2001 in exchange for $6.0 million in non-cash advertising time credits.
In addition, in connection with our recent acquisitions of retail dial-up access
customers from IMPSAT Corporation in Argentina and Brazil and our pending
acquisition of its retail dial-up access customers in Colombia, IMPSAT
Corporation will purchase approximately $21.5 million of our Class A convertible
preferred shares. Furthermore, in connection with our arrangement with TV
Azteca, S.A. de C.V., we issued to TV Azteca 355,478 Class A convertible
preferred shares in exchange for approximately $3.5 million of advertising time,
which will be made available over a three-year period beginning on July 1999.
As part of the July 1999 private placement, we entered into an agreement
with Washburn Enterprises, an affiliate of one of our shareholders, under which
we also agreed to purchase at least $4.0 million of advertising time on the
media networks owed by Washburn's affiliate Ibero-American Media Partners
II Ltd. and its affiliates, and Washburn agreed that it and its affiliates would
purchase as least $2 million of advertising time on our network, all during the
period through January 2001.
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10.0 million in cash, or
$9.00 per Class B convertible
46
<PAGE>
preferred share. Purchasers of the Class B convertible preferred shares
consisted of Intel Atlantic, Inc., a subsidiary of Intel Corporation, and
Latinvest Asset Management do Brasil, Ltda., an affiliate of Globalvest
Management Company, L.P. Each Class B convertible preferred share will
automatically convert, on the date six months after the closing date of this
offering, into one common share. The difference between the initial public
offering price per common share and the $9.00 price per Class B convertible
preferred share will be amortized as a deemed dividend during the same six-month
period.
Net cash used in operating activities was $11.2 million for the nine months
ended September 30, 1999, $3.2 million for the year ended December 31, 1998 and
$875,000 for the partial year ended December 31, 1997. We have experienced and
expect to continue to experience significant negative cash flows from operating
activities. Net cash used in operating activities resulted primarily from our
net operating losses.
Net cash used in investing activities was $1.5 million for the nine months
ended September 30, 1999, $733,000 for the year ended December 1998 and $261,000
for the partial year ended December 31, 1997. Net cash used in investing
activities resulted primarily from purchases of capital assets.
Net cash provided by financing activities was $36.8 million for the nine
months ended September 30, 1999, $4.1 million for the year ended December 31,
1998 and $1.2 million for the partial year ended December 31, 1997. Net cash
provided by financing activities consisted primarily of the net proceeds from
short-term borrowings and the sale of our common shares.
We expect to make capital expenditures of approximately $3.0 million in
1999, including $1.5 million spent in the nine months ended September 30, 1999,
and a total of approximately $5.0 million for 2000 and 2001. The capital
expenditures in 1999 principally consist of purchases of, or investments in,
technical equipment. We expect that our capital expenditures will increase
significantly in the future as we make technological improvements to our network
of Websites and technical infrastructure and enter into strategic joint ventures
or acquisitions.
We expense many of our expenditures related to improvements to our Websites
such as new channels and interactive features. These expenditures are estimated
to be approximately $4.0 million during 2000. We expect to spend a total of
$1.0 million in 2001 on the development of content with respect to our country
Websites for Chile, Colombia and Venezuela. We have not projected any
expenditures related to business combinations other than content and marketing
alliances, which are included in the product, content and technology expenses
and the marketing and sales expenses.
Our liquidity and capital resource requirements will depend on numerous
factors, including:
- market acceptance of our services and products;
- the level of resources that we devote to investments in our network;
- marketing and sales of our services and products; and
- our branding and advertising activities.
We believe that the net proceeds of this offering and of our mid-November
1999 private placement of our Class B convertible preferred shares, together
with our current cash and cash equivalents balance of $24.4 million at
September 30, 1999 (which includes the remaining unused net proceeds from our
July 1999 private placement of our Class A convertible preferred shares) will be
sufficient to meet our liquidity and capital resource requirements through early
2001. We expect to require up to approximately $50 million of additional
financing during the period through 2003, when we expect to achieve
profitability. If our cash resources prove to be insufficient to satisfy these
requirements, we may seek to sell additional equity or debt securities or to
obtain a credit facility. The sale of additional equity or convertible debt
securities could result in additional dilution to our shareholders. The
incurrence of indebtedness would result in increased fixed obligations and most
likely would subject us to covenants that would restrict our operations. We
cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
47
<PAGE>
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations which may cause disruptions to normal business activities.
We are in the process of conducting an internal review to ensure that our
services and products are Year 2000 compliant. Year 2000 problems may originate
within our own systems and products or within the systems of our third party
suppliers or our customers. Some of our non-information technology systems, such
as equipments or machinery, may also be affected by Year 2000 problems.
Our internal verification process consists of:
- component inventory and assessment, including vendor and third party
evaluation;
- component remediation;
- component testing;
- system testing; and
- contingency planning.
We have conducted an inventory, and developed testing procedures, for all
software and other systems that we believe might be affected by Year 2000
issues. We have tested our computers, servers and other equipment. We have
sought written confirmation from each of our third-party suppliers and service
providers as to their respective readiness. We expect to complete upgrades and
testing by the end of 1999. We also expect to receive confirmation as to Year
2000 compliance from all key vendors and suppliers in December 1999. In
connection with our acquisitions of the retail dial-up access customers of
IMPSAT Corporation in Argentina and Brazil and our pending acquisition of its
retail dial-up access customers in Colombia, we are in the process of verifying
Year 2000 compliance of these businesses.
We have also identified and have begun assessing non-information technology
embedded systems such as voice mail, office security, fire prevention and other
systems. We generally believe that our non-information technology embedded
systems do not present significant Year 2000 issues.
To date, we have spent an immaterial amount on Year 2000 compliance issues,
but may incur up to approximately $350,000 in connection with identifying and
solving any Year 2000-related problems. We anticipate that most of our expenses
will relate to personnel costs associated with time spent by employees in the
assessment process and Year 2000 compliance matters.
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have developed no contingency plans to address the worst-case scenario that
might occur if the technologies we are dependent on actually are not Year 2000
compliant. The results of our Year 2000 simulation testing and the responses
received from all third-party suppliers and service providers will be taken into
account in determining the need for, and the nature and extent of, any
contingency plans.
To the extent that our assessment is finalized without identifying any
additional material non-compliant information technology systems operated by us
or by third parties, the most reasonably likely worst case Year 2000 scenario is
a systemic failure beyond our control, such as a prolonged communications or
electrical failure. Any failure of this type could prevent us from accessing our
network, or change the behavior of advertising customers or persons accessing
our network. We believe that the primary business risks, in the event of such
failure, would include but not be limited to, lost advertising revenues,
increased operating costs, loss of customers or persons accessing our network,
and other business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation or breach of contract.
48
<PAGE>
MARKET RISKS
We have not had meaningful interest rate exposure because we have maintained
small debt balances to date. Our Class A convertible preferred shares, which
carried an annual dividend rate of 8%, will be automatically converted into
common shares upon completion of this offering. We will pay accumulated
dividends in cash on or about the date of conversion. Our Class B convertible
preferred shares will also carry an annual dividend rate of 8%. We should not,
however, experience significant interest rate risks until such time as we have
material balances of indebtedness or preferred shares.
Our principal foreign currency exposure has related to our asset base, which
has consisted principally of monetary assets and liabilities, in the countries
in which we operate. Our company's asset base in countries with foreign currency
exposures is summarized as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
---------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C>
Argentina.......................................... $ 2,906
Brazil............................................. 13,109
Mexico............................................. 4,956
Uruguay............................................ 345
-------
$21,316
=======
</TABLE>
Our subsidiaries have generally used the U.S. dollar as their functional
currency because the sale of advertising has historically been priced and billed
in U.S. dollars. As a result, the financial statements of the subsidiaries have
been remeasured, or translated into U.S. dollars. The effects of foreign
currency transactions and of remeasuring our subsidiaries' financial condition
and results of operations into U.S. dollars have been included as net gain or
loss on foreign exchange. However, our Brazilian subsidiary uses the REAL as its
functional currency and, as such, the effects of foreign currency transactions
and remeasuring are included as an adjustment to shareholders' equity. The
method of accounting for the effects of foreign currency transactions and of
remeasuring for our subsidiaries' financial condition and results of operations
will change in the event that the functional currencies for our subsidiaries
change. For example, due to our recent acquisitions of IMPSAT Corporation's
retail dial-up access customers in Argentina and Brazil and our pending
acquisition of its retail dial-up access customers in Colombia, the principal
source of revenues for several of our subsidiaries will be connectivity services
which will generally be priced and billed in local currency.
We do not currently hedge against currency exchange transaction risks, but
could in the future engage in hedging activities against specific foreign
currency transaction risks. Because of uncertainties involving exchange rate
movements, we cannot quantify the effect of exchange rate movements on our
future financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board, which is commonly
called FASB, issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standard for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of Effective Date of FASB Statement
No. 133," which deferred the effective date of SFAS 133 to all fiscal quarters
of fiscal years beginning after June 15, 2000. We are currently evaluating the
effect that adoption of SFAS No. 133 will have on our financial statements.
49
<PAGE>
BUSINESS
OVERVIEW
We are an Internet network providing country-specific and regional content
for Spanish- and Portuguese-speaking audiences in Latin America and the United
States. Recognizing that the countries in the Americas are diverse, we have
designed our network to consist of country Websites as well as a global Website.
We currently have country Websites for, and sales and content production offices
in, Argentina, Brazil, Mexico, the United States and Uruguay. We plan to
establish sales and content production offices in Colombia before the end of
1999, and sales and content production offices in Chile and Venezuela during
2000. By offering content and interactive resources designed to be responsive to
our users' preferences, we seek to make our network their "home on the Internet"
and, in so doing, to create communities of users, develop user loyalty and
increase traffic on our Websites. The launch of each country Website represents
a potential new community of users. By building substantial communities of
users, we are developing a platform for generating revenues from advertising,
branded retail dial-up Internet access, or "connectivity", service and, in the
future, e-commerce. We recently began to offer connectivity services in
Argentina and Brazil and expect to offer similar services in Colombia before the
end of 1999. We are also beginning to develop e-commerce for Spanish- and
Portuguese-speaking audiences in Latin America and the United States.
Our founders believed that a scarcity of Spanish- and Portuguese-language
content was the principal factor limiting the growth of Internet usage in Latin
America. As a result, from our inception in mid-1997, we initially concentrated
on the development of a pilot Website for Argentina with quality content and
interactive resources in Spanish and, at the same time, carried out extensive
market testing to understand users' preferences. We then began to roll-out our
network of country Websites during 1998 and, most recently, launched our Website
in the United States in September 1999. Our registered users (meaning users who
have provided personal information such as name, e-mail address and address)
grew from 54,132 persons in June 1998 to 291,567 persons in July 1999. From
June 1998 to July 1999, the number of pages viewed by our users increased from
3.0 million to 21.0 million per month. On August 1, 1999, we launched our first
mass media-based branding and advertising campaign in Argentina, Brazil, Mexico
and Uruguay and, in September 1999, in the United States. In the first three
months of this campaign (through October 31, 1999), our registered users
increased by approximately 69% to approximately 498,515 at October 31, 1999 and
the number of pages viewed by our users increased by over 250% to approximately
73.9 million pages in that month. In March 1999, we also commenced measuring
unique visitors. The number of unique visitors has increased from 174,800 in
March 1999 to approximately 1.6 million in October 1999. We attribute this
recent growth principally to our mass media-based branding and advertising
campaign, and cannot predict whether such growth will continue.
OUR MARKET OPPORTUNITY
The Spanish- and Portuguese-speaking audiences in Latin America and the
United States together represent one of the fastest growing user groups on the
Web today. While we do not expect to have country Websites or operations for
every country in Latin America, our network is targeted to the entire Latin
American region. In the United States, we are currently targeting the
Spanish-speaking populations in Chicago, Houston, Los Angeles, Miami, New York,
San Antonio and San Diego. We are primarily targeting individual users, although
we anticipate that business and other entities will become important
participants in our communities of users.
We believe a large and growing market consisting of Spanish- and
Portuguese-speaking audiences exists in Latin America and the United States for
content, connectivity and e-commerce services, and that this market presents us
with a significant opportunity. Latin America had a total population at the end
of 1998 of 492.4 million people, of whom more than two thirds are under
35 years of age. The
50
<PAGE>
region had an aggregate gross domestic product in 1998 of $2.0 trillion, of
which Brazil, Mexico and Argentina accounted for more than three-fourths. The
wealthiest 20% of the Latin American population accounts for approximately
two-thirds of the overall buying power in the region and constitutes our primary
target market. As a result, we believe that the Latin American market has a
highly desirable demographic profile for advertisers and businesses.
Internet usage has only begun to penetrate Latin America, but its growth is
expected to be dramatic. Internet users in Latin America have grown from
approximately 2.3 million at year-end 1997 to 4.8 million at year-end 1998, and
are projected to increase to 19.1 million by year-end 2003, representing an
increase in Internet penetration of 0.6% to 3.7% (measured in relation to the
total population of the region). According to industry reports, the Internet
penetration rate in 1998 was 0.8% in Argentina, 1.1% in Brazil, 0.4% in
Colombia, 0.6% in Mexico and 1.9% in Chile.
The United States has a total Hispanic population of approximately
31.4 million people, which has grown at a compound annual rate of 3.7% from 1996
to 1999. By 2000, the U.S. Hispanic population is expected to constitute
approximately 11% of the total U.S. population. Advertising targeting U.S.
Hispanics was $1.7 billion in 1998. As of May 1999, the Internet penetration
rate for U.S. Hispanics was approximately 19.0%.
ADVERTISING. Latin America represents an attractive market for advertisers.
Internet advertising in Latin America continues to grow as an advertising medium
because the Internet is being increasingly used by a desirable segment of the
Latin American population. Although Internet advertising is still in an
incipient stage in Latin America, it is expected to account for an increasing
share of total advertising expenditures in the region. Internet advertising in
Latin America totaled $23.6 million in 1998 and is projected to grow to
$948.9 million in 2003.
CONNECTIVITY. Connectivity services permit customers to access the Internet
through a local telephone call. At year-end 1998, there were approximately
3.0 million Internet subscriber accounts in Latin America, a number which is
projected to grow to 14.8 million by year-end 2003.
Dial-up access charges have been declining in Latin America and at year-end
1998 averaged $31.48 per month. In addition to dial-up access charges, Internet
users are required to pay per minute telephone charges to connect to the
Internet. While per minute charges have not declined as rapidly as monthly
charges, we believe that they will trend downward as the effects of
telecommunications deregulation spread. Nonetheless, the all-in cost of dial-up
access remains significantly higher in Latin America than in the United States.
We believe that this cost has been a factor in limiting Internet penetration in
Latin America. However, the declining cost of dial-up access in Latin America is
a contributor to the projected growth of Internet use in Latin America.
E-COMMERCE. We believe that Latin America will, in the long-term, adopt
e-commerce as an increasing number of businesses and consumers embrace the
Internet as a viable method of selling and purchasing goods and services.
On-line expenditures in Latin America totaled $166.8 million in 1998 and are
expected to increase to $8.0 billion for 2003.
THE EL SITIO VISION
Our founders envisioned an Internet network that would provide quality
country-specific content to Spanish- and Portuguese-speaking audiences in the
countries of Latin America, the United States and elsewhere. From our inception,
our philosophy has been to "Think regional, be local." Consistent with this
philosophy, we have opened offices in five countries in Latin America and in the
United States and have, to date, launched country Websites in each of these
countries. We believe that the combination of country Websites supported by
in-country management, marketing, sales and content production personnel will
enable us to implement the EL SITIO vision and to build the premier Internet
network for
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<PAGE>
Spanish- and Portuguese-speaking audiences in Latin America, the United States
and, over the long-term, Spain and Portugal.
We believe our network should provide access for our users to a broad range
of Internet services as a means of further fostering our users' loyalty to our
network. Accordingly, we recently acquired the retail dial-up access customers
of IMPSAT Corporation in Argentina and Brazil, and expect to acquire its retail
dial-up access customers in Colombia by the end of 1999. We intend to utilize
our Websites as gateways to the Internet for subscribers to our connectivity
services. To further enhance the appeal of our network, we are also
incorporating a Web search engine into our network so that our users can utilize
our Websites as portals to search the Web.
We believe our network provides a platform for generating revenues from the
following principal sources:
- advertising;
- connectivity services; and
- e-commerce.
To implement the EL SITIO vision, we have assembled a management team
experienced in building and operating pan-Latin American businesses. Our
management team is comprised largely of Latin Americans who provide us with
essential market knowledge and cultural insights. We believe that our local
presence allows us to better understand the needs of local Internet users,
advertisers and businesses, and to maintain strong relationships with them. Our
management team is drawn from diverse fields and includes professionals with
backgrounds in computer technology and design, sales, marketing and finance.
OUR STRATEGY
Our goal is to become the leading Internet network for Spanish- and
Portuguese-speaking audiences in Latin America and the United States. To achieve
our goal, and to take advantage of our market opportunity, we continue to
implement a strategy consisting of the following principal elements:
- BUILDING A MARKET-LEADING NETWORK
Our strategy is driven by our views, first, that the countries in Latin
America are diverse and, second, that the scarcity of Spanish- and
Portuguese-language content has been the principal factor limiting the growth of
Internet usage in Latin America. As a result, we seek to build a leading
Internet network by:
V FURTHER DEVELOPING COUNTRY-SPECIFIC AND REGIONAL CONTENT. From our
inception, we have focused on developing quality country-specific and
regional Spanish- and Portuguese-language content. At September 30,
1999, we had 67 employees dedicated to content development in the five
countries in which we currently operate. During 2000, we expect to
commence production of content for our planned country Websites for
Chile, Colombia and Venezuela. We also provide content to our viewers
under agreements with well-known content providers such as Agence
France Presse, Reuters and The Weather Channel. In addition, the
community features on our Websites are designed to encourage our users
to contribute content to our network. By continuously expanding and
enhancing our production of proprietary and user-generated content,
and, by entering into arrangements with leading third-party content
providers we intend to maintain our position as a market leader in
Spanish- and Portuguese-language content.
V INCORPORATING ADDITIONAL COMMUNITY-BUILDING FEATURES. Our experience
indicates a strong preference on the part of Latin American users for
community-building features, such as chat,
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CUPIDO NET, an interactive meeting place for users, e-mail and other
interactive resources. Consistent with our user-focused business
philosophy, prior to the roll-out of our network, we launched a pilot
Website and engaged in an extensive period of market testing to
identify the preferences of Internet users in each of our target
markets. In response to those preferences, we have developed and
continuously seek to enhance our content channels and interactive
resources in order to further build our community of users and foster
their loyalty to our network. One recent example is the launch of
CUPIDO NET, which at September 30, 1999, three months after its
inception, had 43,924 members. We continue to seek to better
understand the needs and preferences of our users through on-line
surveys and analysis of traffic patterns and usage of services.
V STRENGTHENING OUR BRAND IDENTITY. After first dedicating our resources
to develop our content and network, we launched our first mass
media-based branding and advertising campaign on August 1, 1999. We
expect to spend approximately $15.5 million through December 31, 1999
and approximately $40.0 million in 2000 on this campaign. We seek to
create the leading network brand among Spanish- and
Portuguese-speaking Internet users and to expand our presence as a
mass market Internet network by building strong brand awareness. We
have positioned our image as user-friendly, informative and
entertaining. We believe that the essence of our brand is summed up in
our marketing campaign theme: EL SITIO: TU LUGAR EN INTERNET ("EL
SITIO: Your Home on the Internet"). To build upon our brand, we plan
to continue to advertise on the Internet to on-line users, and to
allocate a significant portion of our resources to advertising,
marketing and communications in traditional advertising media.
- GENERATING REVENUES FROM OUR NETWORK
While our country-specific and regional content, community-building features
and brand identity are the building blocks to our becoming the premier Internet
network for Spanish- and Portuguese-speaking audiences, our revenue-generation
strategy is the key to our long-term success. We intend to capitalize on our
network to generate substantial revenues by:
V FORGING ONE-ON-ONE RELATIONSHIPS WITH ADVERTISERS. The market for
advertising on the Internet by Latin American companies is still in
its infancy, with limited market awareness of the benefits of Internet
advertising. As a result, an important part of our sales strategy is
to forge one-on-one relationships with advertisers in which we educate
companies regarding the full commercial advantages of the Internet as
an advertising medium, emphasizing the attractive demographics of
Latin American Internet users, and thereby attract advertisers to our
network. With offices in each of our principal markets, at
September 30, 1999, we had a total of 83 sales and marketing personnel
dedicated to developing long-term relationships with potential
advertisers and expanding our advertising revenues. Our structure
permits us to develop relationships not only with multinationals
purchasing advertising on all of our Websites, but also with
country-specific advertisers interested in advertising targeted to
users in their country. We are generating advertising revenue
currently in Argentina, Brazil, Mexico, the United States and Uruguay.
V INTEGRATING CONNECTIVITY INTO OUR NETWORK. In order to broaden the
services that we offer and to foster user loyalty, we have acquired
from IMPSAT Corporation its retail dial-up access customers in
Argentina and Brazil and are in the process of acquiring its retail
dial-up access customers Colombia. We believe that offering EL
SITIO-branded connectivity services will increase user loyalty to our
network. We intend to utilize our Websites as the gateways to the
Internet for our subscribers. To further enhance the appeal of our
network, we are incorporating a Web search engine into our network so
that our users can utilize our Websites as portals to search the Web.
By establishing a commercial relationship with our users, particularly
through billing their monthly dial-up access fees to their credit
cards, we expect
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that resistance to commercial purchases on our network will decline.
We are currently generating subscription fee-based revenue in
Argentina and Brazil from the provision of connectivity services.
V DEVELOPING OUR E-COMMERCE BUSINESS. We believe our e-commerce
opportunities will, over the long term, expand as an increasing number
of Latin American businesses and consumers embrace the Internet as a
viable method of purchasing goods and services, and we intend to
capitalize on these opportunities. We recently added an e-shopping
channel to our network. We also concluded a non-exclusive letter of
intent with From2.com, a Miami-based e-commerce logistics company,
which will provide logistics and fulfillment services for
international e-commerce transactions conducted on our network. We are
pursuing several revenue-sharing relationships and joint venture
opportunities with e-commerce merchants in the United States and Latin
America to develop e-commerce retail operations in the flower, gifts,
books, music and software and hardware areas. We do not expect to
derive meaningful revenues from e-commerce activities until at least
2001.
- LEVERAGING STRATEGIC RELATIONSHIPS
We intend to leverage our existing relationships with shareholders and enter
into new strategic relationships to expand our network and enhance our content,
marketing and sales. In the months following our July 1999 private placement,
our key strategic shareholders, Hicks, Muse, Tate & Furst Incorporated, the
Cisneros Group of Companies and GC Companies Inc., have facilitated a variety of
new commercial relationships, including introduction to potential advertising
customers and e-commerce partners.
OUR NETWORK
We are an Internet network providing country and regional content for
Spanish- and Portuguese-speaking audiences in Latin America and the United
States. Our network currently consists of a global Website and five
country-specific Websites focused upon Argentina, Brazil, Mexico, the United
States and Uruguay. We believe we are distinguished by our strong focus on
country-specific and regional content. We have grown our network by opening
local offices and hiring staff to develop content that is specific to the
countries in which we operate.
We commenced operations in Argentina in mid-1997 and shortly thereafter
launched a pilot Website for that country. We opened our Montevideo office in
November 1997 and our Mexico City office in May 1998. After extensive market
testing and development of our content production capacity, we launched the
ELSITIO.COM network in November 1998 in Argentina, Mexico and Uruguay. We
currently have 148 employees in Buenos Aires, 58 in Mexico City and 16 in
Montevideo. We opened our office in Brazil in September 1998, launched the
Brazilian OSITE.COM.BR Website in the Portuguese language in July 1999 and now
have 35 employees in Sao Paulo. We opened our office in Miami in May 1998,
launched our U.S. Website in September 1999 and now have 28 employees in Miami.
We believe our local presence allows us to better understand the needs of local
advertisers and businesses. We plan to establish sales and content production
offices in Colombia before the end of 1999 and sales and content production
offices in Chile and Venezuela during 2000. We will hire a total of 53 employees
who previously worked for IMPSAT Corporation or its subsidiaries in connection
with our acquisitions of its retail dial-up access customers in Argentina,
Brazil and Colombia.
Our offices and country-specific content afford our users the dual
advantages of, first, the size and resources of a regional network and, second,
the country-specific content and community features most useful to them.
Operationally, this structure permits us to maximize economies of scale to
support efficiently multiple markets with differing content and features from a
single global platform.
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Our global content and design team, in consultation with our country
offices, designs our homepage and community features, acquiring or developing
software required to offer the features that our market research indicates will
most appeal to our users. This global team also generates a large volume of
global content, both proprietary and from third-party providers such as Reuters,
Notimex and Infosic. Technological, financial and administrative functions are
also carried out at the global level.
The content and community features prepared by our global team provides the
starting point from which our in-country production teams adapt our global
Website to their local market preferences. Our local and regional production
offices in Buenos Aires, Mexico City, Miami, Montevideo and Sao Paulo cultivate
our users' preferences by adapting the content and community features on our
channels to local preferences. Local managers and their staff have autonomy to
select the stories and features that are headlined on our channels, to add
country-specific proprietary or third-party content and to add channels or
features with a local focus. For example, the editorial manager of EL SITIO
Mexico might select news items specific to Mexico or enhance a story without a
Mexican focus by including reactions in Mexico to the news item. Similarly, the
editorial manager of O SITE in Brazil might provide reviews of local restaurants
in Sao Paulo or Rio de Janeiro and might add, during February of each year, a
channel on CARNAVAL.
PRODUCT DESCRIPTION
We have developed a network of country Websites that provide original
proprietary and third-party content and user-friendly interactive resources,
including free e-mail, auctions, chat rooms, personal home pages, bulletin
boards, contests and prizes, that bring our own style to our user base.
Based on our market research activities, we believe there are four key areas
of interest that attract our targeted users: interactive news; relationships;
technology; and entertainment. These four areas of interest are reflected in our
core channels in each country Website.
We believe that our core channels define the personality and vision of our
products. Our core channels currently are:
- INTERACTIVE NEWS--Our staff transforms relevant daily news in each country
into an interactive experience for our users. User interest is encouraged
through presentation of the news in an entertaining style. News articles
include debates, polls, forums and trivia, which allow our readers and
editors to become part of the articles. In addition to our daily news, we
have global and local third-party news coverage.
- RELATIONSHIPS--We cover relationship topics that interest our users, such
as love, family, friendship, society, sex, politics. We want our users to
communicate and share important life experiences with our community of
users. In addition to interactive responses that we generate from polls
and forums, we typically receive over 500 narratives each day from our
users from which we select some responses to display on our channels.
- TECHNOLOGY--Our staff produces technology-related content with both the
new and the experienced Internet user in mind. Tutorials, guides and news
about technology and the Internet are provided to assist new users in
learning how to navigate the Internet. We also cater to more experienced
users through, among other things, sophisticated materials, software and
application downloads and technology-related news. Our free technology
newsletter, which now has over 100,000 subscribers, gives us an
opportunity to interact with our users on a weekly basis.
- ENTERTAINMENT--We provide our users with entertainment-related content in
areas such as music, fashion, TV and movies. We also create an interactive
environment for our users through interviews, polls and forums. For
example, our users act as journalists and moderators during interviews
with top models or TV stars. We also provide our users a variety of games,
contests and prizes on a daily basis.
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In addition to our four core channels, we recently began to provide an
e-shopping channel:
- E-SHOPPING--We anticipate that e-shopping opportunities will originate
from our core channels. Once in the e-shopping channel, our users will
encounter a user-friendly environment that helps them shop, provides them
with merchant and product comparisons, and gives them shopping ideas.
We also provide a series of general and country-specific channels. Our
general channels include:
- NOTICIAS/NOTICIAS ("NEWS")--provides news sources by a variety of
strategic partners. Third-party content is complemented by editorials,
opinion articles and columns produced with local flavor by our journalists
and staff members in Buenos Aires, Mexico City, Miami, Montevideo and Sao
Paulo. Our strategic partners in News include Reuters, Agence France
Presse, Notimex and Infosic.
- COMUNIDAD/COMUNIDADE ("COMMUNITY")--encourages interaction of our users
through a series of user-friendly resources that allow them to chat, voice
their opinions and express their creativity through their own pages on the
Internet.
- SERVICIOS/SERVICOS ("SERVICES")--provides a local experience for our users
through restaurant, hotel and movie recommendations, as well as local
listings of theaters, museums and the arts in Buenos Aires, Mexico City,
Miami, Montevideo and Sao Paulo. We expect to develop similar content for
other major Latin American cities and our targeted cities in the United
States that have large Spanish-speaking populations.
- JUEGOS/JOGOS ("GAMES")--offers users a variety of multimedia, action,
arcade and promotional games, in which users compete for prizes awarded by
many of the companies advertising on our Websites. Our local writers
contribute to the channel by providing editorials on Web games. Our users
have the ability to download games directly from this channel.
- DEPORTES/ESPORTES ("SPORTS")--provides up-to-date news, analysis,
interviews and opinions on a broad range of sports. This year, users will
able to watch live sports events utilizing our multimedia capabilities.
Users will also be able to search a reference library with features,
statistics and other information about sports personalities in Latin
America.
- NEGOCIOS/NEGOCIOS ("BUSINESS")--through a short-term agreement with Zona
Financiera, a major Latin American producer of business and financial
information, our users currently have access to the latest business news
and services such as stock market quotations, exchange rates, interest
rates, mortgage and car loan rates, and insurance rates. In addition to
Zona Financiera, we have an agreement with Patagon.com, a leading business
content site in the region, under which Patagon.com will pay us to be a
non-exclusive provider of co-branded business content inside our Website
after the Zona Financiera agreement ends in the first quarter of 2000.
- EL TIEMPO/O TEMPO ("THE WEATHER")--offers our users comprehensive and
up-to-the minute weather information, including weather conditions and
forecasts for over 4,700 cities worldwide. The content is provided through
an agreement with The Weather Channel.
We also provide our users in each country with a list of country-specific
channels that are available on some of our country Websites, including the
following:
- HOMETOWN (USA)--provides local news for each of our targeted cities with
large Spanish-speaking populations in the United States. News articles are
produced by our own writers for our targeted markets: Chicago; Houston;
Los Angeles; Miami; New York; San Antonio; and San Diego.
- BELEZA (BRAZIL)--is a channel devoted to men and women with interests in
fashion and beauty topics. Users can find articles that deal with issues
usually found in fashion magazines. This
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channel is created with interactivity in mind so users can share their
ideas and experiences on these topics.
- GEOSFERA (BRAZIL)--is devoted to extreme sports, including hiking,
skydiving, trekking, mountain climbing and other rigorous outdoor sports.
- GASTRONOMIA (URUGUAY)--provides news and forums regarding local and
international cuisine. Users can read and share experiences and recipes
and also learn about the latest developments in the gastronomical world.
- ASTROWEB (MEXICO)--is a channel on astrology topics. It includes studies
and analysis on birth, early childhood, karma, horoscopes and
compatibility.
- VIDA (USA)--consists of a compilation of proprietary articles that deal
with day-to-day issues and concerns of Hispanic populations in the United
States. This channel covers topics such as race and identity, sex and
politics, health, art, literature, second generation issues, food and
nutrition, and others.
Our user-friendly interactive resources include:
- CHAT--provides entry to a "virtual community" in which our users interact
in real-time group or one-on-one discussions. Users may voice their
opinions on a variety of topics, such as sports, politics, relationships
and current events. Our users create special interest chat rooms and can
also participate in moderated chat rooms. On average, each chat user stays
in our chat rooms for approximately 20 minutes.
- CUPIDO NET--is an interactive meeting place on our network where users can
search for new friends or special relationships. Users from different
backgrounds and experiences share their interests through CUPIDO NET. As
of September 30, 1999, three months after its launch, CUPIDO NET has
generated approximately 43,924 members.
- E-MAIL--permits users to sign up for free e-mail services in Spanish,
Portuguese and English through our recently signed agreement with USA.Net,
a leading provider of e-mail and messaging services. As part of this
alliance, users will benefit from enhanced customization tools that will
offer them control over their e-mail account, including customization of
their e-mail interface. Since access to e-mail requires user registration,
e-mail is expected to be a significant source of registered users and user
data in the future. As of September 30, 1999, which is three months after
its launch, we have generated approximately 46,790 EL SITIO e-mail
accounts and 8,860 O SITE e-mail accounts.
- AUCTIONS--enables sellers in Latin America and the United States to post
their products inside our channel and take advantage of our expanding user
base. Buyers and sellers give us their personal information in order to
register as users of our auctions channel. We act as a meeting place for
sellers and bidders, while final transactions are executed outside the El
Sitio network. We closely monitor the information from our sellers. Our
company does not receive any fee for transactions, but benefits from
increased traffic to our network and from advertising revenues generated
from the channel.
- BUSCADOR/BUSCADOR ("SEARCH")--is an internal search engine which enables
users to search our library of over 90,000 pages. To further improve the
functionality and appeal of our network, we recently reached an agreement
with Inktomi, a leader in search technology with a library of over
110 million sites, in which we use their search engine software and have
access to their database. These search features will enable our users to
utilize our network to surf the Web.
- TU SITIO PERSONAL/SEU SITE PESSOAL ("PERSONAL HOME PAGE")--offers our
users the ability to create their own content through their personalized
home pages in Spanish and Portugese. We provide
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the proprietary tools that help our users create their own ideas on the
Web in order to share their content with others. We believe that affinity
between us and our users increases as they share their own experiences
through our network.
- BULLETIN BOARDS--offer our users the ability to post their own views and
opinions on a variety of topics to be read by other users on our Websites.
In that way, our users promote dialogue on relevant issues, topics or
events of interest to other users on our network.
- PREMIOS/PREMIOS ("CONTESTS")--uses contests as a marketing tool to attract
visitors to our network. A recent campaign with nearly 12,000 registered
users participating is "SUBETE AL TREN DE EL SITIO" ("Climb Aboard the EL
SITIO Train") in which e-mail users provide us with the e-mail addresses
of their friends who ride with them in their "trains," thereby increasing
their chances of winning a trip to one of many destinations in Latin
America.
Our network of Websites is designed to be the home of our users on the
Internet. We are positioning ourselves as the friendly Internet network that
informs and entertains. As a result, we are able to develop communities of
interest, fostering user loyalty, increased usage and longer stays at our
Websites. In addition, the interactive resources on our Websites help us to
create communities of interest which are valuable to advertisers and e-commerce
merchants seeking to attract customers with specific interests.
OUR COMMUNITY
We are developing a substantial community of users, based in large part on
the content and community features of our network.
Users accessing our Websites are encouraged to register with us on either a
full or partial basis. Full registration requires users to provide us with the
user's name, e-mail address, home address, telephone number, occupation and
other personal information. A partial registration requires a user to provide
only a name and e-mail address. To encourage full registration, some of our
network's most popular features require prior registration, such as private chat
rooms, CUPIDO NET, our interactive meeting place, free e-mail and participation
in games and other promotions. Once a user is registered with our network, we
are able to communicate with the user by e-mail and otherwise seek to involve
the user in our community. Although historically we have been unable to track
the frequency with which a particular user accesses our Websites, we have
recently implemented technology that will permit us to measure more precisely
the activity levels of our registered users.
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We track our user traffic principally on the following basis:
- REGISTERED USERS--measures the cumulative number of users that have
registered with our network by providing information such as name, e-mail
address and address. Some of these registered users may no longer be
active users. Most of our users have not yet registered with our network.
- PAGE VIEWS--measures the number of pages opened by our users in a given
period and is a useful indicator for advertisers.
- VISITS--measures the number of visits to our Websites in a given period.
- UNIQUE VISITORS--measures the number of individual visitors in a given
period, such that an individual user that visits our Websites multiple
times in the relevant period is only counted one time.
We have generated statistics concerning our registered users. Our page view
data is supplied by I/Pro Netline reports. Our unique visitor numbers are
audited by I/Pro.
The table below sets forth, on a monthly basis over the last thirteen months
(September 1998 through October 1999) the evolution in our registered user base
and page views on a monthly basis:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MONTHLY PAGE VIEWS REGISTERED USERS
<S> <C> <C>
Sept 3,071,700 86,173
Oct 3,317,900 95,515
Nov 2,558,400 100,360
Dec 3,125,500 107,118
Jan 8,656,800 234,030
Feb 9,316,300 242,975
Mar 12,896,100 251,343
Apr 18,057,500 261,113
May 17,634,900 269,797
Jun 18,273,400 281,255
Jul 21,011,200 294,363
Aug 42,500,000 379,812
Sept 69,000,000 440,000
Oct 73,900,000 498,000
</TABLE>
We increased our registered user base from approximately 54,132 persons in
June 1998 to 291,567 in July 1999. From June 1998 to October 1999, the number of
pages viewed by our users increased from 3.0 million to 73.9 million per month.
We achieved a significant increase in registered users and user traffic in
January and February 1999, in part as a result of our purchase for $223,000 in
December 1998 from Mandic S.A. of its chat rooms in Brazil and their integration
into our network. In August 1999, our number of registered users and our user
traffic increased significantly. This latter increase was attributable, in part,
to the launching on August 1, 1999 of our first mass media-based branding and
advertising campaign. In the first three months of this campaign, our registered
users increased by approximately 69% to 498,515 at October 31, 1999 and the
number of pages viewed by our users increased by over 250% to 73.9 million in
the month of October 1999. We commenced measuring unique visitors in
March 1999. The number of unique visitors has increased from 174,800 in
March 1999 to approximately 1.6 million in October 1999.
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CONNECTIVITY
In order to broaden the services that we offer and to foster user loyalty,
we recently acquired the retail dial-up access subscribers of IMPSAT Corporation
in Argentina and Brazil and are in the process of acquiring its retail dial-up
access subscribers in Colombia. The total purchase price for these acquisitions
will be $21.5 million. As a result of these acquisitions, we have acquired
approximately 52,000 dial-up subscribers in Brazil and 14,000 dial-up
subscribers in Argentina and expect to acquire approximately 7,000 dial-up
subscribers in Colombia, for an aggregate total of approximately 73,000
subscribers.
We believe our connectivity services will enable us to develop an additional
source of revenue and to create closer ties with Internet users in Latin
America. We also anticipate that our dial-up access service will enhance the
content and e-commerce aspects of our business, because we should be able to
attract our dial-up subscribers to our Websites. We believe that increased use
of our Websites will increase advertisers' interest in placing advertisements
and sponsorships on our network and will encourage e-commerce merchants to
partner with us and drive our e-commerce revenues. For example, a substantial
majority of the dial-up subscribers that we expect to acquire from IMPSAT
Corporation currently are not registered users of our network. We intend to
market to these subscribers by, among other things, having our homepage appear
automatically when they connect to the Internet through our dial-up access
service.
We have begun an evaluation process to determine the most effective method
of migrating the IMPSAT Corporation Websites, which are currently used as the
homepages for some of these subscribers, to our Websites. We expect to continue
using the existing IMPSAT Corporation Websites during a transition period of
approximately nine months. During this transition, we anticipate that we will
gradually integrate our brand name and features onto these Websites before
migrating these subscribers entirely to our network of Websites.
We are not acquiring the telecommunications infrastructure, such as
points-of-presence, switches and backhaul capacity, required to provide retail
Internet dial-up access. The acquisitions will be limited to the subscribers and
staff required to provide retail dial-up access. We have entered into three-year
services agreements with subsidiaries of IMPSAT Corporation under which it will
provide to us the necessary telecommunications infrastructure for a fee per port
or "channel" made available to our customers for the transmission of data.
We plan initially to outsource help desk operations and technical support
for our dial-up access businesses. This approach should enable us to minimize
our fixed costs and respond more flexibly to changes in demand.
MARKETING
We depend upon advertising to develop our brand and to attract users to our
Websites and subscribers to our connectivity services. We believe that we have
already achieved significant brand name recognition and market share principally
due to positive word-of-mouth resulting from our country-specific content,
without conducting an aggressive marketing campaign in mass media. From our
inception in June 1997 until September 30, 1999, we spent an aggregate total of
approximately $8.0 million on marketing, sales and advertising (including
advertising received in barter transactions in exchange for advertising on our
network). By contrast, we expect to spend $15.5 million in the five months from
August 1, 1999 to year-end 1999. In the future, we expect our branding and
advertising expenses to represent the largest single component of our expenses
and have budgeted approximately $40 million for 2000.
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MARKETING EFFORTS UP TO AUGUST 1, 1999. During our first two years of
operations, we focused our resources upon the development of quality content in
Spanish and Portuguese and attractive interactive resources for our network. Our
marketing was limited to low-budget initiatives, including:
- targeted e-mail advertising;
- banner advertising on the Web with hyperlinks to our Websites; and
- special games and promotions on our Websites.
Our advertising seeks to position us as the friendly Internet network that
informs and entertains with quality content, ease of use and responsiveness to
user preferences. Our marketing campaigns communicate these values using the
advertising logo with the tag line underneath: EL SITIO: TU LUGAR EN INTERNET
("EL SITIO: Your Home on the Internet"). These brand values, together with our
country-specific content and interactive resources, are designed to personalize
the on-line experience of our users, so that they may develop a one-to-one
relationship with us. We conduct direct marketing to our registered users
through e-mail campaigns.
MARKETING EFFORTS SINCE AUGUST 1, 1999. We launched our first mass
media-based branding and advertising campaign on August 1, 1999. Principally as
a result of this campaign, during the first three months of this campaign
(through October 31, 1999), we experienced an approximately 69% increase in
registered users and an over 250% increase in page views during those three
months. This campaign seeks to build our brand by creating brand recognition in
our target markets, attracting new users to our network and increasing our
exposure and visibility to potential advertisers. To achieve these objectives,
the campaign emphasizes the user friendly attributes of our network with the
theme that EL SITIO SE ADAPTA A VOS ("EL SITIO adapts to you"). The spots and
print media utilize humor to communicate the idea that EL SITIO is a network
that is responsive to its users and provides information and resources useful to
their daily lives.
Our mass media-based branding and advertising campaign is under way in the
five countries for which we have launched country-specific Websites: Argentina,
Brazil, Mexico, Uruguay and the United States. Our campaign utilizes the
following media:
- broadcast media, including both television and radio;
- print media, including general circulation magazines, computer industry
advertising and business magazines and general circulation newspapers;
- on-line banner advertising with hyperlinks to our Websites;
- targeted e-mail;
- advertising and computer industry trade shows;
- billboard and other outdoor advertising; and
- general public relations to generate favorable free news media coverage.
The content and implementation of our branding and advertising campaign is being
coordinated by major advertising agencies in each of our markets under the
umbrella of WPP Group PLC. This campaign is targeting both potential users and
potential advertisers on our network.
In September 1999, we entered into an agreement with Sammy Sosa, the
renowned baseball player, and Player's Choice International L.L.C. under which
we will have the exclusive right to utilize, modify, reproduce, distribute,
display and transmit Sammy Sosa's name in electronic form for use on the
Internet. Sammy Sosa has agreed to use his best efforts to increase awareness of
our Internet portals by wearing clothing and accessories bearing our logo on at
least four nationally televised events during the term of the agreement and by
attending three of our promotional events per year. Sammy Sosa has also agreed
to make himself available for at least one television show, one radio show and
one still photo advertisement, and for at least three chat sessions per year. As
consideration for entering into
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the agreement, Sammy Sosa will receive a total of $1.0 million and 25,000 common
shares of our company, with an option to purchase on or before January 31, 2001
an additional 25,000 common shares at a 25% discount from the closing trading
price of the common shares on January 29, 2001. Additionally, Sammy Sosa and
Player's Choice International L.L.C. will receive a percentage of the
advertising revenues generated and actually received as a result of the
agreement. The initial amount of the discount will be remeasured, on a quarterly
basis, based on the fair value of the common shares at the time they are issued.
Our marketing strategy seeks, among other things, to build advertising
relationships and generate revenues. Our sales force is focused on major
advertisers and advertising agencies. We believe that relationships with Latin
American advertising agencies are important because they influence advertising
buying decisions by companies in the region.
In October 1999, we entered into a letter of intent to establish an
arrangement with J. Walter Thompson Argentina S.A., under which it will purchase
advertising from us on each of our country-specific Websites and on our global
Website. We will advertise J. Walter Thompson's products and services, using
banners, sponsorships and other techniques. J. Walter Thompson has agreed to
place $3 million of advertising by its clients on El Sitio's network of
Websites, with a commission of $1 million to J. Walter Thompson. The revenues
recognized by El Sitio under this arrangement will be recognized net of this
commission. In addition, we have agreed to obtain approximately $20 million of
the advertising that we intend to purchase during 2000 in Argentina, Brazil,
Chile, Colombia, Mexico, the United States and Venezuela, using J. Walter
Thompson as our advertising agency.
SALES
We expect to generate sales from three different sources:
- advertising;
- connectivity; and
- e-commerce.
The following table sets forth, for the periods indicated, our net revenues
by country of operation (in thousands):
<TABLE>
<CAPTION>
EL SITIO EL SITIO EL SITIO EL SITIO EL SITIO CONSOLIDATED
PERIOD OR YEAR ARGENTINA URUGUAY MEXICO BRAZIL USA TOTAL
- -------------- --------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1997 (partial year)............................ $267 $ -- $ -- $ -- $ -- $ 267
1998........................................... $657 $106 $ 17 $ -- $ -- $ 780
Nine months ended September 30, 1999........... $715 $455 $339 $ 12 $ 3 $1,524
</TABLE>
ADVERTISING. At September 30, 1999, we had an internal sales organization
of 30 professionals, who are based at our offices in Buenos Aires (10 persons),
Sao Paulo (6), Mexico City (6), Miami (6) and Montevideo (2). We plan to open
additional offices in Colombia during the fourth quarter of 1999 and in Chile
and Venezuela in 2000. A significant portion of our sales personnel's income is
commission-based. All of our sales personnel sell advertising exclusively for
us. We are also seeking representation agreements with advertising agencies for
the sale of advertisements on our Websites. Our sales personnel focus on both
selling advertisements on the Websites and developing long-term strategic
relationships with clients.
We seek to attract corporate advertisers by educating and communicating with
them regarding the benefits of the Internet as a business tool. Advertising on
the Internet by Latin American companies is still in an early stage of
development. Many Latin American companies have not developed a Website or an
Internet strategy and need advice on how to implement such a strategy. We help
companies to develop and implement Internet strategies.
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Our relationship with Arcor S.A., the world's largest hard sweets producer,
exemplifies our approach with advertisers. In May 1997, we approached Arcor
regarding an advertising program on the Internet. The plan evolved into a
complete on-line campaign consisting of a tri-lingual Website, Web pages for its
products, games, promotions, and interactive press management and maintenance.
We have produced over 1,400 Web pages for Arcor and have an advertising contract
with Arcor for all of Latin America. Arcor advertisements have appeared on our
Websites in Argentina, Brazil and Mexico.
We offer an assortment of advertising options to our clients, including the
following:
- banner advertising;
- sweepstakes and promotions;
- button advertising and sponsorships;
- content development;
- contextual links to merchandise;
- opt-in direct marketing/lead generation;
- e-mail sponsorship programs;
- pre- and post-campaign market research; and
- celebrity event sponsorships.
We offer our advertisers the option to display their advertisements on one
or more of our country Websites, or on a regional basis. Our advertisers also
have the flexibility to specify the channels on our network and the Website
pages on which they wish their messages to appear.
Some of our advertising clients include:
- MGM Networks Latin America;
- Nortel Networks;
- Lucent Technologies;
- Wall Street Journal Interactive;
- Arcor S.A.;
- Intel Corporation;
- Supermercados Norte;
- Sun Microsystems; and
- Banco de Galicia y Buenos Aires.
We have derived a substantial majority of our revenues to date from the sale
of advertisements and sponsorships. In the nine months ended September 30, 1999,
we had 116 advertisers, representing an increase from 18 advertisers in the
corresponding period of 1998. In the nine months ended September 30, 1999, three
of our customers, Gastardelli, Perez y Gaudio Publicidad, an Argentine publicity
company, IMPSAT S.A. and Gramatur accounted for 7.8%, 7.9% and 6.3%,
respectively, of total revenues. In 1998, each of four advertisers, IMPSAT S.A.,
Arcor, S.A., Compaq Corporation and Antel (Uruguay), accounted for more than 10%
of our revenues. Gastardelli, Perez y Gaudio Publicidad acquired a large block
of advertising to resell to its advertising customers. We intend to pursue
similar relationships with other advertising agencies and brokers.
Prior to November 1998, we sold advertising primarily at a fixed price per
month for a fixed banner. Currently, our markets are evolving and appear to be
developing along the lines of the U.S. Internet industry model, in which
advertising is sold on a cost-per-thousand impressions, or "CPM,"
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basis. The cost of our advertising products varies according to the product. For
example, a banner with "click-through" or "hyper-link" capabilities is more
costly than a simple textual banner. Similarly, sponsorship of a channel or page
is more costly than acquiring a fixed number of CPMs. Our contracts with
advertisers and advertising agencies range from one to twelve months. Our
advertisers have tended to receive a guaranteed number of impressions for a
fixed fee. In the future, we expect that an increasing portion of our
advertising contracts will be long-term CPM-based contracts.
We provide our advertisers with statistics related to the traffic on our
network provided by ABC Interactive. Receipt of audited statistics enables our
advertisers to assess more accurately the market penetration of their
advertising message. We believe our provision of audited statistics to
advertisers gives us a competitive advantage over networks which do not provide
such statistics to advertisers.
CONNECTIVITY. In light of our acquisitions of IMPSAT Corporation's retail
dial-up access customers in Argentina and Brazil and our pending acquisition of
its retail dial-up access customers in Colombia, we are integrating the sales
personnel in each country into our network's existing sales team. We expect to
gain economies of scale as we eliminate overlapping functions and integrate
sales strategies and resources. We are currently assessing our sales strategy
and personnel to determine the best way to integrate our connectivity services
into our mass media-based branding and advertising campaign. By initially
focusing on the connectivity services market in Argentina, Brazil and Colombia
more effectively than IMPSAT Corporation had done before, we hope to increase
our subscriber base. To that end, we expect to expand our sales activities
beyond telemarketing and word-of-mouth advertising to increase our visibility.
We expect to price our connectivity services in response to market
conditions. We are also likely to launch new pricing initiatives in an effort to
increase the loyalty of subscribers to our network. Initially, we anticipate
maintaining the current sales and pricing strategies for our dial-up access
subscribers. Although we will vary pricing and sales strategies by country, the
connectivity businesses that we are acquiring offer a range of plans ranging
from unlimited access with e-mail accounts to e-mail access only plans. The
following illustrates the principal products, each of which includes an e-mail
account, offered at August 31, 1999 in Argentina and Brazil, our two principal
markets for connectivity services:
<TABLE>
<CAPTION>
Argentina Brazil
- --------- ------
<S> <C>
- - unlimited access (with three e-mail - unlimited access;
accounts);
- - unlimited access; - 20 hours per month;
- - 15 hours per month; - ten hours per month;
- - six hours per month; and - one hour per month; and
- - e-mail access only. - e-mail access only.
</TABLE>
For Internet use above the pre-paid access levels, subscribers are charged
per-minute rates. In Argentina, at September 30, 1999, the prices for
connectivity services ranged from $45.00 per month (plus VAT) for unlimited
access with three e-mail accounts to $5.00 per month (plus VAT) for e-mail
access only. In Brazil, at September 30, 1999, the prices for connectivity
services ranged from approximately R$34.90 per month for unlimited access to
approximately R$4.95 per month for e-mail access only. In Colombia, at
September 30, 1999, the prices for connectivity services ranged from
approximately 40,000 Colombian pesos per month for unlimited access to 29,800
Colombian pesos per month for limited access. The average monthly subscription
fee in Argentina in September 1999 was $24.80 per month, in Brazil was R$12.41
per month and in Colombia was $19.95 per month. The weighted average
subscription fee in September 1999 for the subscribers to be transferred in
Argentina, Brazil and Colombia was $15.74.
E-COMMERCE. We recently added an e-shopping channel to our network. This
channel provides links to other Websites for on-line sale by local and
U.S.-based e-merchants of books, flowers, music, gifts and technology products.
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CORPORATE ALLIANCES AND CONTENT AND APPLICATIONS PROVIDERS
In order to increase traffic at our Websites, expand our on-line community
and build our brand, we continue to pursue strategic relationships with business
partners that offer quality content, technology and distribution capabilities as
well as marketing and cross-promotional opportunities.
CONTENT. We have entered into agreements with leading content producers
such as Reuters, Notimex and Infosic, among others, under which such companies
provide content to us for publication on our network in return for a fixed fee
or revenue-sharing arrangement based on minimum page views.
CONNECTIVITY. In connection with our acquisitions of retail dial-up access
customers of IMPSAT Corporation in Argentina and Brazil, and our pending
acquisition of its retail dial-up access customers in Colombia, we have not
acquired, and will not acquire, the telecommunications infrastructure to provide
these services. Instead, we will outsource that infrastructure from third-party
providers, initially, from IMPSAT Corporation. We have entered into three-year
services agreements with subsidiaries of IMPSAT Corporation in Argentina and
Brazil, according to which, in exchange for a fee per port or "channel" made
available to our customers for the transmission of data, IMPSAT will provide us
with the telecommunications infrastructure and equipment installation and
maintenance services to provide Internet dial-up access to our subscribers on a
24-hour, 365-day basis using equipment owned by subsidiaries of IMPSAT
Corporation. We currently estimate that the aggregate fee payable by us for
these services will be approximately $500,000 per month. The terms of the
service agreements will be automatically extended for another period of three
years unless prior notice is given by either party to the contrary. The service
agreements do not restrict IMPSAT Corporation from providing better rates to
other dial-up access providers. However, each service agreement provides for a
price adjustment if after the first year of the agreement, we receive an offer
from a third party on more favorable terms. If the subsidiary of IMPSAT
Corporation is unable to match or exceed the offer we receive from such
third-party competitor, we have the right to terminate the agreement, with no
penalties for early termination. Each service agreement also contains quality
standards provisions. We plan to enter into a substantially similar agreement in
Colombia by the end of the fourth quarter 1999.
APPLICATIONS. We have recently entered into several important agreements
relating to the provision of a variety of third-party licenses and other
applications. For example, we have entered into an agreement with Inktomi, a
leading Internet company, under which we will acquire the search engine software
and access to the database of Inktomi, a leader in search technology with a
library of over 110 million sites. We also recently concluded a non-binding
letter of intent with From2.com, a Miami-based e-commerce logistics company, for
it to provide logistics and fulfillment services for international e-commerce
transactions conducted on our network. Finally, through our recently signed
agreement with USA.Net, a leading provider of e-mail and messaging services, our
users will have access to free e-mail services in Spanish, Portuguese and
English.
E-COMMERCE. We are pursuing several revenue-sharing relationships and joint
venture opportunities with e-commerce merchants in the United States and Latin
America to develop electronic retail operations in the flower, gifts, books,
music and hardware and software areas. We currently offer limited e-commerce
services by way of the links on our e-shopping channel to the websites of
various e-merchants. Our agreement with From2.com, once finalized, would allow
our users to calculate the actual cost of Internet purchases from locations
outside of their own country by calculating shipping, handling, taxes and
customs costs required to deliver the product.
RECENT STRATEGIC INVESTORS. On July 7, 1999, we completed a private
placement of our Class A convertible preferred shares to strategic investors,
including Hicks, Muse, Tate & Furst Incorporated and the Cisneros Group of
Companies (through their jointly owned IAMP (El Sitio) Investments, Ltd.), and
GCC Investments, LLC, an indirect subsidiary of GC Companies, Inc., which owns
and operates
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General Cinemas Theatres. In connection with our acquisitions of retail dial-up
customers from IMPSAT Corporation, IMPSAT Corporation will purchase
approximately $21.5 million of our Class A convertible preferred shares. On
August 31, 1999, we entered into an agreement with TV Azteca, S.A. de C.V.,
pursuant to which we will receive $3.5 million of advertising time on TV
Azteca's television network in return for approximately $2.5 million of Class A
convertible preferred shares.
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10.0 million in cash, or
$9.00 per Class B convertible preferred share. Purchasers of the Class B
convertible preferred shares consisted of Intel Atlantic, Inc., a subsidiary of
Intel Corporation, and Latinvest Asset Management do Brasil, Ltda., an affiliate
of Globalvest Management Company, L.P. Each Class B convertible preferred share
will automatically convert, on the date six months after the closing date of
this offering, into one common share. The difference between the initial public
offering price per common share and $9.00 price per Class B convertible
preferred share will be amortized as a deemed dividend during the same six-month
period.
We believe these strategic investors present us with opportunities to build
strategic relationships, expand brand awareness and grow our network. For
example, our relationship with Hicks, Muse Tate & Furst Incorporated and the
Cisneros Group of Companies is expected to give us access to media in Latin
America in which these shareholders have significant interests, and on which we
can promote our Websites and build brand awareness, including six radio stations
and one television station in Chile, and a number of pan-Latin American cable
television programming networks including Much Music and the Playboy Channel.
The Cisneros Group of Companies also controls Venevision, the number one
television network in Venezuela, and has an interest in Univision, a leading
Spanish-language television network in the United States. In Argentina, Hicks,
Muse also has interests in Canal 11 and Canal Azul, two television channels; in
Cablevision; and in numerous magazines and various sports programming networks.
GCC Investments, LLC is expected to assist us, among other things, in our
marketing efforts by contributing its extensive retail expertise to help us
develop our e-commerce opportunities. In addition, TV Azteca is the number two
television network in Mexico. We intend to work closely with our strategic
investors in order to take advantage of the synergies created by our
relationships. For example, we have commenced discussions with a number of
potential clients or joint venture partners as a result of contacts established
through our strategic investors.
TECHNOLOGY
NETWORK OF WEBSITES. We make our Websites available using 17 Microsoft
Windows NT servers and three Linux servers as our central production servers,
which are currently located at the server farm facilities of Exodus
Communications in New Jersey. We also have a back-up production server at IMPSAT
Corporation's server farm facilities in Miami, Florida. In each of Argentina,
Brazil, Mexico, Uruguay and the United States, we maintain a data center for
development and staging.
We have implemented an environment in which each server can function
separately. Key components of our server architecture are served by multiple
redundant machines. As part of the Exodus server farm facilities, we have up to
100Mbps of bandwidth access over our Internet connections, which are fully
redundant so that if a failure in the network or equipment of one service
provider occurs, traffic is automatically routed through one of several other
providers. Each of Exodus Communications and IMPSAT Corporation provides
comprehensive facilities management services, including human and technical
monitoring of all production servers 24 hours per day, 7 days per week. All
facilities are protected by multiple power supplies. Our operations will depend
on the ability of IMPSAT Corporation and Exodus Communications to provide
adequate space, air-conditioning, telecommunication connectivity and protection
of their systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins or other events.
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We employ in-house and third-party monitoring software for our servers,
processes and network connectivity. Reporting and tracking systems generate
daily traffic, demographic and advertising reports. All of our production
systems are copied to backup tapes each night and regularly stored in a storage
facility on Exodus's premises as well as in a storage facility at our offices in
Buenos Aires. We have implemented these various redundancies and backup systems
in order to minimize the risk associated with damage from fire, power, loss,
telecommunications failure, break-ins, computer viruses and other events beyond
our control.
Our network of Websites must accommodate a high volume of traffic and
deliver frequently updated information. Components or features of our network
have in the past suffered outages or experienced slower response times because
of equipment or software downtime. We are in the process of migrating our
platform and our applications to a Unix platform using Sun Microsystems servers,
which we believe will increase the reliability, availability and serviceability
of our network. We anticipate that this migration process, which we believe will
not affect the continuous operation of our network, will be completed by the end
of 1999.
CONNECTIVITY. In connection with our acquisitions of retail dial-up access
customers of IMPSAT Corporation in Argentina and Brazil, and our pending
acquisition of its retail dial-up access customers in Colombia, we have not
acquired and will not acquire the telecommunications infrastructure, such as
telecommunications bandwidth, points-of-presence, switches and backhaul
capacity, to provide these services. Instead, we will outsource that
infrastructure from third-party providers-- initially, from subsidiaries of
IMPSAT Corporation. We have entered into three-year services agreements with
subsidiaries of IMPSAT Corporation in Argentina and Brazil, according to which,
in exchange for a fee per port or "channel" made available to our customers for
the transmission of data, IMPSAT Corporation will provide us with the
telecommunications infrastructure and equipment installation and maintenance
services to provide connectivity services to our subscribers on a 24-hour,
365-day basis using equipment owned by subsidiaries of IMPSAT Corporation. We
currently estimate that the aggregate fee payable by us for these services will
be approximately $500,000 per month.
IMPSAT Corporation uses routers with average connectivity speed of 33Kbps,
with a majority of subscribers migrating to a speed of 56Kbps. IMPSAT S.A.
(Argentina) subscribers are able to connect to the Internet through special
Internet dedicated phone lines at rates significantly cheaper than connecting
through conventional phone lines.
COMPETITION
Many companies provide Websites, connectivity services and e-commerce
targeted to Spanish- and Portuguese-speaking audiences. All of these companies
compete with us for user traffic, advertising dollars and e-commerce
opportunities. The market for Internet content companies in Latin America is new
and rapidly evolving. Competition for users, advertisers and e-commerce
opportunities is intense and is expected to increase significantly in the future
because there are no substantial barriers to entry in our markets.
We compete with providers of content and services over the Internet,
including Web directories, portals, search engines, content sites, Internet
service providers and sites maintained by government and educational
institutions.
We face competition on both a country-specific and regional level. Our
primary competitors include, among others, StarMedia and Terra Networks (in most
of Latin America, the United States and the Iberian peninsula), Quepasa.com and
Yupi (in the United States), Clarin Digital (in Argentina) and Universo Online
(in Brazil). We also face competition from Spanish-and/or Portuguese-language
versions of U.S. services, such as Yahoo!, America Online and Prodigy
Communications. Our competitors may develop content that is better than ours or
that achieves greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. Some of our
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established competitors and potential new competitors may have better brand
recognition and significantly greater financial, technical and marketing
resources than our company.
As a result of our completed and pending acquisitions of the retail dial-up
access customers in Argentina, Brazil and Colombia of IMPSAT Corporation, we
recently entered the dial-up access services market, which is extremely
competitive and is characterized by rapidly changing technology and evolving
standards. We do not own telecommunications infrastructure and, therefore, will
depend upon telecommunications providers to carry our Internet traffic.
Increased competition could require us to lower our prices, increase our selling
and marketing expenses, and raise subscriber acquisition costs. New technologies
permitting faster dial-up may make our connectivity services business obsolete.
We may not be able to retain our users or, if we do, to offset the effect of
increased costs through an increase in users, user revenues or revenues from
other sources.
We expect to experience increased competition from the traditional
telecommunications carriers. We believe that there is a move toward horizontal
integration by these carriers through acquisitions of, joint ventures with, or
the wholesale purchase of connectivity from Internet service providers in order
to meet the Internet connectivity requirements of their business customers.
We also compete with traditional forms of media, such as newspapers,
magazines, radio and televison, for advertisers and advertising revenue. If
advertisers perceive the Internet or our network to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to Internet advertising or to advertising on our
network.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We consider our EL SITIO, O SITE and medallion design trademarks and service
marks to be important to our success. We are pursuing the registration of our
trademarks and service marks in the United States and in key countries of Latin
America as well as Spain and Portugal. Although some of the countries have
registered our marks, we cannot predict with certainty whether the trademarks
office of the remaining countries will do the same. If we are unable to obtain a
registration in a particular country, we would have trademark or service mark
rights to the extent that we use the mark, but the rights would not be as strong
as if they were registered. Some companies, including other participants in the
Internet industry, use and/or may use trademarks or service marks in English or
other languages which, when translated, are similar to certain of our core
marks. This usage may hinder our ability to build a unique brand identity and
may possibly lead to trademark disputes, in that we may be sued for trademark
infringement in court or we may have the validity of our applications and/or
registrations challenged at government agencies. Although we do not believe that
such proceedings against us ultimately would be meritorious, we cannot predict
that with certainty. Should we lose the right to use a trademark or service
mark, we may be forced to adopt a new mark which would result in the loss of
substantial resources and brand identity. In any event, whether successful or
not, litigating a trademark dispute would result in the expenditure of monetary
resources and the diversion of executives' time. Any inability to protect,
enforce or use our trademarks, service marks or other intellectual property may
have a material adverse effect on our company.
We also depend upon technology licensed from third parties for chat,
homepage, search and related Web services. Any dispute with a licensor of the
technology may result in our inability to continue to use that particular
technology. Additionally, there may be patents issued or pending that are held
by third parties and that cover significant parts of the technology, products,
business methods or services used to conduct our business. We cannot be certain
that our technology, products, business methods or services do not or will not
infringe valid patents or other intellectual property rights held by third
parties. In the event that a third party alleges infringement, we may be forced
to take a license, which we may not be able to obtain on commercially reasonable
terms. We may also incur substantial expenses in defending our company against
third party infringement claims, regardless of the merit of
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these claims. Successful infringement claims against us could result in
substantial monetary liability and/or being prevented by a court from conducting
all or a part of our business that falls within the scope of the asserted
patent, leading to substantial expenditures to redesign and/or license
technology.
GOVERNMENT REGULATION
There are currently few laws or regulations directly applicable to access to
or commerce on the Internet. However, due to the increasing use of the Internet,
a number of legislative and regulatory proposals are under consideration by
various governments and governmental agencies or bodies.
The following is a brief summary of the current regulatory framework for the
Internet industry in the countries in which we have or plan to have operations:
- ARGENTINA. There are no specific laws or regulations governing on-line
content providers in Argentina, but dial-up access providers must hold a
correspondent license from the national telecommunications authority. We
have applied for that license and expect to receive it in due course. The
timing for completion of this application process is unclear, particularly
given recent regulatory changes in Argentina. In the interim period prior
to our receipt of the required license we plan to operate the acquired
business pursuant to a management and reseller agreement. Dial-up access
providers are also required to include a legend on their invoices to
clients, stating that the national government does not control or regulate
the information on the Internet and to provide contact information for
help with blocking undesirable content.
- BRAZIL. There are no laws or regulations governing on-line content
providers or dial-up access providers in Brazil.
- COLOMBIA. There are no laws or regulations governing on-line content
providers. Telecommunications services are public services for which a
value-added license must be obtained from the Colombian government. We are
in the process of applying for that license and expect to receive it in
due course. In the interim period prior to our receipt of the required
license we plan to operate the acquired business pursuant to a management
and reseller agreement. A dial-up access provider must be incorporated as
a Colombian company, file an application with the national communications
authority and meet specific technical and economic criteria. Finally, a
dial-up access provider is required to pay a royalty for the license of 3%
of the net annual income.
- MEXICO. In Mexico, the federal telecommunications law requires that each
provider of any value-added services (which includes Internet access
services) register with the telecommunications registry of its national
telecommunications authority. This registration requires, among other
things, disclosure of foreign investments, a list of transmission
equipment and a technical description of the services provided. The
registration of El Sitio Mexico was declared effective by the Mexican
Federal Telecommunications Commission in early November 1999.
- URUGUAY. There are no laws or regulations governing on-line content
providers or dial-up access providers in Uruguay.
- UNITED STATES. There are currently few U.S. laws or regulations which
specifically regulate communications or commerce over the Internet.
On-line content providers may be subject to lawsuits for information that
they disseminate, such as lawsuits claiming defamation and infringement of
copyrighted materials.
It is possible that laws or regulations may be adopted or applied with
respect to the Internet relating to issues such as the following:
- sales and other taxes;
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- user privacy;
- pricing controls;
- characteristics and quality of services and products;
- consumer protection;
- cross-border e-commerce;
- libel and defamation;
- copyright, trademark and patent infringement; and
- other claims based on the nature and content of Internet materials.
The adoption or application of any of these laws or regulations may
negatively affect the growth in the use of the Internet, which could, in turn,
decrease the demand for our services and products, increase our costs of doing
business, or otherwise have a material adverse effect on our company.
EMPLOYEES
At September 30, 1999, we had 285 full-time employees, including 79 in
production and development, 83 in sales and marketing, 30 in technology and 93
in finance and administration. We believe that we have attracted an experienced
management team and a highly professional staff.
We have hired 48 employees, who previously worked for IMPSAT Corporation or
its subsidiaries, following our acquisition of its retail dial-up access
customers in Argentina and Brazil. We expect to hire five additional employees
who previously worked for IMPSAT Corporation or its subsidiaries after
completion of our pending acquisition of IMPSAT's retail dial-up access
customers in Colombia.
FACILITIES
Our headquarters are located in Buenos Aires, where we currently lease
approximately 1,300 square meters. We also are leasing additional premises for
our new corporate headquarters in that city, to which we anticipate moving in
before the end of 1999.
We lease approximately 240 square meters in Sao Paulo, 265 square meters in
Mexico City, 80 square meters in Montevideo and 230 square meters in Miami.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
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MANAGEMENT
DIRECTORS
Our articles of association provide for a minimum of nine directors. There
is currently one vacancy on our board of directors.
The following table presents the names and ages of each current member of
our board of directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Roberto Vivo-Chaneton..................... 46 Co-founder and Chairman of the Board
Roberto Cibrian-Campoy.................... 40 Co-founder and Director
Carlos Cisneros........................... 34 Director
Michael Greeley........................... 36 Director
Michael Levitt............................ 40 Director
Guillermo Liberman........................ 31 Director
Sofia Pescarmona.......................... 26 Director
Ricardo Verdaguer......................... 49 Director
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of our
executive officers. Executive officers are appointed by, and serve at the
discretion of, our board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Roberto Cibrian-Campoy.................... 40 Co-founder, President and Chief Executive Officer
Walter Forwood............................ 36 Chief Operating Officer
Daniel Rotsztain.......................... 37 Executive Vice President, Business Development and
Strategic Planning
Horacio Milberg........................... 52 Chief Financial Officer and Secretary
Alfredo Jimenez de Arechaga............... 46 Chief Administrative Officer, Controller and
Treasurer
Eduardo Weber............................. 38 Chief Technology Officer
Lucia Suarez.............................. 50 Vice President--Product Development
</TABLE>
ROBERTO VIVO-CHANETON is our co-founder and has served as Chairman of our
board of directors since our inception. Mr. Vivo was one of the founders of, and
since 1988 has served as a Director and Deputy Chief Executive Officer, of
IMPSAT Corporation, a provider of private networks of integrated data and voice
communications systems in a number of countries in Latin America. Mr. Vivo holds
LICENCIATURAS in Business Administration from Universidad Argentina de la
Empresa and Macroeconomics from Instituto Torcuato di Tella, both in Buenos
Aires.
ROBERTO CIBRIAN-CAMPOY is our co-founder and has served as the Chief
Executive Officer, President and a Director since our inception. In 1992,
Mr. Cibrian founded and served as President of Cibrian-Campoy Creativos, S.A., a
producer of computer animation and developer of multimedia projects. From 1989
to 1992, Mr. Cibrian served as Advisor to the Minister of Culture and Education
of Argentina. From 1982 to 1989, Mr. Cibrian practiced architecture at his own
firm and as a designer with a leading Buenos Aires architecture firm.
Mr. Cibrian holds a degree in Architecture from the Universidad de Belgrano,
Buenos Aires.
CARLOS CISNEROS has served as a Director since June 1999. In October 1996,
Mr. Cisneros founded and became Chief Executive Officer of the Cisneros
Television Group, a member of Ibero-American Media Partners, II, Ltd. In
January 1998, Mr. Cisneros was named Vice-Chairman of Ibero-American Media
Partners, II, Ltd., an investment fund jointly owned by the Cisneros Group of
Companies and
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Hicks, Muse, Tate & Furst Incorporated. From June 1993 to October 1996,
Mr. Cisneros was Vice-President of New Business Development at Venevision
International. Mr. Cisneros holds a Bachelor of Arts degree in Political Science
from American University in Washington, D.C.
MICHAEL GREELEY has served as a Director since July 1999. Since 1994,
Mr. Greeley has been a Senior Vice President of GCC Investments, Inc., the
private equity investment group of GC Companies, Inc., which owns and operates
General Cinema Theatres. Prior to 1994, Mr. Greeley was a Vice President at
Wasserstein Perella & Co., Inc., an international investment bank. Mr. Greeley
also currently serves as a director of American Capital Access Holdings, LLC,
Fuelman, Inc. and MotherNature.com, Inc. Mr. Greeley was previously a director
of Global TeleSystems Group, Inc. Mr. Greeley graduated from Williams College
with honors and has a Master of Business Administration degree from Harvard
Business School.
MICHAEL J. LEVITT has served as a Director since July 1999. Mr. Levitt has
been a partner of Hicks, Muse, Tate & Furst Incorporated since 1996. Mr. Levitt
serves as a director of Capstar Broadcasting Corporation, AMFM, Corp, Grupo MVS,
S.A. de C.V., International Home Foods, Inc., LIN Television Corp., Regal
Cinemas, Inc., STC Broadcasting, Inc., RCN Corporation, and Ibero American Media
Partners, L.P. Mr. Levitt received his undergraduate and Juris Doctor degrees
from the University of Michigan.
GUILLERMO LIBERMAN has served as a Director since July 1997. Mr. Liberman is
also a Director of Sociedad Latinoamericana de Inversiones, the parent company
of Grupo Liberman. Grupo Liberman is involved in agribusiness, fisheries,
telecommunications and hotel development. He holds a Bachelor of Science degree
in Business Administration from Babson College in Massachusetts and a Masters of
Business Administration degree from the University of Miami in Florida.
SOFIA PESCARMONA has served as a Director since October 10, 1999.
Ms. Pescarmona is Assistant to the Chief Executive Officer of IMPSAT
Corporation, and has also been a Director of IMPSAT since February 1996. From
1994 to January 1998, Ms. Pescarmona held various positions within IMPSAT
Corporation. Ms. Pescarmona holds a Bachelor of Arts degree from Tufts
University and a Masters of Business Administration degree from IAE University
in Argentina.
RICARDO VERDAGUER has served as a Director since July 1997. Mr. Verdaguer
has served as the President and Chief Executive Officer of IMPSAT Corporation
since 1988. In 1988, as a senior executive of Corporacion IMPSA, S.A., an
Argentina-based multinational company with holdings in manufacturing,
transportation and telecommications, Mr. Verdaguer was involved in the founding
of IMPSAT Corporation. From 1976 to 1988, Mr. Verdaguer occupied various
operational positions at Industrias Metalurgicas Pescarmona as an
electromechanical engineer. He holds an Engineering degree from the Universidad
Juan Agustin Mazza, Mendoza, Argentina.
WALTER FORWOOD has served as our Chief Operating Officer since November
1999. From July 1998 to October 1999, Mr. Forwood served as Managing Director
and Chief Financial Officer of Ibero-American Media Partners, II, Ltd., an
investment fund jointly owned by the Cisneros Group of Companies and Hicks,
Muse, Tate & Furst Incorporated. During the same period, Mr. Forwood also served
as Chief Financial Officer of Cisneros Television Group, a member of
Ibero-American Media Partners, II, Ltd. From September 1997 to October 1999, Mr.
Forwood was the Chief Financial Officer of Imagen Satelital, a programming
company owned by Cisneros Television Group. Mr. Forwood previously served as
Chief Financial Officer of Corporacion IMPSA S.A. in 1996 and 1997. Prior to
that time, beginning in 1993, he held various financial responsibility positions
with Industrias Metalurgicas Pescarmona S.A.I.C. y F., a subsidiary of
Corporacion IMPSA S.A., beginning in 1993. Mr. Forwood was an associate director
of Continental Bank in Buenos Aires, Argentina from 1988 through 1992. Mr.
Forwood holds a Bachelor of Science degree in Economics from the Universidad
Argentina de la Empresa and a Masters of Science in Finance from Florida
International University.
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<PAGE>
DANIEL ROTSZTAIN has served as our Executive Vice President, Business
Development and Strategic Planning since October 1999. He served as our Chief
Operating Officer from September 1998 to October 1999. From September 1998 to
July 1999, Mr. Rotsztain also served as our Country Manager for Argentina. From
1995 to 1998, Mr. Rotsztain served as the South America Regional Director and
Country Manager-Argentina of GTECH Foreign Holdings Corporation, a company
specialized in software and data processing services for the gaming industry.
From 1994 to 1995, Mr. Rotsztain served as a strategic marketing executive for
IMPSAT Corporation. Mr. Rotsztain was founder, and from 1992 to 1994 served as
manager of, Nexus Urbanos S.R.L., a consulting and information services company
for Argentine municipalities. From June 1990 to September 1993, Mr. Rotsztain
served as Executive Director of World Trade Center S.A.
(Argentina-Chile-Paraguay), an international commerce services and real estate
company. Mr. Rotsztain holds a Bachelor of Science degree in Computer Science
from Escuela Tecnica ORT, Buenos Aires, Argentina and a Master in Computer
Science degree from Universidad de Belgrano, Buenos Aires.
HORACIO MILBERG has served as our Chief Financial Officer since July 1999
and served as a financial advisor to our board of directors from September 1998
to July 1999. From April 1993 to July 1999, Mr. Milberg served as an independent
financial advisor and investment manager. Mr. Milberg previously served as:
senior finance officer of Corporacion IMPSA, S.A.; Vice President, Investment
Banking, Latin America for CS First Boston Corporation, New York; and Vice
President and Director for Latin America for The Chase Manhattan Bank, N.A., New
York and London. Mr. Milberg holds an undergraduate degree from Universidad de
Buenos Aires and a Master of Business Administration degree with honors from the
J. L. Kellogg Graduate School of Management, Northwestern University, where
Mr. Milberg was a Fulbright Scholar.
ALFREDO JIMENEZ DE ARECHAGA has served as our Chief Administrative Officer
since July 1999 and also served as our Chief Financial Officer from
November 1998 to July 1999. From 1995 until November 1998, Mr. Jimenez served in
the Corporate Treasury of Corporacion IMPSA, S.A. From 1994 to 1998,
Mr. Jimenez served as the Administration Manager for both Resis Ingenieria,
S.A., and International Satellite Communication Holding Ltd. (Switzerland), each
a subsidiary of IMPSAT Corporation. From 1992 to 1994, Mr. Jimenez served as a
Financial Manager for Puentes and Construcciones Ltda. in Uruguay. Mr. Jimenez
holds an agricultural engineering degree from Universidad Republica Oriental del
Uruguay, a Masters degree in Project Evaluation and Economics, and a Master in
Business Administration degree from O.R.T. University in Uruguay.
EDUARDO WEBER has served as our Chief Technology Officer since August 1999.
From October 1997 to February 1999, Mr. Weber served as vice-president of
T/Subcero S.A., a consulting company and developer of digital media projects.
From August 1995 to August 1997, Mr. Weber served as Technical Manager of Clarin
Internet, the Website for a leading Argentine daily newspaper. From
January 1991 to August 1995, Mr. Weber was General Manager of Weber Terro
s.r.l., a multimedia company. Mr. Weber holds an engineering degree from
Universidad de Buenos Aires.
LUCIA SUAREZ has served as our Vice President--Product Development since
October 1999. From 1999 until the present, Ms. Suarez has served as president of
Suarez/Kirzner S.A., an independent production company which creates television
programs for Argentina and abroad. From 1996 to 1998, Ms. Suarez served as a
Program Director for America TV-Canal Dos. During this period, Ms. Suarez was
responsible for artistic direction, the supervision of internal and external
production, design, creation of program formats and direction of production
teams. From 1995 to 1996, Ms. Suarez served as News Director for Libertad-Canal
9 where she was responsible for managing the news department and general
production of daily news programs. From 1992 to 1995, Ms. Suarez was a Producer
and Director for Telefe-Canal 11 where she was the creator and producer of the
investigative news program Edicion Plus, for which she won a Martin Fierro
award. In addition to receiving six Emmy Awards, the Associated Press
International Award and the International Film Festival Award, Ms. Suarez is a
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<PAGE>
member of the Directors Guild of America, Women in Communications and the
American Society of Composers and Publishers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has standing audit and compensation committees.
The audit committee consists of Messrs. Verdaguer, Levitt and Greeley. Among
other functions, the audit committee:
- makes recommendations to the board of directors regarding the selection of
independent auditors;
- reviews the results and scope of the audit and other services provided by
our independent auditors;
- reviews our financial statements; and
- reviews and evaluates our internal control functions.
The compensation committee consists of Messrs. Vivo, Cisneros and Greeley.
The compensation committee makes recommendations to the board of directors
regarding the following matters:
- executive compensation;
- salaries and incentive compensation for our employees and consultants; and
- the administration of our share option plans.
DIRECTOR COMPENSATION
Directors currently do not receive stated compensation from our company for
their service as members of our board of directors. However, by resolution of
the board of directors, directors may receive a fixed amount and reimbursement
for expenses in connection with the attendance at board of directors and
committee meetings.
Our directors did not receive any payments in connection with their services
as such in the year ended December 31, 1998.
Under a shareholders' agreement entered into in connection with the
July 1999 private placement of our Class A convertible preferred shares,
monitoring and directors' fees of $700,000 per year, in the aggregate, are
payable to IAMP (El Sitio) Investments Ltd., GCC Investments, LLC, Tower Plus
International, SLI.com Inc., Militello Limited and IMPSAT Corporation.
From time to time, some of our directors may be granted options to purchase
shares of common shares.
EXECUTIVE OFFICER COMPENSATION
The aggregate amount of compensation paid by us to our executive officers
was $131,637 for the year ended December 31, 1998.
We operate in an industry that is highly competitive in terms of
compensation to talented executive and technical staff. We believe that we have
been able to attract a group of experienced executives with proven track records
in their areas of expertise for our key management positions.
Some of our executive officers have employment agreements with our company
for three-year terms. Each of these agreements provides for a specified monthly
salary, a minimum annual bonus and share options.
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<PAGE>
1999 SHARE OPTION PLAN
We view share options as a key financial incentive to attract, motivate and
retain our talented employees. Accordingly, we have adopted our 1999 share
option plan which, as amended, provides for the issuance of up to 1,240,000
common shares. An additional 2,000,000 common shares were reserved on
October 28, 1999. Our 1999 share option plan allows for the grant of incentive
share options qualified within the meaning of Section 422 of the U.S. Internal
Revenue Code of 1986 and non-qualified share options, which do not so qualify.
Each option granted under the plan shall be evidenced by an agreement that
specifies the terms and conditions of the grant. The plan also provides for the
issuance of share appreciation rights.
Our 1999 share option plan is administered by the compensation committee of
our board of directors. Subject to the limitations in our 1999 share option
plan, the compensation committee has authority to determine to whom options may
be granted and the terms of such options, including the exercise price, the
number of shares subject to each option, the conditions for vesting, the
expiration date and the form of consideration payable upon exercise of options.
All of our directors, employees and bona-fide consultants and advisors are
eligible for non-qualified share option grants; however, incentive share options
may only be granted to our employees. No individual may be granted options
totaling more than 15% of the total number of options issuable under the plan.
The exercise price of an incentive share option cannot be less than 100% of
the fair market value of a common share on the grant date, provided that no
person who owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of our shares, referred to below as a "Ten-Percent
Shareholder," may receive incentive stock options unless the exercise price is
at least 110% of the fair market value of a common share on the grant date.
Options granted under the 1999 share option plan are not transferable by the
optionee, other than by will or by the laws of descent and distribution. All
options issued under the 1999 share option plan will have a term no longer than
10 years from the grant date, except that in the case of incentive stock options
granted to a Ten-Percent Shareholder, the term shall not exceed five years. The
1999 share option plan terminates on December 1, 2008 but such termination will
not affect the validity of any outstanding option.
At September 30, 1999, options to purchase 1,238,400 common shares were
outstanding under the 1999 share option plan and 1,600 shares remained available
for future option grants. The weighted average exercise price for these
outstanding options is $3.01 per share. Most of these outstanding options become
exercisable either (i) in tranches (as to 30% of the options on the first
anniversary of the grant date, as to 30% of the options on the second
anniversary of the grant date and as to the remaining 40% of the options, on the
third anniversary of the grant date) or (ii) on the third anniversary of the
grant date. These options terminate upon the earliest to occur of the following:
termination of an optionee's employment for good cause, 30 days after an
optionee's resignation, 180 days after an optionee's employment is terminated
for any other reason, including retirement, disability or death, and eight years
after the grant date. Notwithstanding the foregoing, upon a change of control
(for example, a merger or similar transaction or the removal of a majority of
the members of our current board of directors) of our company that occurs on or
after the first anniversary of the grant date, all unvested portions of options
then outstanding will vest in full on that date.
Our board of directors may amend, alter, suspend, or terminate the 1999
share option plan at any time, provided however, that the board must first seek
the approval of stockholders, if required by law or regulation, and that of each
affected optionee if such amendment, alteration, suspension or termination would
adversely affect his or her obligations under any option granted prior to that
date.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
Under British Virgin Islands law, every director and officer of our company,
in performing his or her functions, is required to act honestly and in good
faith with a view to the best interests of our
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<PAGE>
company and exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. No provision in our
memorandum or articles of association or in any agreement entered into by us
relieves a director or officer from the duty to act in accordance with our
memorandum and articles of association or from any personal liability arising
from his or her management of the business and affairs of our company.
We may indemnify any director or officer against all expenses, including
legal fees, and against all judgments, fines and amounts paid in settlement and
reasonably incurred in connection with legal, administrative or investigative
proceedings. We may only indemnify a director or officer if the director or
officer acted honestly and in good faith with the view to the best interests of
our company and, in the case of criminal proceedings, the director or officer
had no reasonable cause to believe that his or her conduct was unlawful. The
decision of the board of directors as to whether the director or officer acted
honestly and in good faith with a view to the best interests of our company and
as to whether the director or officer had no reasonable cause to believe that
his or her conduct was unlawful, is in the absence of fraud sufficient for the
purposes of indemnification, unless a question of law is involved. The
termination of any proceedings by any judgment, order, settlement, conviction or
the entry of NO PLEA does not, by itself, create a presumption that a director
or officer did not act honestly and in good faith and with a view to the best
interests of our company or that the director or officer had reasonable cause to
believe that his or her conduct was unlawful. If a director or officer to be
indemnified has been successful in defense of any proceedings referred to above,
the director or officer is entitled to be indemnified against all expenses,
including legal fees, and against all judgments, fines and amounts paid in
settlement and reasonably incurred by the director or officer in connection with
the proceedings.
We may purchase and maintain insurance in relation to any director or
officer against any liability asserted against the director or officer and
incurred by the director or officer in that capacity, whether or not we have or
would have had the power to indemnify the director or officer against the
liability as provided in our articles of association.
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PRINCIPAL SHAREHOLDERS
The following table presents, as of November 15, 1999, the beneficial
ownership of our common shares by:
- each person or entity which, to our knowledge, owns beneficially more than
5% of the outstanding common shares;
- each of our directors and executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their common shares, except to
the extent applicable law gives spouses shared authority.
The table assumes that all of our outstanding Class A convertible preferred
shares have been converted into our common shares, which will automatically
occur upon the closing of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON SHARES(1)
-------------------
NUMBER BEFORE AFTER
BENEFICIAL OWNER OF SHARES OFFERING OFFERING
- ---------------- ---------- -------- --------
<S> <C> <C> <C>
PRINCIPAL SHAREHOLDERS
IAMP (El Sitio) Investments, Ltd............................ 6,284,050 20.7% 16.3%
SLI.com Inc................................................. 4,894,176 16.1% 12.7%
Militello Limited........................................... 4,607,010 15.2% 11.9%
IMPSAT Corporation(2)....................................... 6,141,230 20.2% 15.9%
Tower Plus International.................................... 2,309,674 7.6% 6.0%
DIRECTORS AND EXECUTIVE OFFICERS
Roberto A. Vivo-Chaneton(3)................................. 10,748,240 35.4% 27.9%
Ricardo Verdaguer(4)........................................ 8,450,904 27.8% 21.9%
Sofia Pescarmona(5)......................................... 6,141,230 20.2% 15.9%
Carlos Cisneros(6).......................................... 6,284,050 20.7% 16.3%
Michael Levitt(7)........................................... 6,284,050 20.7% 16.3%
Guillermo J. Liberman(8).................................... 4,894,176 16.1% 12.7%
Michael Greeley(9).......................................... 1,456,756 4.8% 3.8%
Roberto Cibrian-Campoy (10)................................. 792,360 2.6% 2.0%
Daniel Rotsztain(11)........................................ 42,846 * *
Walter Forwood(12).......................................... * * *
Horacio Milberg(13)......................................... 31,000 * *
Alfredo Jimenez de Arechaga(14)............................. 14,282 * *
Eduardo Weber(15)........................................... * * *
Lucia Suarez(16)............................................ * * *
All directors and executive officers as a group (14
persons).................................................. 26,573,384 87.5% 68.9%
</TABLE>
- ------------------------
* indicates less than 1%.
(1) Calculated according to Rule 13d-3(d) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable within
60 days are deemed outstanding for the purpose of calculating the number and
percentage owned by the holder of the options, warrants, rights or
conversion privileges such person, but not deemed outstanding for the
purpose of calculating the percentage
(FOOTNOTES CONTINUED ON FOLLOWING PAGES)
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owned by any other person listed. As of September 30, 1999, we had
12,568,098 common shares outstanding.
(2) Includes 5,284,314 shares issued in connection with the acquisition of
IMPSAT Corporation's retail dial-up customers in Argentina and Brazil.
(3) Includes 4,607,010 common shares owned by Militello Limited in respect of
which Mr. Vivo has a controlling interest. Also includes 6,141,230 shares
owned by IMPSAT Corporation attributable to Mr. Vivo as a result of his
affiliation with IMPSAT Corporation. Mr. Vivo disclaims beneficial ownership
of all shares owned by IMPSAT Corporation. Excludes 400,000 options to
purchase common shares granted to Mr. Vivo under our 1999 share option plan.
(4) Includes beneficial ownership of 2,309,674 common shares attributable to
Mr. Verdaguer as a result of his controlling interest in Tower Plus
International. Also includes 6,141,230 shares owned by IMPSAT Corporation
attributable to Mr. Verdaguer as a result of his affiliation with IMPSAT
Corporation. Mr. Verdaguer disclaims beneficial ownership of all shares
owned by IMPSAT Corporation.
(5) Includes 6,141,230 shares owned by IMPSAT Corporation attributable to Ms.
Pescarmona as a result of her position as a director in IMPSAT Corporation.
Ms. Pescarmona disclaims beneficial ownership of all shares owned by IMPSAT
Corporation.
(6) Includes 6,284,050 common shares owned by IAMP (El Sitio)
Investments, Ltd., which are included as a result of Mr. Cisneros'
affiliation with the Cisneros Group of Companies, which has an indirect
joint ownership interest in IAMP (El Sitio) Investments, Ltd. Mr. Cisneros
disclaims beneficial ownership of all shares owned by IAMP (El Sitio)
Investments, Ltd.
(7) Includes 6,284,050 common shares owned by IAMP (El Sitio)
Investments, Ltd., which are included as a result of Mr. Levitt's
affiliation with Hicks Muse, Tate & Furst Incorporated, which has an
indirect joint ownership interest in IAMP (El Sitio) Investments, Ltd.
Mr. Levitt disclaims beneficial ownership of all shares owned by IAMP (El
Sitio) Investments, Ltd.
(8) Includes beneficial ownership of 4,894,176 common shares attributable to
Mr. Liberman as a result of his controlling interest in SLI.com Inc.
(9) Includes 1,456,756 common shares owned by GCC Investments, LLC, which are
included as a result of Mr. Greeley's affiliation with GCC
Investments, LLC. Mr. Greeley disclaims beneficial ownership of all shares
owned by GCC Investments, LLC.
(10) Excludes options granted by Banco Nominees, Ltd. to Mr. Cibrian-Campoy in
respect of 114,254 common shares and options to purchase 210,000 common
shares granted to Mr. Cibrian-Campoy under our 1999 share option plan.
(11) Excludes options to purchase 334,000 common shares granted to
Mr. Rotsztain under our 1999 share option plan.
(12) Excludes options to purchase 90,000 common shares granted to Mr. Forwood
under our 1999 share option plan.
(13) Includes 31,000 common shares attributable to Mr. Milberg as a result of
their ownership by Summit Investment Management, of which Mr. Milberg is a
director. Mr. Milberg disclaims beneficial ownership of these shares.
Excludes options to purchase 210,000 common shares granted to Mr. Milberg
under our 1999 share option plan.
(14) Excludes options to purchase 40,000 common shares granted to Mr. Jimenez
under our 1999 share option plan.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(15) Excludes options to purchase 50,000 common shares granted to Mr. Weber
under our 1999 share option plan.
(16) Excludes options to purchase 20,000 common shares granted to Ms. Suarez
under our 1999 share option plan.
The above table does not include the following transactions or arrangements
with respect to our common shares:
- 2,268,600 common shares reserved for issuance upon exercise of options
granted under our 1999 share option plan at a weighted average exercise
price of $5.73 per share;
- 971,400 common shares reserved for issuance upon the exercise of options
that we may grant under our 1999 share option plan;
- 1,713,832 common shares issuable upon conversion of our Class A
convertible preferred shares issuable on a quarterly basis through
January 2001 in exchange for $6 million of non-cash advertising time
credits;
- 239,936 common shares issuable upon exercise of a warrant issued to Bear,
Stearns & Co. Inc. as part of its fee in connection with our July 1999
private placement of our Class A convertible preferred shares; and
- 1,111,111 common shares issuable upon conversion of our Class B
convertible preferred shares for an aggregate purchase price of
$10.0 million in cash, which were sold in a mid-November 1999 private
placement.
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RELATED PARTY TRANSACTIONS
IMPSAT Corporation is controlled largely by the Pescarmona group, of which
Sofia Pescarmona, one of our directors, is a member. The Pescarmona group
indirectly owns approximately 75% of the capital stock of IMPSAT Corporation.
Roberto Vivo-Chaneton, our co-founder and chairman, is a director and deputy
chief executive officer of IMPSAT Corporation. Mr. Vivo beneficially owns
approximately 6% of the capital stock of IMPSAT Corporation. Ricardo Verdaguer,
another of our directors, is the president and chief executive officer of IMPSAT
Corporation. Mr. Verdaguer owns approximately 3.5% of the capital stock of
IMPSAT Corporation. We have acquired the retail dial-up access customers of
IMPSAT Corporation in Argentina and Brazil and are in the process of acquiring
its retail dial-up access customers in Colombia. We will acquire a portfolio of
approximately 73,000 customers of these businesses in the three countries. In
connection with the acquisitions, IMPSAT Corporation will purchase a total of
3,070,615 Class A convertible preferred shares for approximately $21.5 million,
and we will enter into agreements with subsidiaries of IMPSAT Corporation, under
which they will provide us with the telecommunications infrastructure to provide
connectivity services to the acquired customers for approximately $500,000 per
month. Under services agreements with subsidiaries of IMPSAT Corporation, IMPSAT
Corporation provides us with links to the Internet in exchange for advertising
on our network. This arrangement accounted for $38,000, $165,000 and $123,000 of
our net revenues and corresponding amounts of our operating expenses in partial
year 1997, 1998 and the nine months ended September 30, 1999, respectively.
Guillermo Liberman is a director of Sociedad Latinoamericana de Inversiones,
the holding company of Grupo Liberman, which is involved in agribusiness,
fisheries, telecommunications and hotel development. An affiliate of Grupo
Liberman, Video Cable Comunicacion, or VCC, is a cable television system
operator which was sold to Tele-Communications, Inc. in 1997 in a series of
transactions for over $1 billion. Prior to the sale of VCC to
Tele-Communications, Inc., we entered into a reciprocal advertising agreement
with VCC pursuant to which each company provided the other with advertising
time. We previously leased offices from Grupo Liberman in Miami. Mr. Liberman
also is affiliated with one of our advertisers, TeleLatina, a start-up regional
telecommunications company in Latin America. TeleLatina accounted for
approximately $68,000 of our advertising revenues for the nine months ended
September 30, 1999.
In July 1998, we acquired 85% of the Class A shares and 100% of the Class B
shares of Cibrian-Campoy Creativos, S.A., in Argentina, from its shareholders,
who included the following directors and executive officers: Roberto
Cibrian-Campoy; Guillermo Liberman and Roberto Vivo-Chaneton. We paid $50,000
for 85% of the common shares, and issued 3,432,094 of our common shares for 100%
of the Class B shares, of Cibrian-Campoy Creativos, S.A. In October 1997, we
purchased, for an aggregate purchase price of $1,700, the majority of the shares
of Aalefranger, S.A., in Uruguay, from its shareholders, who included Roberto
Vivo-Chaneton and Roberto Cibrian-Campoy. These two companies are the
predecessors of our operating subsidiaries in Argentina and Uruguay.
Some of our directors have from time to time guaranteed short-term
indebtedness or other liabilities of our company. Mr. Vivo and Mr. Verdaguer
personally guaranteed payment of the monthly rent for our current headquarters
in Buenos Aires ($84,000 per year), as well as the rental of our new
headquarters at Azopardo in Buenos Aires ($228,000 per year).
On July 7, 1999, we completed a private placement of 5,447,088 Class A
convertible preferred shares for a gross purchase price of $38.4 million in
cash. Strategic investors included Hicks, Muse, Tate & Furst Incorporated and
the Cisneros Group of Companies (through IAMP (El Sitio) Investments Ltd.) and
GC Companies, Inc. (through GCC Investments, LLC). As a part of the private
placement, we entered into an agreement with Washburn Enterprises, an affiliate
of the Cisneros Television Group, under which we also agreed to purchase at
least $4.0 million of advertising time on the media networks owed by Washburn's
affiliate Ibero-American Media Partners II Ltd. and its
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affiliates, and Washburn agreed that it and its affiliates would purchase at
least $2 million of advertising time on our network, all during the period
through January 2001.
Under a shareholders' agreement entered into in conjunction with the
July 1999 private placement and our articles of association, we pay monitoring
fees and director fees of $700,000 per year, in the aggregate, to IAMP (El
Sitio) Investments Ltd., GCC Investments, LLC, Tower Plus International,
SLI.com, Inc., Militello Limited and IMPSAT Corporation. These monitoring fees
and director fees will continue to be payable after this offering and conversion
of the Class A convertible preferred shares into common shares.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of our common shares in the public market could adversely affect
market prices for our common shares. Because no shares will be available for
sale shortly after this offering due to the contractual and legal restrictions
on resale described below, sales of substantial numbers of our common shares
after these restrictions lapse could adversely affect market prices and our
ability to raise equity capital in the future.
Immediately upon completion of this offering, we will have outstanding an
aggregate of 38,574,460 common shares, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the common shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless such common shares are purchased by "affiliates" as that term is defined
in Rule 144 under the Securities Act. Of the remaining common shares,
approximately 19,000,000 shares held by existing shareholders or issuable upon
conversion of our Class B convertible preferred shares will be "restricted
securities", as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act, which rules are summarized below.
LOCK-UP AGREEMENTS
All of our directors and executive officers, some of our employees, and some
of our existing shareholders have entered into lock-up agreements under which
they agreed not to transfer or dispose of, directly or indirectly, any common
shares, subject to limited exceptions, or any securities convertible into or
exercisable or exchangeable for common shares, for a period of 180 days after
the date of this prospectus. Transfers or dispositions can be made prior to the
end of that 180-day period with the prior written consent of Credit Suisse First
Boston Corporation or in other limited circumstances. Subject to the provisions
of Rules 144, 144(k) and 701, a significant portion of the restricted shares
will be available for sale in the public market, subject in the case of shares
held by affiliates to compliance with certain volume restrictions, shortly after
the end of that 180-day period.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned common shares
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of common shares then outstanding, which will equal
approximately 385,745 shares immediately after this offering; or
- the average weekly trading volume of the common shares on the NASDAQ
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
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RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased common shares from
us in connection with a compensatory share plan or other written agreement is
eligible to resell such shares 90 days after the closing of this offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
REGULATION S
Under Regulation S, holders of our common shares may be able to sell their
shares outside the United States without registration under the Securities Act.
Non-U.S. purchasers of those common shares who are not affiliates of our company
should, subject to compliance with Regulation S, be able to resell those shares
in the public market in the United States without restriction.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of approximately 19,000,000
common shares, or their transferees, will be entitled to exercise rights to
cause us to register those shares for resale under the Securities Act of 1933.
These holders have these registration rights under the provisions of a
registration rights agreement that was entered into in connection with the
private placement of our Class A convertible preferred shares in July 1999.
1999 SHARE OPTION PLAN
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 3,240,000 common shares reserved for issuance
under our 1999 share option plan. This registration statement is expected to be
filed as soon as practicable after the closing of this offering.
At September 30, 1999, options to purchase 1,238,400 shares were issued and
outstanding under our 1999 option plan. All of these shares will be eligible for
sale in the public market from time to time, subject to vesting provisions,
Rule 144 volume limitations applicable to our affiliates and, in the case of
some of the options, the expiration of lock-up agreements.
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DESCRIPTION OF SHARE CAPITAL
GENERAL
Our authorized capital consists of 200,000,000 common shares and 100,000,000
preferred shares, with 40,000,000 preferred shares designated as Class A
convertible preferred shares and 1,888,889 preferred shares designated as
Class B convertible preferred shares.
COMMON SHARES
As of September 30, 1999, we had 12,568,098 common shares issued and
outstanding. All outstanding shares of common shares are fully paid and
non-assessable.
The holders of common shares are entitled to one vote for each share held of
record on all matters submitted to a vote of our shareholders. Cumulative voting
is not permitted.
Subject to the prior rights of any series of shares that may be issued in
the future, holders of common shares are entitled to receive, ratably, such
dividends as may be declared by our board of directors from funds legally
available therefor and are entitled to share, ratably, in all our assets
available for distribution to holders of common shares upon the liquidation,
dissolution or winding up of our affairs.
PREFERRED SHARES
Authorized preferred shares may be issued from time to time by our board of
directors, in one or more series. Subject to the provisions of our articles of
association and the limitations prescribed by law, our board of directors is
authorized to adopt resolutions to issue the authorized preferred shares, to fix
the number of shares and to change the number of shares constituting any series,
and to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the preferred shares of any class or series, in each
case without any further action or vote by the shareholders.
One of the effects of undesignated preferred shares may be to enable our
board of directors to render more difficult or to discourage an attempt to
obtain control of our company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect continuity of our management. The issuance
of preferred shares may adversely affect the rights of the holders of common
shares. For example, our preferred shares may rank prior to the common shares as
to dividend rights, liquidation preference or both, may have full or limited
voting, rights and may be convertible into common shares. Accordingly, the
issuance of preferred shares may discourage bids for the common shares at a
premium or may otherwise adversely affect the market price of the common shares.
CLASS A CONVERTIBLE PREFERRED SHARES
GENERAL. As of September 30, 1999, we had 5,832,566 Class A convertible
preferred shares outstanding. Upon the closing of this offering, each
outstanding Class A convertible preferred share will be automatically converted
into two common shares.
DIVIDENDS. The holders of the Class A convertible preferred shares are
entitled to receive cumulative preferential dividends at an annual rate equal to
8% of the liquidation preference per Class A convertible preferred share,
payable quarterly, in arrears.
CONVERSION. The holders of Class A convertible preferred shares may, at
their option, convert these shares into common shares at any time in whole or in
part. These Class A convertible preferred shares will be automatically converted
into common shares upon the closing of this offering.
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REDEMPTION. The Class A convertible preferred shares are subject to
redemption at the option of the holders, beginning in July 2004, at a price
equal to 100% of the liquidation preference thereof, plus any and all accrued
and unpaid cumulative dividends thereon.
VOTING. The holders of the Class A convertible preferred shares have the
right to vote, together with the holders of all the issued and outstanding
common shares and not by classes, except as otherwise required by British Virgin
Islands law, on all matters on which holders of common shares are entitled to
vote. Each holder of the Class A convertible preferred shares has the right to
cast one vote for each whole common share which would be issued to such holder
upon conversion of such holder's shares of Class A convertible preferred shares,
assuming that such conversion were to occur on the date immediately prior to the
record date for the determination of shareholders entitled to vote.
In addition, we may not take certain corporate actions without the
affirmative vote or consent of the holders of a majority of the Class A
convertible preferred shares, including amending our memorandum of association
in a manner adverse to the holders of the Class A convertible preferred shares,
issuing additional preferred shares and declaring and paying dividends on our
common shares.
Shareholder meetings may be convened by our board of directors or upon the
request of holders holding at least 50% of the outstanding voting shares of the
Company. Shareholder resolutions may be approved without a meeting by written
consent of a majority of the votes of the shares entitled to vote thereon.
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution
or winding up of our company, holders of Class A convertible preferred shares
are entitled to be paid an amount equal to the liquidation preference per
preferred share out of our assets before any distribution is made to any holders
of common or other junior shares.
REGISTRATION RIGHTS. In connection with the private placement in July 1999
of Class A convertible preferred shares, we entered into a registration rights
agreement with some of our shareholders. Under the registration rights
agreement, these shareholders have specified rights after a qualified offering
to cause us to register their holdings of common shares of $15.0 million or more
under the Securities Act of 1933. We have requested, and expect, that these
shareholders will waive their registration rights in connection with this
offering. We will also seek a waiver from these shareholders of the minimum
dollar per share feature of the qualified offering definition contained in the
registration rights agreement. We are required to bear all registration expenses
other than underwriting discounts and commissions and fees related to any
exercise of these registration rights. In addition, we have agreed to indemnify
the registration rights recipients against, and provide contribution with
respect to, liabilities under the Securities Act of 1933 in connection with
registrations.
CLASS B CONVERTIBLE PREFERRED SHARES
GENERAL. As of the date of this prospectus, we have 1,111,111 Class B
convertible preferred shares outstanding.
DIVIDENDS. The holders of the Class B convertible preferred shares are
entitled to receive cumulative preferential dividends at an annual rate equal to
8% of the liquidation preference per Class B convertible preferred share,
payable quarterly, in arrears.
CONVERSION. Each Class B convertible preferred share will automatically
convert, on the date six months following the closing date of this offering into
one common share, subject to specified anti-dilution adjustments. If this
offering is not consummated, the holders of Class B convertible preferred shares
may, after a period of six months, at their option, convert these shares into
common shares at any time in whole or in part.
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REDEMPTION. The Class B convertible preferred shares are subject to
redemption at the option of the holders, beginning in July 2004, at a price
equal to 100% of the liquidation preference thereof, plus any and all accrued
and unpaid cumulative dividends thereon.
VOTING. The holders of the Class B convertible preferred shares have the
right to vote, together with the holders of all the issued and outstanding
common shares and not by classes, except as otherwise required by British Virgin
Islands law, on all matters on which holders of common shares are entitled to
vote.
Each holder of the Class B convertible preferred shares has the right to
cast one vote for each whole common share which would be issued to such holder
upon conversion of such holder's shares of Class B convertible preferred shares,
assuming that such conversion were to occur on the date immediately prior to the
record date for the determination of shareholders entitled to vote.
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution
or winding up of our company, holders of Class B convertible preferred shares
are entitled to be paid an amount equal to the liquidation preference per
preferred share out of our assets before any distribution is made to any holders
of common or other junior shares.
REGISTRATION RIGHTS. In connection with the private placement of Class B
convertible preferred shares, we entered into a registration rights agreement
with those investors. Under the registration rights agreement, the investors
have specified rights after this offering to cause us to register their holdings
of common shares of $5.0 million or more under the Securities Act of 1933. Each
Class B convertible preferred share will be convertible into one common share,
subject to specified anti-dilution adjustments. We will be required to bear all
registration expenses other than underwriting discounts and commissions and fees
related to any exercise of these registration rights. In addition, we have
agreed to indemnify the registration rights recipients against, and provide
contribution with respect to, liabilities under the Securities Act of 1933 in
connection with registrations.
LISTING
We have applied to list our common shares on the Nasdaq National Market
under the trading symbol "LCTO."
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for our common shares is The Bank of New
York. Its address is The Bank of New York, Shareholder Relations, P.O. Box
11258, New York, New York 10286-1258, and its telephone number is
(800) 432-0140.
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TAXATION
BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS
We are exempt from all provisions of the Income Tax Act of the British
Virgin Islands with respect to all dividends, interests, rents, royalties,
compensation and other amounts payable by our company to persons who are not
persons resident in the British Virgin Islands. Persons who are not persons
resident in the British Virgin Islands are also exempt from any capital gains
realized with respect to any shares, debt obligations or other securities,
including the common shares, of our company. No estate, inheritance, succession
or gift tax, rate, duty, levy or other charge is payable by persons who are not
persons resident in the British Virgin Islands with respect to any shares, debt
obligations or other securities, including the common shares, of our company.
There is no reciprocal tax treaty in force between the British Virgin Islands
and the United States.
U.S. FEDERAL INCOME TAXATION CONSIDERATIONS
The following discussion describes the material U.S. federal income tax
considerations that may be relevant to a prospective purchaser of shares to a
U.S. Holder (as defined below) of the receipt of distributions on, and the
disposition of, our common shares. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), on the regulations
promulgated thereunder and on published administrative rulings and judicial
decisions, all as of the date hereof. We cannot assure you that future
legislation, administrative rulings or court decisions will not modify the
conclusions set forth in this summary, possibly with retroactive effect. The
discussion is of a general nature only and prospective purchasers of our common
shares are advised to consult their own tax advisors with respect to U.S.
federal, state and local tax consequences and tax consequences in other
jurisdictions, of the ownership of shares applicable in their particular
situation. Except as specifically set forth herein, this discussion deals only
with common shares held by a U.S. Holder as capital assets within the meaning of
Section 1221 of the Code, and does not address tax considerations applicable to
holders that may be subject to special tax rules, such as banks, insurance
companies, dealers in securities or currencies, tax-exempt entities, persons
that will hold shares as a position in a "straddle" or as part of a "hedging" or
"conversion" transaction for tax purposes or persons that have a "functional
currency" (as defined in Section 985 of the Code) other than the U.S. dollar.
As used herein, a "U.S. person" is:
- a United States citizen or resident;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust which is subject to the supervision of a court within the United
States and the control of a United States person as described in
section 7701(a)(30) of the Code or that has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a United
States person.
A "U.S. Holder" is a beneficial owner of common shares that is a U.S. person. A
"non-U.S. Holder" is a beneficial owner of common shares that is not a U.S.
Holder.
U.S. HOLDERS
DIVIDENDS. To the extent that a distribution on our common shares is paid
to a U.S. Holder out of our current or accumulated earnings and profits (as
determined for U.S. federal income tax purposes), that distribution will be
included in the U.S. Holder's gross income as foreign source dividend income
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in an amount equal to the U.S. dollar value of the distribution (without
reduction for any applicable foreign withholding tax). Therefore, in the event
that any foreign tax is withheld from a distribution on the common shares, a
U.S. Holder generally will be required to report gross income in an amount
greater than the cash received (although, as discussed below, that U.S. Holder
may be eligible to claim a deduction or a foreign tax credit in respect of such
foreign tax). To the extent that the amount of any distribution on the common
shares exceeds our current and accumulated earnings and profits (as determined
for U.S. federal income tax purposes), a U.S. Holder's pro rata share of the
excess amount would be treated first as a nontaxable return of capital that
would be applied against and would reduce the U.S. Holder's tax basis in its
common shares (but not below zero), and then as capital gain. Distributions in
excess of our current and accumulated earnings and profits (as determined for
U.S. federal income tax purposes) generally will not give rise to foreign source
income and a U.S. Holder may be unable to claim a foreign tax credit in respect
of any British Virgin Islands or other foreign withholding tax imposed on those
distributions unless, subject to applicable limitations, the U.S. Holder has
other foreign source income in the appropriate category for foreign tax credit
purposes. We believe that we do not have current or accumulated earnings and
profits for U.S. federal income tax purposes. However, we cannot predict whether
we will have any such earnings and profits for future taxable years.
Subject to certain conditions and limitations (including certain minimum
holding period requirements), the U.S. dollar value of the foreign income taxes,
if any, withheld from a distribution to a U.S. Holder on the common shares may
generally be claimed as a credit against the U.S. Holder's U.S. federal income
tax liability. Alternatively, a U.S. Holder may generally claim a deduction for
such amount of foreign income taxes withheld in a taxable year, but only if such
U.S. Holder does not elect to claim a foreign tax credit in respect of any
foreign taxes paid by it in the taxable year. Dividends on common shares
generally will constitute "passive income" or, in the case of some U.S. Holders,
"financial services income" for U.S. foreign tax credit purposes. Special rules
apply to some individuals whose foreign source income during the taxable year
consists entirely of "qualified passive income" and whose creditable foreign
taxes paid or accrued during the taxable year do not exceed $300 ($600 in the
case of a joint return).
The rules relating to foreign tax credits are extremely complex and the
availability of a foreign tax credit depends on numerous factors. Prospective
purchasers of our common shares should consult their own tax advisors concerning
the application of the U.S. foreign tax credit rules to their particular
situations.
The U.S. dollar value of any distribution to a U.S. Holder on shares that is
paid in a foreign currency will be calculated by reference to the exchange rate
in effect at the time the distribution is received by the U.S. Holder. If a U.S.
Holder that receives foreign currency from a distribution and does not convert
the foreign currency into U.S. dollars upon receipt, the U.S. Holder will
generally have foreign exchange gain or loss based on any appreciation or
depreciation of the value of the foreign currency against the U.S. dollar, which
will generally be U.S. source ordinary income or loss for U.S. foreign tax
credit purposes.
A corporate U.S. Holder will not be entitled to a dividends-received
deduction with respect to distributions on our common shares.
SALE OR EXCHANGE OF COMMON SHARES. A U.S. Holder generally will recognize
taxable gain or loss on any sale or exchange of a common share in an amount
equal to the difference between the amount realized for that common share and
the U.S. Holder's adjusted tax basis in that share. The gain or loss should be
capital gain or loss. Capital gains of individuals derived with respect to
capital assets held for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations. Any
gain or loss recognized by a U.S. Holder will generally be treated as United
States source gain or loss for foreign tax credit purposes. As a result of
certain limitations under the
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foreign tax credit provisions of the Code, a U.S. Holder may be unable to claim
a foreign tax credit for British Virgin Islands withholding taxes, if any,
imposed on the proceeds received upon the sale, exchange, repurchase by us or
other disposition of common shares.
PASSIVE FOREIGN INVESTMENT COMPANY PROVISIONS. A foreign corporation will be
classified as a passive foreign investment company (a "PFIC") for U.S. federal
income tax purposes if 75% or more of its gross income for the taxable year is
passive income or on average for the taxable year, 50% or more of its assets, by
value (or, if it so elects, by adjusted basis), produce or are held for the
production of passive income. For this purpose, passive income generally
includes dividends, interest, royalties, rents (other than rents and royalties
derived in the active conduct of a trade or business and not derived from a
related person), annuities and gains from assets that produce passive income. If
a foreign corporation owns at least 25% by value of the stock of another
corporation, the foreign corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation and as
receiving directly its proportionate share of the other corporation's income. If
a foreign corporation is classified as a PFIC, in any year with respect to which
a U.S. Holder owns common shares, it generally will continue to be treated as a
PFIC, with respect to such shareholder in all succeeding years. We will notify
U.S. Holders by letter and provide them with the information as may be required
to make a "qualified electing fund" election effective.
Based upon our current and projected income, assets and activities, we do
not expect that our common shares will be considered shares of a PFIC for our
current fiscal year or for future years. This conclusion is a factual
determination made annually and thus is subject to change. In reaching the
conclusion that we do not believe that our company is a PFIC, we have valued our
company's assets based on the price per share of the common shares. For purposes
of applying the PFIC rules to our company, this valuation method results in
substantial value being given to intangible assets, including goodwill, that are
considered neither to produce nor to be held for the production of passive
income for purposes of the PFIC rules. The U.S. Internal Revenue Service (the
"IRS") has neither approved or disapproved of this valuation method, although we
believe that it constitutes a reasonable method of valuing our company's
non-passive assets. In addition, we believe that our passive income, as defined
under Section 1297 of the Code, does not, and should not, equal or exceed 75% of
our gross income. We will notify U.S. Holders if our company becomes a PFIC in
any taxable year. We will notify U.S. Holders by letter and provide them with
the information required to make a "QEF election," as described below.
If our company were treated as a PFIC, unless U.S. Holders make a "QEF
election" or a "mark-to-market election," each as described below:
- distributions made by our company during a taxable year with respect to
the common shares that are "excess distributions" (defined generally as
the excess of the amount received with respect to the shares in any
taxable year over 125% of the average received in the shorter of either
the three previous years or your holding period before the taxable year)
must be allocated ratably to each day of your holding period. The amounts
allocated to the current taxable year and to taxable years prior to the
first year in which our company was classified as a PFIC will be included
as ordinary income in gross income for that year. The amount allocated to
each other prior taxable year will be taxed as ordinary income at the
highest rate in effect for the U.S. Holder in that prior year and the tax
is subject to an interest charge at the rate applicable to deficiencies in
income taxes; and
- the entire amount of any gain realized upon the sale or other disposition
of common shares will be treated as an excess distribution made in the
year of sale or other disposition and as a consequence will be treated as
ordinary income and to the extent allocated to years prior to the year of
sale or disposition, will be subject to the interest charge described
above.
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These special PFIC tax rules will not apply if the U.S. Holder elects to
have our company treated as a "qualified electing fund" (a "QEF election") and
our company provides certain information required for the QEF election. If our
company is treated as a PFIC, we intend to notify U.S. Holders and provide them
with that information as may be required to make the QEF election effective.
If a U.S. Holder makes a QEF election, the U.S. Holder will be currently
taxable on its pro rata share of our company's ordinary earnings and net capital
gain (at ordinary income and capital gains rates, respectively) for each taxable
year of our company, regardless of whether or not distributions were received.
The U.S. Holder's basis in the common shares will be increased to reflect taxed
but undistributed income. Distributions of income that had previously been taxed
will result in a corresponding reduction in basis in the common shares and will
not be taxed again as a distribution.
Alternatively, if the common shares are treated as "marketable stock," a
U.S. Holder may make a mark-to-market election. If this election is made, the
U.S. Holder will not be subject to the PFIC rules described above. Instead, the
U.S. Holder generally will include in each year as ordinary income the excess,
if any, of the fair market value of the common shares at the end of the taxable
year over the U.S. Holder's adjusted basis in the shares and will be permitted
an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted
basis in the common shares over its fair market value at the end of the taxable
year (but only to the extent of the net amount previously included in income as
a result of the mark-to-market election). Basis in the shares would be adjusted
to reflect any such income of loss amounts. The mark-to-market election is only
available with respect to stock traded on certain U.S. exchanges and other
exchanges designated by the U.S. Treasury. It is anticipated that such election
would be available to U.S. Holders.
U.S. Holders that own common shares during any year that our company is a
PFIC, must file IRS Form 8621. U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISERS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF HOLDING SHARES
OF OUR COMPANY IF IT IS CONSIDERED A PFIC.
CONTROLLED FOREIGN CORPORATIONS. If United States Shareholders in the
aggregate own more than 50% of the voting power or value of the shares of a
foreign corporation, it will be classified as a "controlled foreign corporation"
("CFC"). A "United States Shareholder" is any United States person that owns
(directly or through certain deemed ownership rules) at least 10% of the total
combined voting power of all classes of shares of a foreign corporation.
If a foreign corporation is a CFC for an uninterrupted period of 30 days or
more during the taxable year, the United States Shareholders of the CFC will
generally be subject to current U.S. tax on certain types of income of the
foreign corporation ("Subpart F income," which includes dividends, interest,
certain rents and royalties, gain from the sale of property producing such
income and certain income from sales and services) and, in certain
circumstances, on earnings of the CFC that are invested in U.S. property,
whether or not cash is distributed by the CFC. In addition, gain on the sale of
the CFC's shares by a United States Shareholder (during the period that the
corporation is a CFC and thereafter for a five-year period) will be ordinary
income in whole or in part.
If we are treated as a CFC, any U.S. Holder that acquires (directly or
through certain deemed ownership rules) 10% or more of the total combined voting
power of all classes of our shares will be required to include certain amounts
with respect to its investment in income currently. Our status as a CFC should
have no adverse effect on any U.S. Holder that is not a United States
Shareholder.
FOREIGN PERSONAL HOLDING COMPANIES. If five or fewer U.S. individuals own,
or are treated as owning under certain attribution rules, in the aggregate more
than 50% of the voting power or value of the shares of a foreign corporation,
and at least 60% (50% in certain circumstances) of the "gross income" of such
foreign corporation is made up of certain passive type income (for example,
dividends, interest, certain rents and royalties and gain from the sale of stock
or securities) for a taxable year, then such corporation will be a "foreign
personal holding company" ("FPHC"). If a foreign
90
<PAGE>
corporation is a FPHC, U.S. persons that own shares in the FPHC (regardless of
the size of their shareholding and regardless of whether they are individuals)
will generally be subject to current U.S. tax on a pro-rata portion of the
FPHC's undistributed foreign personal holding company income ("FPHCI") for the
taxable year or part thereof, although tax-exempt U.S. investors will not be
subject to tax on amounts attributable to FPHCI. In addition, U.S. persons that
are required under these rules to include undistributed taxable income for a
taxable year and that own at least 5% of the value of the FPHC's shares are
required to comply with certain reporting requirements under Code. In addition,
if our company became a FPHC, U.S. persons who acquire their shares from
decedents would not receive a "stepped-up" basis in such shares. Instead, such
U.S. persons would have a tax basis equal to the lower of fair market value or
the decedent's basis.
Based upon our current and projected income, assets and activities, we do
not expect the common shares to be considered shares of FPHC for our current
year or for future years. We will notify U.S. Holders if we become a FPHC in any
taxable year.
NON-U.S. HOLDERS
A non-U.S. Holder generally will not be subject to U.S. federal income tax
on dividends paid by us with respect to the common shares unless such income is
effectively connected with the conduct by the non-U.S. Holder of a trade or
business in the United States.
A non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on the sale or other disposition of the common
shares unless that gain is effectively connected with the conduct by the
non-U.S. Holder of a trade or business within the United States, or, in the case
of gains recognized by individual non-U.S. Holders, the individual is present in
the United States for 183 days or more and certain other conditions are met.
Effectively connected dividends and gains of a non-U.S. Holder generally
will be subject to tax in the same manner as a U.S. Holder. These dividends and
gains realized by a corporate non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to dividends in
respect of the common shares or the proceeds received on the sale, exchange or
redemption of common shares paid within the U.S. (and in certain cases, outside
the United States) to U.S. Holders other than certain exempt recipients, such as
corporations, and a 31% backup withholding may apply to such amounts if the U.S.
Holder fails to provide an accurate taxpayer identification number or to report
interest and dividends required to be shown on its U.S. federal income tax
returns. The amount of any backup withholding from a payment to a U.S. Holder
will be allowed as credit against the U.S. Holder's U.S. federal income tax
liability.
Non-U.S. Holders are generally exempt from the information reporting and
backup withholding rules but may be required to comply with certification and
identification requirements in order to prove their exemption.
The rules for information reporting and backup withholding requirements have
been altered in certain respects with respect to payments after December 31,
2000. It is possible that we and other withholding agents may request a new
withholding certificate in order to qualify for continued exemption from backup
withholding under Treasury regulations when they become effective. Holders of
the common shares should consult their tax advisers concerning the possible
application of these alterations to any payments made with respect to the common
shares.
91
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
dated December , 1999, each of the underwriters named below, for which Credit
Suisse First Boston Corporation, Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Smith Barney Inc. and Wit Capital
Corporation are acting as representatives, have severally agreed to purchase
from us the aggregate number of common shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
OF COMMON
NAME SHARES
- ---- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Lehman Brothers Inc.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Salomon Smith Barney Inc....................................
Wit Capital Corporation.....................................
---------
Total................................................... 8,200,000
=========
</TABLE>
The underwriting agreement provides that, the underwriters are obligated to
purchase and pay for all of the above common shares if any are purchased, other
than those common shares covered by the over-allotment option described below.
The underwriting agreement provides that, if an underwriter defaults, the
purchase commitments on non-defaulting underwriters may, in some circumstances,
be increased or the offering of common shares may be terminated.
The underwriters propose to offer the common shares initially at the public
offering price set forth on the cover page of this prospectus and at this price
less a concession not in excess of $ per common share to other dealers who
are members of the National Association of Securities Dealers, Inc. The
underwriters may allow, and dealers may reallow, concessions not in excess of
$ per common share to other dealers. After the offering, the offering price,
concessions and other selling terms may be changed by the underwriters.
We have granted an over-allotment option to the underwriters to purchase an
amount, up to an aggregate of 1,230,000 additional common shares, exercisable at
the initial public offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will become obligated, subject to customary conditions, to purchase
approximately the same percentage of these additional common shares as is
approximately the percentage of common shares that it is obligated to purchase
of the total number of common shares under the underwriting agreement as shown
in the table set forth above.
The following table summarizes the underwriting discount and estimated
expenses that we will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
OPTION OPTION OPTION OPTION
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discount paid by us.......... $ % $ % $ $
Expenses payable by us in connection with
this offering........................... $ % $ % $ $
</TABLE>
92
<PAGE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common shares being offered.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities under the Securities Act or contribute to payments that the
underwriters may be required to make in respect thereof.
Our directors and executive officers and some of our existing shareholders
who collectively hold a total of 27,121,294 shares have agreed under lock-up
agreements not to sell or offer to sell or otherwise dispose of any common
shares, subject to limited exceptions, for a period 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation.
Prior to the offering, there has been no public market for our common
shares. Consequently, the initial offering price for the common shares offered
hereby was determined by negotiations between us and the representative of the
underwriters. Among the factors considered in these negotiations were our
results of operations in recent periods, estimates of our prospects and the
industry in which we compete, an assessment of our management, the general state
of the securities markets at the time of the offering and the prices of similar
securities of generally comparable companies. We will apply to list our common
shares on the Nasdaq National Market under the symbol "LCTO." We cannot assure
you, however, that an active or orderly trading market will develop for the
common shares or that our common shares will trade in the public markets
subsequent to the offering at or above the initial offering price.
In order to facilitate the offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common shares during and after the offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
shares for their own account by selling more common shares than we have actually
sold to them. The underwriters may elect to cover any short position by
purchasing common shares in the open market or by exercising the over-allotment
option granted to the underwriters. In addition, the underwriters may stabilize
or maintain the price of the common shares by bidding for or purchasing common
shares in the open market and may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers participating
in the offering are reclaimed if common shares previously distributed in the
offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the common
shares to the extent that it discourages resales thereof. No representation is
made as to the magnitude or effect of these activities.
The underwriters have reserved for sale, at the initial public offering
price, up to 820,000 common shares for directors, officers, employees and other
persons associated with us who have expressed an interest in purchasing common
shares in the offering. The number of common shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase reserved common shares. Any reserved common shares not purchased by
these persons will be offered by the underwriters to the general public on the
same terms as the other common shares offered in this offering. Some of the
employees and other persons who will be offered reserved common shares will be
required to agree not to sell or offer to sell or otherwise dispose of any
common shares, subject to limited exceptions, for a period of 90 days after the
date of this prospectus without the prior written consent of Credit Suisse First
Boston Corporation and Lehman Brothers Inc.
A prospectus in electronic format is being made available on an Internet
Website maintained by Wit Capital Corporation, which is one of the underwriters
in this offering. In addition, all dealers purchasing common shares from Wit
Capital Corporation in this offering have agreed to make a
93
<PAGE>
prospectus in electronic format available on a Website maintained by each of
them. Other than the prospectus in electronic format, the information on the
Website and any information contained on any other Website maintained by Wit
Capital Corporation or any dealer purchasing common shares from it is not part
of this prospectus or the registration statement of which this prospectus forms
a part, has not been approved and/or endorsed by us or any underwriter in its
capacity as underwriter and should not be relied on by prospective investors.
94
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common shares in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each provinces where
trades of common shares are effected. Accordingly, any resale of the common
shares in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemptions granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common shares.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common shares in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common shares without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as agent
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The common shares being offered are those of a foreign Issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common shares to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common shares acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common shares acquired on the same date and under
the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common shares should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
shares in their particular circumstances and with respect to the eligibility of
the common shares for investment by the purchaser under relevant Canadian
legislation.
95
<PAGE>
LEGAL MATTERS
The validity of the common shares and certain other matters of British
Virgin Islands law in connection with this offering will be passed upon for us
by Conyers Dill & Pearman, our British Virgin Islands counsel.
Certain matters relating to this offering will be passed upon for us by
Paul, Hastings, Janofsky & Walker LLP, our U.S. counsel, and for the
underwriters by Simpson Thacher & Bartlett, U.S. counsel to the underwriters.
Some partners and associates of Paul, Hastings, Janofsky & Walker LLP will
be purchasing up to 18,750 common shares in the offering.
EXPERTS
The consolidated financial statements of our company as of December 31,
1997, December 31, 1998 and September 30, 1999 and for the period from July 16,
1997 (date of inception) through December 31, 1997, the year ended December 31,
1998 and the nine months ended September 30, 1999 included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
that firm given upon their authority as experts in accounting and auditing.
The statement of historical net assets to be sold by IMPSAT Corporation as
of September 30, 1999 included in this prospectus has been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and is included in reliance upon the report of that firm given upon
their authority, as experts in accounting and auditing.
The statements of net revenues and direct costs and expenses of IMPSAT
S.A.'s retail dial-up access business in Argentina for the years ended
December 31, 1997 and December 31, 1998 and the nine months ended September 30,
1999 included in this prospectus have been audited by Deloitte & Touche,
Argentina, independent auditors, as stated in their report appearing herein, and
are included in reliance upon the report of that firm given upon their authority
as experts in accounting and auditing.
The statements of net revenues and direct costs and expenses of MANDIC
INTERNET LTDA.'s retail dial-up access business in Brazil for the years ended
December 31, 1997 and December 31, 1998 and the nine months ended September 30,
1999 included in this prospectus have been audited by Deloitte Touche Tohmatsu,
Brazil, independent auditors, as stated in their report appearing herein, and
are included in reliance upon the report of that firm given upon their authority
as experts in accounting and auditing.
The statements of net revenues and direct costs and expenses of IMPSAT
S.A.'s, retail dial-up access business in Colombia for the years ended
December 31, 1997 and December 31, 1998 and the nine months ended September 30,
1999 included in this prospectus have been audited by Deloitte & Touche,
Colombia, independent auditors, as stated in their report appearing herein, and
are included in reliance upon the report of that firm given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1, including exhibits, under the Securities Act of 1933 with
respect to the common shares to be sold in this offering. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits which are a
part of the registration statement. For further information with respect to us
and the common shares, reference is made to the registration statement and the
exhibits.
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<PAGE>
You may read and copy all or any portion of the registration statement or
other information in our files in the Commission's public reference room at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13(th)
Floor, New York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can request copies of these documents upon payment of a
duplicating fee, by writing to the Commission. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. EL SITIO'S COMMISSION FILINGS, INCLUDING THE REGISTRATION STATEMENT, WILL
ALSO BE AVAILABLE TO YOU ON THE COMMISSION'S INTERNET SITE (HTTP://WWW.SEC.GOV).
Please note that as a foreign private issuer, we are not subject to the same
disclosure requirements as a domestic registrant under the Securities Exchange
Act of 1934. For example, we are not required to prepare and issue quarterly
reports. However, we intend to furnish our shareholders with annual reports
containing financial statements audited by our independent auditors and to make
available to our shareholders quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year. We intend to file
quarterly financial information with the SEC within two months of the end of the
first three quarters of our fiscal year, and we will file annual reports on
Form 20-F within the time period required by the SEC, which is currently six
months from the end of our fiscal year on December 31.
97
<PAGE>
[This Page Intentionally Left Blank]
98
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
EL SITIO, INC. AND SUBSIDIARIES
Independent Auditors' Report............................ F-2
Consolidated Balance Sheets at December 31, 1997 and
1998 and September 30, 1999............................. F-3
Consolidated Statements of Operations and Comprehensive
Loss for the period from July 16, 1997 (date of
inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999................. F-4
Consolidated Statements of Shareholders' Equity
(Deficit) for the period from July 16, 1997 (date of
inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended
September 30, 1999...................................... F-5
Consolidated Statements of Cash Flows for the period
from July 16, 1997 (date of inception) through
December 31,1997, the year ended December 31, 1998 and
the nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-6
Notes to Consolidated Financial Statements.............. F-7
IMPSAT CORPORATION
Independent Auditors' Report............................ F-18
Statement of Historical Net Assets to be Sold by IMPSAT
Corporation as of September 30, 1999.................... F-19
Notes to Statement of Historical Net Assets to be sold
by IMPSAT Corporation................................... F-20
IMPSAT S.A. (RETAIL DIAL-UP ACCESS BUSINESS IN ARGENTINA)
Independent Auditors' Report............................ F-21
Statements of Net Revenues and Direct Costs and Expenses
for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-22
Notes to Statements of Net Revenues and Direct Costs and
Expenses................................................ F-23
MANDIC INTERNET LTDA. (FORMERLY MANDIC.COM LTDA) (RETAIL
DIAL-UP ACCESS BUSINESS IN BRAZIL)
Independent Auditors' Report............................ F-26
Statements of Net Revenues and Direct Costs and Expenses
for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-27
Notes to Statements of Net Revenues and Direct Costs and
Expenses................................................ F-28
IMPSAT S.A. (RETAIL DIAL-UP ACCESS BUSINESS IN COLOMBIA)
Independent Auditors' Report............................ F-31
Statements of Net Revenues and Direct Costs and Expenses
for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and
1999.................................................... F-32
Notes to Statements of Net Revenues and Direct Costs and
Expenses................................................ F-33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION...... F-36
Pro Forma Statement of Operations for the nine months
ended September 30, 1999 and the year ended December 31,
1998.................................................... F-37
Pro Forma Balance Sheet at September 30, 1999........... F-39
Adjustments to Pro Forma Financial Information.......... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of El Sitio, Inc.:
We have audited the accompanying consolidated balance sheets of El
Sitio, Inc. and its subsidiaries (the "Company") as of December 31, 1997,
December 31, 1998 and September 30, 1999, and the related consolidated
statements of operations and comprehensive loss, shareholders' equity (deficit)
and cash flows for the period from July 16, 1997 (date of inception) through
December 31, 1997, the year ended December 31, 1998, and the nine months ended
September 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1997, December 31, 1998 and September 30, 1999, and the results of its
operations and its cash flows for the period from July 16, 1997 (date of
inception) through December 31, 1997, the year ended December 31, 1998, and the
nine months ended September 30, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
October 22, 1999 (October 28, 1999 as to the effects of
the share split described in Note 3 and November 5, 1999
as to the last sentence in the second paragraph in Note 14)
F-2
<PAGE>
\
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 89 $ 246 $24,393
Trade accounts receivable, net............................ 48 105 976
Other receivables......................................... 72 307 1,078
Prepaid expenses.......................................... 5 12 137
------- ------- -------
Total current assets.................................. 214 670 26,584
PROPERTY AND EQUIPMENT, NET................................. 180 581 1,878
LICENSES AND PERMITS, NET................................... -- 223 98
OTHER ASSETS................................................ 2 7 4,560
------- ------- -------
TOTAL ASSETS................................................ $ 396 $ 1,481 $33,120
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable--trade................................... $ 63 $ 336 $ 2,287
Accrued and other liabilities, including due to
shareholders............................................ 1,297 376 3,405
Current portion of installment loan....................... -- -- 7
Unearned revenues......................................... -- -- 628
------- ------- -------
Total current liabilities............................. 1,360 712 6,327
------- ------- -------
INSTALLMENT LOAN............................................ -- -- 22
COMMITMENTS AND CONTINGENCIES (Note 13)
CLASS A CONVERTIBLE PREFERRED SHARES
Redeemable, $.01 par value, 8% cumulative dividend,
40,000,000 shares authorized, 5,832,566 shares issued
and outstanding, liquidation preference $7.00186 per
share................................................... -- -- 38,327
------- ------- -------
SHAREHOLDERS' EQUITY (DEFICIT):
Common shares, $.01 par value; 200,000,000 shares
authorized; 100,000 and 6,000,000 shares issued and
outstanding at December 31, 1997 and 1998, respectively,
and 12,568,098 shares issued and outstanding at
September 30, 1999...................................... 1 60 126
Additional paid-in capital................................ 49 2,940 13,943
Irrevocable capital contribution.......................... -- 2,302 --
Deferred share-based compensation......................... -- -- (7,286)
Accumulated other comprehensive (loss) income............. -- (2) 95
Accumulated deficit....................................... (1,014) (4,531) (18,434)
------- ------- -------
Total shareholders' equity (deficit)...................... (964) 769 (11,556)
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)........................................... $ 396 $ 1,481 $33,120
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997, THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD NINE MONTHS
ENDED YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------
1997 1998 1998 1999
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES:
Advertising................................ $ 181 $ 527 $ 380 $ 1,195
Web design and hosting..................... 86 253 229 329
---------- ---------- ---------- ----------
Total.................................. 267 780 609 1,524
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Product, content and technology............ 221 1,556 848 3,181
Marketing and sales........................ 142 674 320 7,157
Corporate, general and administrative...... 727 1,940 1,144 3,736
Depreciation and amortization.............. 81 107 59 336
Share-based compensation................... -- -- -- 499
---------- ---------- ---------- ----------
Total costs and expenses............... 1,171 4,277 2,371 14,909
---------- ---------- ---------- ----------
Operating loss............................. (904) (3,497) (1,762) (13,385)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest income (expense), net............. (75) (42) (53) 264
Foreign exchange loss...................... (3) (44) (32) 5
Other income (expense), net................ (32) 66 55 (3)
---------- ---------- ---------- ----------
Total other (expenses) income, net..... (110) (20) (30) 266
---------- ---------- ---------- ----------
NET LOSS BEFORE DIVIDENDS ON CLASS A
CONVERTIBLE PREFERRED SHARES............... (1,014) (3,517) (1,792) (13,119)
DIVIDENDS ON CLASS A CONVERTIBLE PREFERRED
SHARES..................................... -- -- -- (784)
---------- ---------- ---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS............................... (1,014) (3,517) (1,792) (13,903)
OTHER COMPREHENSIVE LOSS,
NET OF TAX:
Foreign currency translation adjustment.... -- (2) -- 97
---------- ---------- ---------- ----------
COMPREHENSIVE LOSS........................... $ (1,014) $ (3,519) $ (1,792) $ (13,806)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE:
Basic...................................... $ (10.14) $ (1.15) $ (.87) $ (1.18)
========== ========== ========== ==========
Diluted.................................... $ (10.14) $ (1.15) $ (.87) $ (1.18)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic...................................... 100,000 3,050,000 2,066,667 11,777,516
========== ========== ========== ==========
Diluted.................................... 100,000 3,050,000 2,066,667 11,777,516
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997, THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL IRREVOCABLE DEFERRED COMPREHENSIVE
COMMON PAID-IN CAPITAL SHARE-BASED (LOSS) ACCUMULATED
SHARES AMOUNT CAPITAL CONTRIBUTION COMPENSATION INCOME DEFICIT
---------- -------- ---------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization...... 100,000 $ 1 $ 49 -- -- -- --
Net loss for the period..... -- -- -- -- -- -- $ (1,014)
---------- ------ ------- ------- ------- --- --------
BALANCE,
DECEMBER 31, 1997......... 100,000 1 49 -- -- -- (1,014)
Issuance of common shares in
exchange for Class B
shares of El Sitio
Argentina................. 3,432,094 34 1,682 -- -- -- --
Issuance of common shares... 2,467,906 25 1,209 -- -- -- --
Irrevocable capital
contribution.............. -- -- -- $ 2,302 -- -- --
Foreign currency translation
adjustment................ -- -- -- -- -- $(2) --
Net loss for the year....... -- -- -- -- -- -- (3,517)
---------- ------ ------- ------- ------- --- --------
BALANCE,
DECEMBER 31, 1998......... 6,000,000 60 2,940 2,302 -- (2) (4,531)
Issuance of common shares... 168,098 2 82 -- -- -- --
Irrevocable capital
contribution.............. -- -- -- 898 -- -- --
Capitalization of
irrevocable capital
contribution.............. 6,400,000 64 3,136 (3,200) -- -- --
Deferred compensation
related to share
options................... -- -- 7,785 -- $(7,785) -- --
Amortization of deferred
share-based
compensation.............. -- -- -- -- 499 -- --
Foreign currency translation
adjustment................ -- -- -- -- -- 97 --
Net loss for the nine months
ended..................... -- -- -- -- -- -- (13,903)
---------- ------ ------- ------- ------- --- --------
BALANCE,
SEPTEMBER 30, 1999........ 12,568,098 $ 126 $13,943 $ -- $(7,286) $95 $(18,434)
========== ====== ======= ======= ======= === ========
<CAPTION>
TOTAL
--------
<S> <C>
Initial capitalization...... $ 50
Net loss for the period..... (1,014)
--------
BALANCE,
DECEMBER 31, 1997......... (964)
Issuance of common shares in
exchange for Class B
shares of El Sitio
Argentina................. 1,716
Issuance of common shares... 1,234
Irrevocable capital
contribution.............. 2,302
Foreign currency translation
adjustment................ (2)
Net loss for the year....... (3,517)
--------
BALANCE,
DECEMBER 31, 1998......... 769
Issuance of common shares... 84
Irrevocable capital
contribution.............. 898
Capitalization of
irrevocable capital
contribution.............. --
Deferred compensation
related to share
options................... --
Amortization of deferred
share-based
compensation.............. 499
Foreign currency translation
adjustment................ 97
Net loss for the nine months
ended..................... (13,903)
--------
BALANCE,
SEPTEMBER 30, 1999........ $(11,556)
========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997, THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30,
------------ ------------ ------------------------
1997 1998 1998 1999
------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(1,014) $(3,517) $(1,792) $(13,903)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation.......................... 81 107 59 336
Amortization of deferred share-based compensation...... -- -- -- 499
Changes in assets and liabilities: Increase in trade
accounts receivable, net............................. (48) (57) (43) (871)
Increase in prepaid expenses......................... (5) (7) (33) (125)
Increase in other receivables and other non-current
assets............................................. (74) (240) (293) (2,768)
Increase in accounts payable--trade.................. 63 273 25 1,951
Increase in accrued and other liabilities............ 122 221 77 3,029
Increase in unearned revenues........................ -- -- -- 628
------- ------- ------- --------
Net cash used in operating activities.............. (875) (3,220) (2,000) (11,224)
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (261) (510) (367) (1,545)
Purchases of licenses and permits...................... -- (223) -- --
------- ------- ------- --------
Net cash used in investing activities.............. (261) (733) (367) (1,545)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings.................... -- -- -- 3,875
Repayments of short-term borrowings.................... -- -- -- (3,875)
Shareholder loans to subsidiaries...................... 1,175 -- -- --
Capital contribution................................... 50 1,808 1,808 84
Irrevocable capital contribution....................... -- 2,302 900 898
Net proceeds from issuance of Class A convertible
preferred shares..................................... -- -- -- 35,837
------- ------- ------- --------
Net cash provided by financing activities.......... 1,225 4,110 2,708 36,819
------- ------- ------- --------
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS..... -- -- -- 97
------- ------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 89 157 341 24,147
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... -- 89 89 246
------- ------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 89 $ 246 $ 430 $ 24,393
======= ======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................... $ 21
========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capitalization of shareholder loans to subsidiaries.... $ 1,142
=======
Capitalization of irrevocable capital contributions.... $ 3,200
========
Motor vehicle acquired through an installment loan..... 29
========
Advertising time acquired from TV Azteca, S.A. de C.V.
through the issuance of 355,478 Class A
convertible preferred shares......................... 2,489
========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BACKGROUND AND EVOLUTION
El Sitio, Inc., a British Virgin Islands holding company (the "Company"), is
an Internet network providing country-specific and regional content, for
Spanish- and Portuguese-speaking audiences in Latin America and the United
States. The Company recently began to offer connectivity services in Argentina
and Brazil and expects to offer similar services in Colombia before the end of
1999. The Company intends to provide e-commerce services for Spanish- and
Portuguese- speaking audiences in Latin America and the United States.
The Company was formed in July 1997 under the name Blasin International
Corporation. In October 1997 and July 1998, the Company acquired ownership of
interests in subsidiaries located in Uruguay and Argentina, respectively, which
were under common ownership. These acquired entities had been established in
Argentina and Uruguay on December 30, 1996 and February 24, 1997, respectively,
under the names of Cibrian Campoy Creativos S.A. ("El Sitio Argentina") and
Aalefranger S.A., an inactive entity ("El Sitio Uruguay"). During 1998,
operating subsidiaries have been established in Mexico ("El Sitio Mexico"), the
United States ("El Sitio USA") and Brazil ("El Sitio Brazil"). At September 30,
1999, the Company's operating subsidiaries were as follows:
<TABLE>
<CAPTION>
OWNERSHIP
COUNTRY OPERATING SUBSIDIARIES PERCENTAGE
- ------- --------------------------------------------- -----------
<S> <C> <C>
Argentina............... El Sitio Argentina 100%
Uruguay................. El Sitio Uruguay 100%
United States........... El Sitio USA 100%
Brazil.................. El Sitio Brazil 100%
Mexico.................. El Sitio Mexico 100%
</TABLE>
The Company's successful completion of its development program and,
ultimately, the attainment of profitable operations is dependent on future
events, including maintaining adequate financing to fulfill its development
activities and achieving a level of income adequate to support the Company's
cost structure. With the proceeds of the private placement in July 1999 and from
anticipated future offerings, the Company will fund its sales and marketing, and
branding and advertising activities, expand its sales force, improve its network
infrastructure, develop new services and products, make strategic investments or
acquisitions and fund other corporate purposes.
2. MERGERS AND ACQUISITIONS
In October 1997, the Company acquired 75% of the common shares of El Sitio
Uruguay, an inactive entity, for $1.7 in cash. This acquisition was accounted
for under the purchase method of accounting.
In July 1998, the Company acquired 85% of the Class A shares of El Sitio
Argentina for $50 and 100% of the Class B shares of El Sitio Argentina in
exchange for the issuance of 3,432,094 common shares of the Company. This
acquisition, as is generally the case for transactions among companies under
common control, has been accounted for in a manner similar to the pooling of
interests method of accounting, whereby all assets and liabilities have been
recorded at their historical carrying amounts.
F-7
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. MERGERS AND ACQUISITIONS (CONTINUED)
During the nine months ended September 30, 1999, the Company acquired the
remaining minority interest in El Sitio Argentina and El Sitio Uruguay. These
acquisitions were accounted for under the purchase method of accounting.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The financial statements are presented on a
consolidated basis and include the accounts of the Company and its subsidiaries.
All significant intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL INFORMATION--The unaudited consolidated statements for the
nine months ended September 30, 1998 have been prepared on the same basis as the
audited consolidated financial statements. In the opinion of management, such
unaudited consolidated financial statements include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the results
for such period. The results of operations for the nine month periods ended
September 30, 1998 and 1999 are not necessarily indicative of the results of
operations to be expected for the full fiscal year or for any future period.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with maturities
of three months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates market value.
REVENUE RECOGNITION--The Company's revenues are derived principally from the
sale of advertisements. The Company sells advertising primarily at a fixed price
per month. Revenues on these contracts are recognized ratably over the period of
time in which the advertisement is displayed. The Company also sells advertising
on a cost-per-thousand impressions, or "CPM" basis under which such advertisers
and advertising agencies receive a guaranteed number of "impressions,"or number
of times that an advertisement appears in pages viewed by users of the Company's
online properties, for a fixed fee. The Company's contracts with advertisers and
advertising agencies for these types of contracts cover periods ranging from one
month to one year. Advertising revenues are recognized ratably based on the
number of impressions displayed, provided that the Company has no obligations
remaining at the end of a period and collection of the resulting receivable is
probable. Company obligations typically include guarantees of minimum number of
impressions. To the extent that minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenues until the remaining
guaranteed impression levels are achieved. Payments received from advertisers
prior to displaying their advertisements on the Company's network are recorded
as deferred revenues. Revenues from exclusive sponsorship arrangements are
recognized ratably. Additional revenue is generated from Website design and Web
hosting. Website design revenues are recognized once the related activities are
F-8
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
performed and the customer's website is complete and operational. Web hosting
revenues are recognized ratably over the term of the contracts.
For the period ended December 31, 1997 and the year ended December 31, 1998,
the Company had five customers which each exceeded 10% of total revenue and
collectively represented 89% of revenues, and four customers which each exceeded
10% of total revenue and collectively represented 72% of revenues, respectively.
Three of the customers are common in both years. For the nine months ended
September 30, 1999, the Company had one customer which exceeded 10% of total
revenue and represented 13% of revenues.
The Company in the ordinary course of business enters into reciprocal
services arrangements whereby the Company provides advertising service to third
parties in exchange for telecommunications services and advertising services in
other media. Revenues and expenses from these agreements are recorded at the
fair value of services provided or received, whichever is more determinable in
the circumstances. The fair value represents market prices negotiated on an
arms' length basis. Revenue from reciprocal services arrangements is recognized
as income when advertisements are delivered on the Company's Websites. Expense
from reciprocal services arrangements is recognized when telecommunication
services are received or the Company's advertisements are run in other media
which are typically in the same period when the reciprocal service revenue is
recognized. Related expenses which include telecommunication charges are
classified as product, content and technology and advertising charges are
classified as marketing and sales in the accompanying statements of operations.
During the period ended December 31, 1997 and the year ended December 31, 1998,
revenues attributable to reciprocal services totaled approximately $38 and $180,
respectively. For the nine months ended September 30, 1999, revenues
attributable to reciprocal services totaled approximately $554. No gain or loss
was recognized on these reciprocal services arrangements for the period ended
December 31, 1997, the year ended December 31, 1998 and for the nine months
ended September 30, 1999.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
depreciated using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Computers, software and other equipment................. 3 years
Furniture, fixtures and other fixed assets.............. 5 - 10 years
Vehicles................................................ 5 years
Leasehold improvements.................................. 5 years (lease term)
</TABLE>
DEFERRED OFFERING COSTS--As of September 30, 1999, the Company had incurred
approximately $94 of transaction expenses relating to the initial public
offering which were included in prepaid expenses. Upon the successful closing of
the initial public offering, these costs will be netted against the proceeds of
the offering as part of additional paid-in-capital.
LICENSES AND PERMITS--Licenses and permits are being amortized on a
straight-line basis over periods not exceeding two years.
ADVERTISING EXPENSES--The Company expenses advertising costs as incurred.
Advertising expense was $17, $180 and $5,800 for the period ended December 31,
1997, the year ended December 31, 1998 and the nine months ended September 30,
1999, respectively.
F-9
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Deferred income taxes result from temporary differences in the
recognition of expenses for tax and financial reporting purposes and are
accounted for in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), ACCOUNTING
FOR INCOME TAXES, which requires the liability method of computing deferred
income taxes. Under the liability method, deferred taxes are adjusted for tax
rate changes as they occur.
SHARE SPLIT--On October 28, 1999, the Company's Board of Directors approved
a 2-for-1 share split. Retroactive restatement has been made to all share
amounts to reflect this share split.
NET LOSS PER COMMON SHARE--Basic net loss per share is computed based on the
average number of common shares outstanding and diluted net loss per share is
computed based on the average number of common shares outstanding and, when
dilutive, potential common shares from share options and warrants to purchase
common shares using the treasury stock method and from convertible securities
using the if-converted basis.
FOREIGN CURRENCY TRANSLATION--The Company's subsidiaries generally use the
U.S. dollar as the functional currency because their primary function, the sale
of advertising, is priced and billed in U.S. dollars. Accordingly, the financial
statements of the subsidiaries have been remeasured (or translated into U.S.
Dollars). The effects of foreign currency transactions and of remeasuring the
financial position and results of operations into U.S. dollars are included as
net gain or loss on foreign exchange, except for the Brazil subsidiary which
uses the local currency as its functional currency and the effects of the
translation is included in shareholders' equity.
SHARE-BASED COMPENSATION--SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, encourages, but does not require, companies to record compensation
cost for employees under share-based compensation plans at fair value. The
Company has chosen to continue to account for share-based compensation to
employees using the intrinsic value method as prescribed by Accounting
Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. Accordingly, compensation cost for share
options issued to employees are measured as the excess, if any, of the fair
value of the Company's common shares at the date of grant over the amount an
employee must pay for the common shares.
IRREVOCABLE CAPITAL CONTRIBUTIONS--Irrevocable capital contributions
represented capital contributions received from existing shareholders from time
to time to fund operations and carried no obligation on the part of the Company
to issue common shares or repay such contributions. On January 29, 1999, the
Company's Board of Directors approved the issuance of 6,400,000 common shares to
capitalize the $3,200 in irrevocable capital contributions.
LONG-LIVED ASSETS--Long-lived assets are reviewed on an ongoing basis for
impairment based on comparison of carrying value against estimated undiscounted
future cash flows. If an impairment is identified, the assets carrying amount is
adjusted to fair value. No such adjustments were recorded for the years ended
December 31, 1997 and 1998 and during the nine months ended September 30, 1998
and 1999.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other
provisions, SFAS No. 133 establishes
F-10
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting and reporting standards for derivative instruments and for hedging
activities. It also requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for financial statements
for fiscal years beginning after June 15, 2000. Management is currently
evaluating the effect that adoption of SFAS No. 133 will have on the Company's
financial statements.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
El Sitio Mexico.................................... $ -- $ -- $535
El Sitio Argentina................................. 48 96 258
El Sitio Uruguay................................... -- 29 103
El Sitio USA....................................... -- -- 78
El Sitio Brazil.................................... -- -- 2
--------- ---- ----
Total.............................................. 48 125 976
Less: allowance for doubtful accounts.............. -- (20) --
--------- ---- ----
Trade accounts receivable, net..................... $ 48 $105 $976
========= ==== ====
</TABLE>
The Company's subsidiaries provide trade credit to their customers in the
normal course of business. Prior to extending credit, a customer's financial
history is analyzed. The collection of a substantial portion of the trade
receivables is susceptible to changes in Latin American economic and political
conditions.
The Company provides its allowance for doubtful accounts on a specific
identification basis. The activity for the allowance for doubtful accounts is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
Beginning balances................................. $ -- $ -- $20
Provision for doubtful accounts.................... -- 20 8
Write-offs, net of recoveries...................... -- -- (28)
--------- --------- ---
Ending balances.................................... $ -- $ 20 $--
========= ========= ===
</TABLE>
F-11
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from local
governments for non-income taxes and other miscellaneous amounts due to the
Company and its operating subsidiaries and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
El Sitio Argentina................................. $ 65 $182 $ 678
El Sitio Uruguay................................... 7 48 113
El Sitio Mexico.................................... -- 76 281
All others......................................... -- 1 6
--------- ---- ------
Total.............................................. $ 72 $307 $1,078
========= ==== ======
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Computers, software and other equipment............ $153 $523 $1,706
Furniture and fixtures............................. 71 209 269
Motor vehicles..................................... -- -- 80
Leasehold improvements............................. -- -- 251
---- ---- ------
Total............................................ 224 732 2,306
Less: accumulated depreciation..................... (44) (151) (428)
---- ---- ------
Property and equipment, net........................ $180 $581 $1,878
==== ==== ======
</TABLE>
Accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
Beginning balance.................................. $ -- $ 44 $151
Depreciation expense............................... 44 107 277
--------- ---- ----
Ending balance..................................... $ 44 $151 $428
========= ==== ====
</TABLE>
7. INCOME TAXES
The Company has not provided for income taxes because of its operating loss
position. Statutory tax rates range from 20% to 35% depending on the particular
country. Deferred tax assets associated with the net operating loss
carryforwards amounted to $266, $1,412, and $5,536 as of December 31, 1997, 1998
and September 30, 1999, respectively. No deferred tax assets have been
recognized for changes in exchange rates for foreign subsidiaries whose
functional currency is the U.S. dollar. Because there is no assurance that the
Company will generate sufficient tax earnings to utilize its available tax
assets derived from loss carryforwards, a corresponding valuation allowance has
been established to offset deferred tax assets.
F-12
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
8. INSTALLMENT LOAN
As of September 30, 1999, the Company had an installment loan, payable in
monthly installments of approximately six hundred dollars plus interest at a
rate of 2.90% due on September 29, 2003. The installment note is collateralized
by a motor vehicle.
9. SEGMENT INFORMATION
The Company's segment information is based on the geographic locations in
which its subsidiaries operate. Each operating subsidiary has a country manager
who reports to senior management of the Company. Each country manager is
currently responsible for managing the assets in his or her respective country,
generating revenues, and supervising results of operations. The Company's
segment information is as follows:
<TABLE>
<CAPTION>
EL SITIO EL SITIO EL SITIO EL SITIO EL SITIO EL SITIO, INC. CONSOLIDATED
PERIOD OR YEAR ARGENTINA URUGUAY MEXICO BRAZIL USA (PARENT COMPANY) ELIMINATION TOTAL
- -------------- --------- -------- -------- -------- -------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
- ---------------------
Total assets......... $ 344 $ 52 $ -- $ -- $ -- $ -- $ -- $ 396
Net revenues......... $ 267 $ -- $ -- $ -- $ -- $ -- $ -- $ 267
Operating loss....... $ (897) $ (7) $ -- $ -- $ -- $ -- $ -- $ (904)
DECEMBER 31, 1998
- ---------------------
Total assets......... $ 698 $ 121 $ 243 $ 317 $ 31 $ 80 $ (9) $ 1,481
Net revenues......... $ 657 $ 106 $ 17 $ -- $ -- $ -- $ -- $ 780
Operating loss....... $(2,322) $(118) $ (569) $ (51) $ (268) $ (169) $ -- $ (3,497)
SEPTEMBER 30, 1999
- ---------------------
Total assets......... $ 2,906 $ 345 $ 4,956 $13,109 $ 2,394 $11,900 $(2,490) $ 33,120
Net revenues......... $ 715 $ 455 $ 339 $ 12 $ 3 $ -- $ -- $ 1,524
Operating loss....... $(5,574) $(364) $(1,830) $(2,504) $(2,246) $ (867) $ -- $(13,385)
</TABLE>
The Company itself is a holding company which holds primarily cash and
incurs certain general and administrative expenses. The elimination entries
represent the elimination of intercompany balances in the normal course of
business.
10. RELATED PARTY TRANSACTIONS
The Company, in the normal course of business, provides advertising services
to related parties. During 1997 and 1998, such services totaled approximately
$38 and $165, respectively, and during the nine months period ended
September 30, 1999, such services totaled approximately $191.
11. SHARE OPTION PLAN
In May 1999, the Company adopted the 1999 Share Option Plan (the "Plan"),
pursuant to which 1,240,000 common shares were reserved for issuance upon
exercise of options. An additional 2,000,000 shares were reserved on
October 28, 1999. Options granted under the Plan shall be either incentive share
options or nonstatutory share options and will have an exercise term of no
longer than ten years from the grant date. The Plan is designed as a means to
retain and motivate key employees and directors. The Company's Compensation
Committee, or in the absence thereof, its Board of Directors, administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible
F-13
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
11. SHARE OPTION PLAN (CONTINUED)
employees of the Company, including directors (whether or not they are
employees) and executive officers of the Company or affiliated companies. The
Plan will terminate on December 1, 2008, unless sooner terminated by the Board
of Directors.
In October 1998, the Company granted nonstatutory share options for 322,400
shares at an exercise price of $1.613, the fair value of the shares at the time
of grant. These options vest 30% after the first year, 30% after the second
year, and 40% after the third year.
In August and September 1999, the Company granted nonstatutory share options
for 292,400 and 623,600 shares, respectively, at an exercise price of $3.501.
These options vest 30% after the first year, 30% after the second year, and 40%
after the third year.
The following table summarizes information concerning outstanding options at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTION EXERCISABLE
------------------------------ ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- --------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.613 322,400 9.75 years $1.613 -- --
</TABLE>
The following table summarizes information concerning outstanding options at
September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTION EXERCISABLE
------------------------------ ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- --------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.613 322,400 9 years $1.613 -- --
3.501 916,000 9.89 years 3.501 -- --
</TABLE>
No options have been forfeited as of December 31, 1998 and September 30,
1999.
The Company applies APB No. 25 and related interpretations in accounting for
its share options plan to employees as described in Note 3. In connection with
the granting of share options in August and September 1999, the Company recorded
total deferred share-based compensation of approximately $7,785. Total deferred
share-based compensation is being amortized for financial reporting purposes
over the respective vesting periods of the share options. The amount recognized
as expense during the nine months ended September 30, 1999 amounted to
approximately $499.
For purposes of pro forma disclosures prescribed by SFAS No. 123, the fair
value of the options granted in 1999 was estimated using the minimum value
method for nonpublic entities with the following assumptions: no dividend
yields; no volatility; risk-free interest rate of 7.0%; and an expected term of
3 years. If compensation cost had been determined based on the fair value at the
date of grant consistent with the requirement of SFAS No. 123, the Company's net
loss and comprehensive loss would have increased by approximately $8 and $63
during the year ended December 31, 1998 and nine months ended September 30,
1999, respectively.
F-14
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
12. CLASS A CONVERTIBLE PREFERRED SHARES
On July 7, 1999, the Company completed a private placement of 5,477,088
Class A Convertible Preferred Shares (the "Class A Convertible Preferred
Shares") at $7.00186 per share for $35,837 (net of offering costs of $2,513)
under a stock purchase agreement. In addition, the Company has entered into an
arrangement whereby it agreed to issue 856,916 Class A Convertible Preferred
Shares in return for $6,000 in advertising time credit on media networks owned
and controlled by Washburn Enterprises, Inc., an affiliate of our shareholders.
Such advertising must be utilized during an eighteen-month period following the
closing date of the private placement. The Company will be required to issue and
deliver the number of Class A Convertible Preferred Shares equal to the
advertising time incurred on a quarterly basis. The Company currently
anticipates that it will recognize advertising expense based on the fair value
of such shares at the time of issuance. The Company has also agreed to purchase
at least $4,000 of advertising time on the media networks owned by affiliates of
Washburn Enterprises, Inc. in return for Washburn's commitment to purchase at
least $2,000 of advertising time on the Websites maintained by the Company and
its subsidiaries. As agreed in connection with the private placement, the
Company is required to pay annual monitoring fees to certain investor groups and
annual directors' fees to certain directors amounting to $600 per annum in the
aggregate. In addition, the Company issued to the placement agent a warrant
exercisable for the purchase of approximately 239,936 common shares for $1.
The following are principal terms of the Class A Convertible Preferred
Shares: (a) cumulative preferential dividends at the annual rate of 8% on the
liquidation preference per share, payable quarterly in cash or at the option of
the Board of Directors, in additional Class A Convertible Preferred Shares;
(b) mandatory redemption by the Company in 2004 (five years after issuance) at a
price equal to the liquidation preference per share plus accrued and unpaid
cumulative dividends; (c) convertible into two common shares of the Company at
any time at the option of the holder or automatically upon the closing of this
offering. For purposes of determining the number of common shares issuable upon
conversion, each Class A Convertible Preferred Share will be valued at
liquidation preference, which will be divided by the conversion price in effect
on the date of conversion; (d) the right of certain shareholders holding a
certain minimum number of outstanding Class A Convertible Preferred Shares to
appoint a maximum of three directors to the Company's Board of Directors;
(e) holders of Class A Convertible Preferred Shares have the right to vote,
together with the holders of outstanding common shares, except as otherwise
required by British Virgin Islands law, on all matters on which holders of
common shares are entitled to vote. Each holder of Class A Convertible Preferred
Shares will have the right to cast one vote for each whole share which would be
issued to such holder upon conversion of such holder's Class A Convertible
Preferred Shares to common shares, assuming that such conversion were to occur
on the date immediately prior to the record date for the determination of
shareholders entitled to vote; and (f) upon any liquidation, dissolution or
winding up of the Company, the holders of Class A Convertible Preferred Shares
are entitled to be paid an amount equal to the liquidation preference for each
share out of the assets of the Company before any distribution is made to any
common shares or other junior shares.
PREFERRED STOCK/BARTER ARRANGEMENT--On August 31, 1999, the Company entered
into an agreement relating to a three-year investment and reciprocal advertising
arrangement with TV Azteca, S.A. de C.V. ("TV Azteca"), Mexico's second largest
television network. Under this agreement, the Company will receive, over a
three-year period beginning in July 1999, $3,500 of advertising time on TV
Azteca's networks (which amounts shall be based on rates actually charged to
similarly situated clients of TV
F-15
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
12. CLASS A CONVERTIBLE PREFERRED SHARES (CONTINUED)
Azteca at the time), in return for 355,478 shares of Class A Convertible
Preferred Shares issued on August 31, 1999 at the same price per share as in the
July 1999 private placement. At September 30, 1999, approximately $2,500 of
prepaid advertising was included in other assets in the accompanying
consolidated balance sheet. In addition, as of September 30, 1999, TV Azteca has
not provided any advertising time on its network to the Company relating to this
agreement.
13. COMMITMENTS AND CONTINGENCIES
The Company has entered into a strategic alliance, for a term of two years
with renewal options, with a renowned baseball player whereby such baseball
player granted the Company the exclusive right to utilize such player's name,
likeness or any derivative thereof via the Internet within the Company's web
sites for the development of joint marketing campaigns, promotions, research and
e-commerce operations. The Company will pay this baseball player $1,000 cash in
four installments of $250. As of September 30, 1999, $750 remained to be paid in
future installments. In addition, the Company has committed to grant such
baseball player 25,000 common shares of the Company to be distributed on or
about the date of the initial public offering and also on or before January 31,
2001, such baseball player will be entitled to purchase an additional 25,000
common shares at the closing price on January 29, 2001 or the prior day if that
one is a holiday, less 25%. Approximately $1,375 is included in Other Assets and
$1,125 is included in Accrued and other liabilities in the accompanying
consolidated balance sheet as of September 30, 1999 to account for all of the
provisions of this alliance. The Other Asset will be amortized on a
straight-line basis over a two-year period. The initial amount of the discount
will be remeasured, on a quarterly basis, based on the fair value of the common
shares at the time that such shares are issued.
The Company has entered into employment agreements with various members of
senior management for periods extending for three years. Minimum annual
compensation approximates $1,024 in the aggregate.
The Company leases telecommunication links with rental commitments of
approximately $215 through July 2000.
The Company leases several facilities under non-cancellable leases for
varying periods through May 2004. Some of the Company's directors have from time
to time guaranteed short-term indebtedness or other liabilities of the Company.
Mr. Vivo and Mr. Verdaguer personally guaranteed payment of the monthly rent for
our current headquarters in Buenos Aires ($84) per year, as well as rental of
our new headquarters in Buenos Aires ($228 per year).
Rent expense for these operating leases was approximately $20, $144 and $272
for the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999, respectively.
F-16
<PAGE>
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under the various operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1999........................................................ $ 533
2000........................................................ 455
2001........................................................ 418
2002........................................................ 418
2003 and thereafter......................................... 611
------
Total minimum lease payments................................ $2,435
======
</TABLE>
14. SUBSEQUENT EVENTS
FRAMEWORK AGREEMENT WITH IMPSAT CORPORATION--On August 4, 1999, the Company
entered into a framework agreement with IMPSAT Corporation ("IMPSAT") for the
purchase of IMPSAT's retail dial-up access customers in Argentina, Brazil and
Colombia for $21,500 (subject to adjustment based on the number of subscribers
actually acquired by the Company) and the related sale of 3,070,615 Class A
Convertible Preferred Shares of the Company for $21,500. In connection with
these transactions, El Sitio will also enter into telecommunications services
agreements with IMPSAT or its subsidiaries under which it will provide El Sitio
with telecommunication infrastructure to access the Internet.
The transactions contemplated by the framework agreement are subject to the
negotiation of definitive documentation and various other conditions, including
governmental approvals, and accordingly, there can be no assurance that these
transactions will be completed. Subject to the satisfaction of these conditions,
the transactions are expected to be consummated by the end of 1999. Effective
October 7, 1999, the transaction for the Brazil retail dial-up access business
was closed for $12,300. Effective November 5, 1999, the transaction for the
Argentina retail dial-up access business was closed for $6,200.
SHARE OPTIONS--On November 1, 1999, the Company granted additional share
options for 1,030,200 common shares to employees at an exercise price of $9.00
per share. In connection with the granting of these share options, the Company
will record total deferred share-based compensation of approximately $3,091 in
the fourth quarter of 1999.
PRIVATE PLACEMENT--In mid-November 1999, the Company completed a private
placement of 1,111,111 Class B convertible preferred shares for an aggregate
purchase price of $10.0 million in cash, or $9.00 per Class B convertible
preferred share. Purchasers of the Class B convertible preferred shares
consisted of Intel Atlantic, Inc., a subsidiary of Intel Corporation, and
Latinvest Asset Management do Brasil, Ltda., an affiliate of Globalvest
Management Company, L.P. The Class B convertible preferred shares have an annual
dividend rate of 8%. Each Class B convertible preferred share will automatically
convert, on the date six months after the closing date of this offering, into
one common share. The discount between the initial public offering price per
common share and the $9.00 price per Class B convertible preferred share will be
amortized as a deemed dividend during the same six-month period.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of IMPSAT Corporation:
We have audited the accompanying statement of historical net assets to be
sold in connection with IMPSAT Corporation's retail dial-up access business in
Argentina, Brazil and Colombia as of September 30, 1999. This statement is the
responsibility of management. Our responsibility is to express an opinion on
this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit 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 audit provides a
reasonable basis for our opinion.
The accompanying statement of historical net assets to be sold by IMPSAT
Corporation was prepared for inclusion in the Form F-1 of El Sitio, Inc. on the
basis of presentation as described in Note 2, and is not intended to be a
complete presentation of the financial position of IMPSAT Corporation.
In our opinion, such statement presents fairly, in all materials respects,
the historical net assets to be sold in connection with IMPSAT Corporation's
retail dial-up access business in Argentina, Brazil and Colombia at
September 30, 1999 on the basis of presentation as described in Note 2, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
October 28, 1999 (November 5, 1999
as to the second sentence in Note 3)
F-18
<PAGE>
IMPSAT CORPORATION
(COMPRISING IMPSAT CORPORATION'S RETAIL DIAL-UP ACCESS BUSINESSES IN ARGENTINA,
BRAZIL AND COLOMBIA)
STATEMENT OF HISTORICAL NET ASSETS TO BE SOLD BY IMPSAT CORPORATION
AS OF SEPTEMBER 30, 1999 (IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
PROPERTY AND EQUIPMENT, NET................................. $116
LESS: ACCRUED SALARIES--BRAZIL.............................. (56)
----
TOTAL HISTORICAL NET ASSETS TO BE SOLD BY IMPSAT
CORPORATION............................................... $ 60
====
</TABLE>
See notes to statement of historical net assets to be sold by Impsat
Corporation.
F-19
<PAGE>
IMPSAT CORPORATION
NOTES TO STATEMENT OF HISTORICAL NET ASSETS TO BE SOLD BY
IMPSAT CORPORATION
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
1. BACKGROUND
On August 4, 1999, IMPSAT Corporation ("IMPSAT") entered into a framework
agreement with El Sitio, Inc. ("El Sitio") for the sale of IMPSAT's retail
dial-up access customers in Argentina, Brazil and Colombia for approximately
$21,500 and the related purchase by IMPSAT of 3,070,615 of El Sitio's Class A
convertible preferred shares for $21,500. In connection with these transactions,
El Sitio will also enter into telecommunications services agreements with
subsidiaries of IMPSAT under which they will provide El Sitio with
telecommunications infrastructure. The transactions contemplated by the
framework agreement are subject to the negotiation of definitive documentation
and various other conditions, including governmental approvals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The retail dial-up access business (the "Business")
is not a "stand-alone" division or subsidiary of IMPSAT and was not generally
accounted for separately. As a result, the distinct and separate accounts
necessary to present an individual balance sheet, income statement and cash flow
statement of the Business have not been maintained. The financial information
presented is limited to the statement of assets to be sold by IMPSAT and it is
not intended to present the financial position of the Business.
The statement of historical net assets to be sold include property and
equipment and certain accrued liabilities being acquired in accordance with the
contractual terms. Property and equipment consist of computer and office
equipment in Brazil and is recorded at cost. Depreciation is calculated using
the straight line method over the useful life which range from five to ten
years. Accumulated depreciation amounted to $130 at September 30, 1999.
3. SUBSEQUENT EVENTS
Effective October 7, 1999, the Brazil sale was completed at a sale price of
$12,300. Effective November 5, 1999, the Argentina sale was completed at a sale
price of $6,200. The Colombia sale, which is subject to governmental approvals,
is expected to be completed before the end of 1999.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of IMPSAT S.A.:
We have audited the accompanying statements of net revenues and direct costs
and expenses of IMPSAT S.A.'s retail dial-up access business in Argentina (the
"Business"), for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1999. These statements of net revenues and direct costs and
expenses are the responsibility of IMPSAT S.A.'s management. Our responsibility
is to express an opinion on these statements of net revenues and direct costs
and expenses based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of net revenues and direct costs and expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of net revenues and direct costs
and expenses. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statements of net revenues and direct costs and expenses presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the statements of net revenues and direct costs
and expenses, the Business comprises IMPSAT S.A.'s retail dial-up access
business in Argentina based on management's estimates. As a result, the net
revenues and direct costs and expenses of the Business may not be indicative of
conditions that would have existed or results that would have occurred had the
Business operated as an unaffiliated entity.
In our opinion, the statements of net revenues and direct costs and expenses
present fairly, in all material respects, the net revenues and direct costs and
expenses of the Business for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Buenos Aires, Argentina
November 5, 1999
F-21
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN ARGENTINA)
STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ----------------------
1997 1998 1998 1999
-------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES............................................. $2,634 $2,982 $2,298 $2,880
------ ------ ------ ------
DIRECT COSTS AND EXPENSES:
Product, content and technology........................ 1,573 1,851 1,421 1,802
Marketing and sales.................................... 477 479 346 332
------ ------ ------ ------
Total direct costs and expenses.......................... 2,050 2,330 1,767 2,134
------ ------ ------ ------
EXCESS OF NET REVENUES OVER DIRECT COSTS AND EXPENSES.... $ 584 $ 652 $ 531 $ 746
====== ====== ====== ======
</TABLE>
See notes to statements of net revenues and direct costs and expenses.
F-22
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN ARGENTINA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
1. OPERATIONS
On August 4, 1999, El Sitio, Inc. ("El Sitio") entered into a framework
agreement with IMPSAT Corporation ("IMPSAT") for the purchase of IMPSAT's retail
dial-up access customers in Argentina, Brazil and Colombia for approximately
$21,500 and the related purchase by IMPSAT of 3,070,615 of El Sitio's Class A
convertible preferred shares for $21,500. In connection with these transactions,
El Sitio will also enter into a telecommunications services agreement with
IMPSAT under which it will provide El Sitio with telecommunications
infrastructure.
Effective November 5, 1999, the transaction for the Argentina retail dial-up
business was closed for $6,200.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The retail dial-up access business in Argentina (the
"Business") was part of the total Internet services provided by IMPSAT S.A.,
which also included dial-up access to corporate customers. The Business was not
a "stand-alone" division or subsidiary of IMPSAT S.A. and was not generally
accounted for separately. As a result, the distinct and separate accounts
necessary to present an individual balance sheet, income statement and cash flow
statement of the Business have not been maintained. The Business did not
maintain its own stand-alone treasury, legal, financial, information systems and
other similar corporate support functions. The financial information presented
is limited to the statement of net revenues and direct costs and expenses.
REVENUES--The retail dial-up access business represented 60% of IMPSAT's
S.A.'s total revenues associated with Internet services for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and
64% for the nine months ended September 30, 1999. These percentages were
calculated based on information derived from the general ledger accounts as
follows: actual revenues for retail dial-up and corporate dial-up accounts were
specifically identified and then the revenues for corporate accounts were
subtracted from total actual revenues, resulting in net revenues associated with
retail dial-up customers.
DIRECT COSTS AND EXPENSES--IMPSAT S.A.'s management allocated direct costs
and expenses (other than credit card fees and bad debt expenses) to the retail
dial-up access business based on the proportionate share of retail dial-up
revenues to total Internet revenues.
Credit card fee and bad debt expenses associated with the retail dial-up
access business were specifically identified based upon billing and customer
information provided by IMPSAT S.A.'s management information system.
These allocations were based on, among other things, subscriber statistics
and the shared use by the retail dial-up and corporate dial-up portions of
IMPSAT S.A.'s assets and resources such as the following: call center, technical
and sales and marketing personnel; equipment such as servers, routers and
modems; and supplies. These allocations are believed to be reasonable under the
circumstances. However, the Business may not be indicative of conditions that
would have existed or results that would have occurred had the Business operated
as an unaffiliated entity.
The same allocation methodologies were used for each of the financial years
and periods presented in these statements.
F-23
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN ARGENTINA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A statement of cash flow is not being presented as the Business does not
maintain its own cash accounts and components, such as the changes in working
capital, are not available to prepare the cash flow information.
INTERIM FINANCIAL INFORMATION--The unaudited statement of net revenues and
direct costs and expenses for the nine months ended September 30, 1998 has been
prepared on the same basis as the audited annual statements of net revenues and
direct costs and expenses. In the opinion of management, such unaudited
statement of net revenues and direct costs and expenses includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such period. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results of operations
to be expected for the full fiscal year or for any future period.
REVENUE RECOGNITION--Revenues represent month-to-month subscriptions for
pre-paid and per-minute usage of access levels. Subscription revenues are
recognized over the period that services are provided.
USE OF ESTIMATES--The preparation of the statements of net revenues and
direct costs and expenses in conformity with generally accepted accounting
principles in the United States requires management to make certain estimates
and assumptions that effect the amounts of the reported amounts of net revenues
and direct costs and expenses during the reporting period. Actual results could
differ from those estimates.
3. PRODUCT, CONTENT AND TECHNOLOGY
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Telecommunication links.................... $ 362 $ 674 $ 509 $ 954
Personnel costs............................ 869 645 490 539
Depreciation and amortization.............. 93 149 96 154
Installation costs......................... 32 186 185 37
Supplies and other costs................... 217 197 141 118
------ ------ ------ ------
$1,573 $1,851 $1,421 $1,802
====== ====== ====== ======
</TABLE>
F-24
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN ARGENTINA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
4. MARKETING AND SALES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Advertising and promotion.................. $220 $323 $231 $203
Credit card fees........................... 57 106 77 73
Bad debt expense........................... 200 50 38 56
---- ---- ---- ----
$477 $479 $346 $332
==== ==== ==== ====
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of MANDIC INTERNET LTDA.:
We have audited the accompanying statements of net revenues and direct costs
and expenses of MANDIC INTERNET LTDA.'s (formerly known as MANDIC.COM LTDA.)
retail dial-up access business in Brazil (the "Business") for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999. These
statements of net revenues and direct costs and expenses are the responsibility
of MANDIC INTERNET LTDA.'s management. Our responsibility is to express an
opinion on these statements of net revenues and direct costs and expenses based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of net revenues and direct costs and expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of net revenues and direct costs
and expenses. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statements of net revenues and direct costs and expenses presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the statements of net revenues and direct costs
and expenses, the Business comprises MANDIC INTERNET LTDA.'s retail dial-up
access business in Brazil. Direct costs and expenses included in the statements
of net revenues and direct costs and expenses have been allocated to the retail
dial-up access business based on the proportionate share of retail dial-up
revenues. As a result, the net revenues and direct costs and expenses of the
Business may not be indicative of conditions that would have existed or results
that would have occurred had the Business operated as an unaffiliated entity.
In our opinion, the statements of net revenues and direct costs and expenses
present fairly, in all material respects, the net revenues and direct costs and
expenses of the Business for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE TOUCHE TOHMATSU
Sao Paulo, Brazil
November 5, 1999
F-26
<PAGE>
MANDIC INTERNET LTDA. (FORMERLY KNOWN AS MANDIC.COM LTDA.)
(COMPRISING MANDIC.INTERNET LTDA.'S RETAIL DIAL-UP ACCESS BUSINESS IN BRAZIL)
STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ----------------------
1997 1998 1998 1999
-------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES............................................ $7,033 $11,394 $8,031 $5,766
------ ------- ------ ------
DIRECT COSTS AND EXPENSES:
Cost of services...................................... 3,259 6,157 4,708 3,590
Marketing and sales................................... 1,781 1,423 910 1,029
Corporate, general and administrative................. 1,286 2,128 1,389 657
------ ------- ------ ------
Total direct costs and expenses..................... 6,326 9,708 7,007 5,276
------ ------- ------ ------
EXCESS OF NET REVENUES OVER DIRECT COSTS AND EXPENSES... $ 707 $ 1,686 $1,024 $ 490
====== ======= ====== ======
</TABLE>
See notes to statements of net revenues and direct costs and expenses.
F-27
<PAGE>
MANDIC INTERNET LTDA. (FORMERLY KNOWN AS MANDIC.COM LTDA.)
(COMPRISING MANDIC.INTERNET LTDA.'S RETAIL DIAL-UP ACCESS BUSINESS IN BRAZIL)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
1. OPERATIONS
On August 4, 1999, El Sitio, Inc. ("El Sitio") entered into a framework
agreement with IMPSAT Corporation ("IMPSAT") for the purchase of IMPSAT's retail
dial-up access customers in Argentina, Brazil and Colombia for approximately
$21,500 and the related purchase by IMPSAT of 3,070,615 of El Sitio's Class A
convertible preferred shares for $21,500. In connection with these transactions,
El Sitio has also entered into a telecommunications services agreement with an
affiliate of IMPSAT under which it will provide El Sitio with telecommunications
infrastructure.
Effective October 6, 1999, the transaction for the Brazil retail dial-up
access business was closed for $12,300.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The retail dial-up access business in Brazil (the
"Business") is not a "stand-alone" division or subsidiary of MANDIC
INTERNET LTDA. and was not generally accounted for separately. As a result, the
distinct and separate accounts necessary to present an individual balance sheet,
income statement and cash flow statement of the Business have not been
maintained. The Business does not maintain its own stand-alone treasury, legal,
financial, information systems and other similar corporate support functions.
The financial information presented is limited to the statement of net revenues
and direct costs and expenses.
For purposes of preparing these statements, revenues of MANDIC INTERNET
LTDA's retail dial up access businesses were specifically identified and
obtained from the general ledger. Direct costs and expenses associated with
MANDIC INTERNET LTDA.'s dial-up access businesses have been allocated to the
Business as follows:
COST OF SERVICES:
- telecommunications services expenses reflect direct expenses paid for
telecommunication links to EMBRATEL, a telecommunications services
provider. These expenses will be equivalent to El Sitio's cost of
telecommunication links under El Sitio's new service agreement with a
subsidiary of IMPSAT for Brazil;
- salaries and wages were allocated to the retail dial-up access business
based on the number of managers and employees responsible for the retail
dial-up access business, as a percentage of the total number of managers
and employees employed in the entire (i.e., retail plus corporate) dial-up
access business of IMPSAT in Brazil; and
- expenses relating to the call center were specifically identified and
obtained from the general ledger.
MARKETING AND SALES:
- credit card fees were specifically identified and obtained from the
general ledger; and
- advertising expenses for the Business were based on management's
good-faith estimates.
F-28
<PAGE>
MANDIC INTERNET LTDA. (FORMERLY KNOWN AS MANDIC.COM LTDA.)
(COMPRISING MANDIC.INTERNET LTDA.'S RETAIL DIAL-UP ACCESS BUSINESS IN BRAZIL)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CORPORATE, GENERAL AND ADMINISTRATIVE:
- depreciation and amortization expense was computed based on the assets
specifically identified by management as being used in the retail dial-up
access business;
- outsourced services were specifically identified and obtained from the
general ledger; and
- rent, utilities and services were allocated based on the space utilized by
the retail dial-up access business, as a percentage of the total space
used by the entire (i.e., retail plus corporate) dial-up access business.
Of total retail dial-up access direct costs and expenses for Brazil,
approximately 47% were directly obtained from the general ledger for 1997, 68%
in 1998, 63% in the nine months ended September 30, 1998 and 60% in the nine
months ended September 30, 1999. MANDIC INTERNET LTDA.'s retail dial-up
operations in Brazil accounts for approximately 52,000 of the approximately
73,000 retail dial-up access customers which El Sitio is acquiring from IMPSAT.
However, the Business may not be indicative of conditions that would have
existed or results that would have occurred had the Business operated as an
unaffiliated entity.
The same allocation methodologies were used for each of the financial years
and periods presented in these statements.
A statement of cash flow is not being presented as the Business does not
maintain its own cash accounts and components, such as the changes in working
capital, are not available to prepare the cash flow information.
INTERIM FINANCIAL INFORMATION--The unaudited statement of net revenues and
direct costs and expenses for the nine months ended September 30, 1998 has been
prepared on the same basis as the audited annual statement of net revenues and
direct costs and expenses. In the opinion of management, such unaudited annual
statement of net revenues and direct costs and expenses includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such period. The operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the operating results to be
expected for the full fiscal year or for any future period.
REVENUE RECOGNITION--Revenues represent month-to-month subscriptions for
pre-paid and per-minute usage of access levels. Subscription revenues are
recognized over the period that services are provided.
USE OF ESTIMATES--The preparation of the statements of net revenues and
direct costs and expenses in conformity with generally accepted accounting
principles in the United States of America requires management to make certain
estimates and assumptions that effect the amounts of the reported amounts of net
revenues and direct costs and expenses during the reporting period. Actual
results could differ from those estimates.
F-29
<PAGE>
MANDIC INTERNET LTDA. (FORMERLY KNOWN AS MANDIC.COM LTDA.)
(COMPRISING MANDIC.INTERNET LTDA.'S RETAIL DIAL-UP ACCESS BUSINESS IN BRAZIL)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
3. COST OF SERVICES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Telecommunications services................ $2,221 $4,122 $3,125 $2,070
Salaries and wages......................... 1,038 1,378 1,108 994
Call center................................ -- 657 475 526
------ ------ ------ ------
Total.................................. $3,259 $6,157 $4,708 $3,590
====== ====== ====== ======
</TABLE>
4. MARKETING AND SALES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Credit card fees........................... $ -- $ 439 $279 $ 283
Advertising................................ 1,781 984 631 746
------ ------ ---- ------
Total.................................. $1.781 $1,423 $910 $1,029
====== ====== ==== ======
</TABLE>
5. CORPORATE, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Depreciation and amortization.............. $ 42 $ 73 $ 50 $ 55
Outsourced services........................ 749 1,404 554 288
Rent expenses.............................. 154 125 449 49
Utilities and services..................... 119 155 91 99
Other expenses............................. 222 371 245 166
------ ------ ------ ----
Total.................................. $1,286 $2,128 $1,389 $657
====== ====== ====== ====
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of IMPSAT S.A.:
We have audited the accompanying statements of net revenues and direct costs
and expenses of IMPSAT S.A.'s retail dial-up access business in Colombia (the
"Business") for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1999. These statements of net revenues and direct costs and
expenses are the responsibility of IMPSAT S.A.'s management. Our responsibility
is to express an opinion on these statements of net revenues and direct costs
and expenses based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements of net revenues and direct costs and expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of net revenues and direct costs
and expenses. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statements of net revenues and direct costs and expenses presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the statements of net revenues and direct costs
and expenses, the Business comprises IMPSAT S.A.'s retail dial-up access
business in Colombia. Costs incurred directly are included in the statements of
net revenues and direct costs and expenses and operating expenses have been
allocated to the retail dial-up access business based on management's estimates.
As a result, the net revenues and direct costs and expenses of the Business may
not be indicative of conditions that would have existed or results that would
have occurred had the Business operated as an unaffiliated entity.
In our opinion, the statements of net revenues and direct costs and expenses
present fairly, in all material respects, the net revenues and direct costs and
expenses of the Business for the years ended December 31, 1997 and 1998 and the
nine months ended September 30, 1999 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Santafe de Bogota, Colombia
November 4, 1999
F-31
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN COLOMBIA)
STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ----------------------
1997 1998 1998 1999
-------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES............................................. $1,817 $2,131 $1,741 $1,371
------ ------ ------ ------
DIRECT COSTS AND EXPENSES:
Product, content and technology........................ 871 1,424 1,015 1,035
Marketing and sales.................................... 137 239 189 96
Corporate, general and administrative.................. 283 406 302 318
------ ------ ------ ------
Total direct costs and expenses.......................... 1,291 2,069 1,506 1,449
------ ------ ------ ------
EXCESS (DEFICIENCY) OF NET REVENUES OVER DIRECT COSTS AND
EXPENSES............................................... $ 526 $ 62 $ 235 $ (78)
====== ====== ====== ======
</TABLE>
See notes to statements of net revenues and direct costs and expenses.
F-32
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN COLOMBIA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
1. OPERATIONS
On August 4, 1999, El Sitio, Inc. ("El Sitio") entered into a framework
agreement with IMPSAT Corporation ("IMPSAT") for the purchase of IMPSAT's retail
dial-up access customers in Argentina, Brazil and Colombia for $21,500 and the
related purchase by IMPSAT of 3,070,615 Class A Convertible Preferred Shares of
El Sitio for $21,500. In connection with these transactions, El Sitio will also
enter into a telecommunications services agreement with an affiliate of IMPSAT
under which it will provide El Sitio with telecommunications infrastructure.
The closing of the acquisition of retail dial-up access customers of IMPSAT
in Colombia is subject to the negotiation of definitive documentation and
various other conditions, including governmental approvals, and accordingly,
there can be no assurance that this transaction will be completed. Subject to
the satisfaction of these conditions, the transaction is expected to be
consummated by the end of 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The retail dial-up access business in Colombia (the
"Business") is not a "stand-alone" division or subsidiary of IMPSAT S.A. and was
not generally accounted for separately. As a result, the distinct and separate
accounts necessary to present an individual balance sheet, income statement and
cash flow statement of the Business have not been maintained. The Business does
not maintain its own stand-alone treasury, legal, financial, information systems
and other similar corporate support functions. The financial information
presented is limited to the statement of net revenues and direct costs and
expenses.
For purposes of preparing these statements, revenues of IMPSAT S.A.'s retail
dial-up access business were specifically identified and obtained from the
general ledger. Product, content and technology costs were also specifically
identified and obtained from the general ledger. Operating expenses such as
marketing and sales and corporate, general and administrative associated with
IMPSAT S.A.'s retail dial-up access business have been allocated based on
management's estimates.
Product, content and technology expenses accounted for 67% of expenses in
Colombia in 1997, 68% in 1998, 67% in the nine months ended September 30, 1998
and 71% in the nine months ended September 30, 1999.
IMPSAT S.A.'s management allocated other direct costs and expenses related
to the Business based on the proportionate share of retail Internet revenue to
total Internet revenue. These allocations are based on, among other things,
subscriber statistics and the shared use by the retail dial-up and corporate
dial-up portions of IMPSAT S.A.'s assets and resources such as the following:
call center, technical and sales and marketing personnel; equipment such as
servers, routers and modems; and supplies. These allocations are believed to be
reasonable under the circumstances. However, the Business' may not be indicative
of conditions that would have existed or results that would have occurred had
the Business operated as an unaffiliated entity.
The same allocation methodologies were used for each of the financial years
and periods presented in these statements.
F-33
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN COLOMBIA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A statement of cash flow is not being presented as the Business does not
maintain its own cash accounts and components, such as the changes in working
capital, are not available to prepare the cash flow information.
INTERIM FINANCIAL INFORMATION--The unaudited statement of net revenues and
direct costs and expenses for the nine months ended September 30, 1998 has been
prepared on the same basis as the audited annual statements of net revenues and
direct costs and expenses. In the opinion of management, such unaudited
statement of net revenues and direct costs and expenses includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such period. The operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the operating results to be
expected for the full fiscal year or for any future period.
REVENUE RECOGNITION--Revenues represent month-to-month subscriptions for
pre-paid and per-minute usage of access levels. Subscription revenues are
recognized over the period that services are provided.
CURRENCY TRANSLATIONS--The statements of net revenues and direct costs and
expenses of the Company contain currency translations of Colombian peso amounts
to U.S. dollars at the exchange rate at the date of the transactions reported by
the Superintendency of Banking. No representation is made that the Colombian
peso amounts have been, could have been, or could be converted into U.S.
dollars, at such a rate or any other rate.
USE OF ESTIMATES--The preparation of the statements of net revenues and
direct costs and expenses in conformity with generally accepted accounting
principles in the United States of America requires management to make certain
estimates and assumptions that effect the amounts of the reported amounts of net
revenues and direct costs and expenses during the reporting period. Actual
results could differ from those estimates.
3. PRODUCT, CONTENT AND TECHNOLOGY
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Maintenance................................ $283 $ 599 $ 450 $ 402
Satellite capacity......................... 398 612 443 498
Telephone.................................. 105 116 35 84
Communications fee surcharge............... 85 97 87 51
---- ------ ------ ------
Total.................................. $871 $1,424 $1,015 $1,035
==== ====== ====== ======
</TABLE>
F-34
<PAGE>
IMPSAT S.A.
(COMPRISING IMPSAT S.A.'S RETAIL DIAL-UP ACCESS BUSINESS IN COLOMBIA)
NOTES TO STATEMENTS OF NET REVENUES AND DIRECT COSTS AND EXPENSES (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
4. MARKETING AND SALES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Marketing and promotion.................... $131 $191 $153 $50
Credit card fees........................... 6 48 36 46
---- ---- ---- ---
Total.................................. $137 $239 $189 $96
==== ==== ==== ===
</TABLE>
5. CORPORATE, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DESCRIPTION 1997 1998 1998 1999
- ----------- ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Salaries and wages......................... $172 $170 $127 $137
Other general and administrative........... 94 181 136 131
Depreciation and amortization.............. 17 55 39 50
---- ---- ---- ----
Total.................................. $283 $406 $302 $318
==== ==== ==== ====
</TABLE>
F-35
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following sets forth unaudited pro forma consolidated financial
information for our company at September 30, 1999 and for the year ended
December 31, 1998 and the nine months ended September 30, 1999 giving effect to
(i) our completed and pending acquisitions of the retail dial-up access
customers in Argentina, Brazil and Colombia from IMPSAT Corporation for
approximately $21.5 million in the aggregate and the related purchase by IMPSAT
Corporation of 3,070,615 Class A convertible preferred shares for $21.5 million
and (ii) our private placement in mid-November 1999 of 1,111,111 Class B
convertible preferred shares for an aggregate purchase price of $10.0 million in
cash.
The pro forma financial information assumes that the above transactions had
been completed at January 1, 1998 and January 1, 1999 in the case of the pro
forma statement of operations data for the year ended December 31, 1998 and the
nine months ended September 30, 1999, respectively, and at September 30, 1999 in
the case of the pro forma balance sheet data.
The pro forma financial information does not purport to present our
financial condition or results of operations had these transactions occurred on
those dates and is not necessarily indicative of our results of operations for
future periods.
The historical financial information for our company and for the dial-up
access customers in Argentina, Brazil and Colombia of IMPSAT Corporation has
been derived from the financial statements included in this prospectus. The pro
forma adjustments relating to the acquisition of these retail dial-up access
customers are based upon available information and assumptions that we consider
reasonable under the circumstances. Final adjustments could differ from these
adjustments.
F-36
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------------------
RETAIL DIAL-UP ACCESS
------------------------------------------ PRO FORMA
ACTUAL ARGENTINA BRAZIL COLOMBIA TOTAL TOTAL ADJUSTMENTS PRO FORMA
----------- --------- -------- -------- -------- -------- ----------- -----------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES............. $ 1,524 $2,880 $5,766 $1,371 $10,017 $ 11,541 $ 11,541
COSTS AND EXPENSES:
Product, content and
technology........... 3,181 1,802 3,590 1,035 6,427 9,608 9,608
Marketing and sales.... 7,157 332 1,029 96 1,457 8,614 8,614
Corporate, general and
administrative....... 3,736 -- 657 318 975 4,711 75(b) 4,786
Depreciation and
amortization......... 336 -- -- -- -- 336 3,225(c) 3,561
Share-based
compensation......... 499 -- -- -- -- 499 499
----------- ------ ------ ------ ------- -------- -----------
Total costs and
expenses............. 14,909 2,134 5,276 1,449 8,859 23,768 27,068
----------- ------ ------ ------ ------- -------- -----------
Operating income
(loss)............... (13,385) 746 490 (78) 1,158 (12,227) (15,527)
OTHER INCOME (EXPENSES)
Interest income
(expense), net....... 264 -- -- -- -- 264 264
Foreign exchange
income............... 5 -- -- -- -- 5 5
Other income (expense),
net.................. (3) -- -- -- -- (3) (3)
----------- ------ ------ ------ ------- -------- -----------
Total other income
(expense)............ 266 -- -- -- -- 266 266
----------- ------ ------ ------ ------- -------- -----------
NET LOSS BEFORE DIVIDENDS
ON CLASS A AND CLASS B
CONVERTIBLE PREFERRED
SHARES................. (13,119) 746 490 (78) 1,158 (11,961) (15,261)
Dividends on Class A and 1,290(e)
Class B convertible 600(f)
preferred shares....... 784 -- -- -- -- 784 3,333(h) 6,007
----------- ------ ------ ------ ------- -------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS.... $ (13,903) $ 746 $ 490 $ (78) $ 1,158 $(12,745) $ (21,268)
=========== ====== ====== ====== ======= ======== ===========
NET LOSS PER COMMON
SHARE:
Basic and diluted........ $ (1.18) $ (1.81)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES:
Basic and diluted........ 11,777,516 11,777,516
</TABLE>
F-37
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------------------
RETAIL DIAL-UP ACCESS
------------------------------------------ PRO FORMA
ACTUAL ARGENTINA BRAZIL COLOMBIA TOTAL TOTAL ADJUSTMENTS PRO FORMA
---------- --------- -------- -------- -------- -------- ----------- ----------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES............... $ 780 $2,982 $11,394 $2,131 16,507 $17,287 $ 17,287
COSTS AND EXPENSES:
Product, content and
technology............. 1,556 1,851 6,157 1,424 9,432 10,988 10,988
Marketing and sales...... 674 479 1,423 239 2,141 2,815 2,815
Corporate, general and
administrative......... 1,940 -- 2,128 406 2,534 4,474 100(b) 4,574
Depreciation and
amortization........... 107 -- -- -- -- 107 4,300(c) 4,407
---------- ------ ------- ------ ------ ------- ----------
Total costs and
expenses............... 4,277 2,330 9,708 2,069 14,107 18,384 22,784
---------- ------ ------- ------ ------ ------- ----------
Operating income
(loss)................. (3,497) 652 1,686 62 2,400 (1,097) (5,497)
OTHER INCOME (EXPENSES)
Interest income
(expense), net......... (42) -- -- -- -- (42) (42)
Foreign exchange loss.... (44) -- -- -- -- (44) (44)
Other income (expense),
net.................... 66 -- -- -- -- 66 66
---------- ------ ------- ------ ------ ------- ----------
Total other income
(expense).............. (20) (20) (20)
---------- ------ ------- ------ ------ ------- ----------
NET LOSS BEFORE DIVIDENDS
ON CLASS A AND CLASS B
CONVERTIBLE PREFERRED
SHARES................... (3,517) 652 1,686 62 2,400 (1,117) (5,517)
Dividends on Class A and 1,720(e)
Class B convertible 800(f)
preferred shares......... -- -- -- -- -- -- 3,333(h) 5,853
---------- ------ ------- ------ ------ ------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS...... $ (3,517) $ 652 $ 1,686 $ 62 2,400 $(1,117) $ (11,370)
========== ====== ======= ====== ====== ======= ==========
NET LOSS PER COMMON SHARE:
Basic and diluted.......... $ (1.15) $ (3.73)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES:
Basic and diluted.......... 3,050,000 3,050,000
</TABLE>
F-38
<PAGE>
PRO FORMA BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 24,393 (20,600)(a) $ 34,493
21,500 (d)
9,200 (g)
Trade accounts receivable, net............................ 976 976
Other receivables......................................... 1,078 1,078
Prepaid expenses.......................................... 137 137
-------- --------
Total current assets...................................... 26,584 36,684
PROPERTY AND EQUIPMENT, NET............................... 1,878 116 (a) 1,994
LICENSES AND PERMITS, NET................................. 98 98
OTHER ASSETS.............................................. 4,560 4,560
INTANGIBLE ASSETS--Customer base.......................... -- 21,440 (a) 21,440
-------- --------
TOTAL ASSETS........................................ $ 33,120 $ 64,776
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable--trade................................... $ 2,287 $ 2,287
Unearned revenues......................................... 628 628
Accrued and other liabilities............................. 3,405 56 (a) 3,461
Current portion of installment loans...................... 7 450 (a) 457
-------- --------
Total current liabilities........................... 6,327 6,833
-------- --------
INSTALLMENT LOANS......................................... 22 450 (a) 472
-------- --------
CLASS A CONVERTIBLE PREFERRED SHARES...................... 38,327 21,500 (d) 59,827
CLASS B CONVERTIBLE PREFERRED SHARES...................... 9,200 (g) 9,200
SHAREHOLDERS' EQUITY (DEFICIT):
Common shares............................................. 126 126
Additional paid-in-capital................................ 13,943 3,333 (h) 17,276
Deferred share-based compensation......................... (7,286) (7,286)
Accumulated other comprehensive income.................... 95 95
Accumulated deficit....................................... (18,434) (18,434)
Discount on Class B convertible preferred shares.......... -- (3,333)(h) (3,333)
-------- --------
Total shareholders' equity (deficit)................ (11,556) (11,556)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)......................................... $ 33,120 $ 64,776
======== ========
</TABLE>
F-39
<PAGE>
ADJUSTMENTS:
The following are the pro forma adjustments made for purposes of the pro
forma financial information:
(a) Reflects the acquisitions of IMPSAT Corporation's retail dial-up access
customers in Argentina for $6.2 million (of which $5.3 million was paid
in cash with the remainder due in 24 equal monthly installments), Brazil
for $12.3 million and Colombia for $3.0 million for a total purchase
price of $21.5 million. The purchase price has been allocated to the
assets acquired and liabilities assumed based on management's preliminary
estimates of fair value. In connection with these acquisitions, we will
enter into agreements for telecommunication services to be provided to us
by IMPSAT Corporation or its subsidiaries.
(b) Reflects monitoring fees of $100,000 per year payable to IMPSAT
Corporation pursuant to our acquisitions of retail dial-up access
customers of IMPSAT Corporation.
(c) Reflects depreciation and amortization over five years of the fixed and
intangible assets created in connection with acquisitions of retail
dial-up access customers in Argentina, Brazil and Colombia from IMPSAT
Corporation. The customer base will be reviewed on an ongoing basis for
impairment based on comparison of carrying value against estimated
undiscounted future cash flows. If an impairment is identified, the
assets carrying amount will be adjusted to fair value.
(d) Reflects the purchase of 3,070,615 Class A convertible preferred shares
by IMPSAT Corporation for $21.5 million in conjunction with the
acquisitions of its retail dial-up access customers in Argentina, Brazil
and Colombia.
(e) Reflects 8% dividend rate on Class A convertible preferred shares
calculated as follows:
<TABLE>
<CAPTION>
TRANSACTION AMOUNT
- ----------- -----------
<S> <C>
IMPSAT Corporation purchase................................. $21,500,000
===========
Dividend rate per annum..................................... 8%
Annual dividend............................................. $ 1,720,000
Nine-month dividend......................................... $ 1,290,000
</TABLE>
(f) Reflects 8% dividend rate on Class B convertible preferred shares as
follows:
<TABLE>
<CAPTION>
TRANSACTION AMOUNT
- ----------- -----------
<S> <C>
Private placement investors................................. $10,000,000
===========
Dividend rate per annum..................................... 8%
Annual dividend............................................. $ 800,000
Nine-month dividend......................................... $ 600,000
</TABLE>
(g) Reflects the net proceeds from the private placement in mid-November
1999 of Class B convertible preferred shares (total gross proceeds of
$10.0 million less $800,000 for private placement agent fee and
transaction expenses).
F-40
<PAGE>
(h) Reflects the recognition of the discount on sale of the Class B
convertible preferred shares and the amortization of such discount over
the six-month period after the closing of this offering. Each Class B
convertible preferred share will automatically convert, on the date six
months after the closing of this offering, into one common share. This
discount is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Expected initial public offering price per common share..... $ 12.00
less: purchase price per Class B convertible preferred
share................................................. 9.00
----------
Discount per share.......................................... $ 3.00
==========
Number of Class B convertible preferred shares.......... 1,111,111
----------
Total amount of discount.............................. $3,333,333
==========
</TABLE>
F-41
<PAGE>
8,200,000 SHARES
[LOGO]
WWW.ELSITIO.COM
COMMON SHARES
------------
PROSPECTUS
DECEMBER , 1999
-----------------
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
WIT CAPITAL CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering, all of which will be
borne by us, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 36,777
NASD Filing Fee and Expenses................................ 24,800
NASDAQ National Market Listing Fee.......................... 94,000
"Blue Sky" Fees and Expenses................................ 5,000
Transfer Agent Fees......................................... 60,000
Printing and Engraving Costs................................ 500,000
Legal Fees and Expenses..................................... 1,220,000
Accounting Fees............................................. 300,000
Road Show Expenses.......................................... 200,000
Miscellaneous............................................... 59,423
----------
TOTAL....................................................... $2,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The International Business Companies Act, 1984 of the British Virgin Islands
permits an international business company to indemnify directors and officers
and permits an international business company to acquire liability insurance for
directors and officers.
Under Sections 118 through 123 of our articles of association, our company
is empowered to indemnify our directors and officers as follows:
"118. Subject to the limitations hereinafter provided, the Company may
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably
incurred in connection with legal, administrative or investigative
proceedings any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact
that the person is or was a director, an officer or a liquidator of
the Company; or
(b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or
other enterprise.
119. The Company may only indemnify a person if the person acted honestly
and in good faith with a view to the best interests of the Company and,
in the case of criminal proceedings, the person had no reasonable cause
to believe that his conduct was unlawful.
120. The decision of the directors as to whether the person acted honestly
and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that
his conduct was unlawful is, in the absence of fraud, sufficient for
the purposes of these Articles, unless a question of law is involved.
121. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself,
create a presumption that the person did not
II-1
<PAGE>
act honestly and in good faith and with a view to the best interests of
the Company or that the person had reasonable cause to believe that his
conduct was unlawful.
122. If a person to be indemnified has been successful in defense of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
123. The Company may purchase and maintain insurance in relation to any
person who is or was a director, an officer or a liquidator of the
Company, or who at the request of the Company is or was serving as a
director, an officer or a liquidator of, or in any other capacity is or
was acting for, another company or a partnership, joint venture, trust
or other enterprise, against any liability asserted against the person
and incurred by the person in that capacity, whether or not the Company
has or would have had the power to indemnify the person against the
liability as provided in these Articles."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 7, 1999, we completed the private placement of 6,334,004 Class A
convertible preferred shares for a total purchase price of $44.4 million,
consisting of 5,477,088 shares sold for $38.4 million in cash and 856,916 shares
to be issued on a quarterly basis through 2001 in exchange for $6.0 million in
non-cash advertising time credits. Strategic investors included Hicks, Muse,
Tate & Furst Incorporated, and the Cisneros Group of Companies (through IAMP (El
Sitio) Investments Ltd.) and GC Companies Inc. (through GCC Investments, LLC).
Some of our initial investors purchased $6.5 million of our Class A convertible
preferred shares as part of the private placement. The private placement was
exempt from registration under the Securities Act in reliance upon the exemption
provided by Section 4(2) under that Act.
In August 1999, we entered into a framework agreement with IMPSAT
Corporation, a leading provider of private networks of integrated data and voice
communications systems in a number of countries in Latin America, to acquire its
retail dial-up access customers in Argentina, Brazil and Colombia. Under this
Agreement, we have acquired or will acquire these customers for an aggregate of
$21.5 million. IMPSAT Corporation will, in turn, purchase a total of 3,070,615
Class A convertible preferred shares for approximately $21.5 million. The
Argentine and Brazilian acquisitions were consummated in October and
November 1999, respectively, and we expect to close the acquisition in Colombia
in fourth quarter 1999. The sale of these shares to IMPSAT Corporation was
exempt from registration under the Securities Act in reliance upon
Regulation S, and in the alternative, Section 4(2) under that Act.
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10.0 million in cash, or
$9.00 per Class B convertible preferred share. Purchasers of the Class B
convertible preferred shares consisted of Intel Atlantic, Inc., a subsidiary of
Intel Corporation, and Latinvest Asset Management do Brasil, Ltda., an affiliate
of Globalvest Management Company, L.P. Each Class B convertible preferred share
will automatically convert, on the date six months following the closing date of
this offering, into one common share. The private placement was exempt from
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) under that Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement between El Sitio, Inc. and
the underwriters
2.1 Framework Agreement dated August 4, 1999, between IMPSAT
Corporation and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
3.1 Amended and Restated Memorandum of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation)*
3.2 Amended and Restated Articles of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation)*
3.3 Amended and Restated Memorandum of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation) (to be
filed with the British Virgin Islands registrar of companies
on the closing of the offering to which the Registration
Statement relates)
3.4 Amended and Restated Articles of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation) (to be
filed with the British Virgin Islands registrar of companies
on the closing of the offering to which the Registration
Statement relates)
4.1 Form of Common Share Certificate
5.1 Form of Opinion of Conyers Dill & Pearman regarding validity
of common shares
8.1 Form of Opinion of Conyers Dill & Pearman as to tax matters
10.1 Stock Purchase Agreement, dated June 21, 1999, among El
Sitio, Inc. (formerly, El Sitio International Corporation),
Washburn Enterprises, Inc., Chestnut Hill (El Sitio), LLC
and Ibero-American Media Partners II Ltd.*
10.2 Form of Internet Data Services Agreement, dated June 14,
1999, between Exodus Communications, Inc. and El Sitio
U.S.A., Inc.*
10.3 Form of Internet, Backbone and Co-location Service
Agreement, dated April 29, 1999, between IMPSAT Corporation
USA IP-Internet Backbone & Co. and El Sitio U.S.A., Inc.*
10.4 Letter Agreement, dated February 11, 1999, between TV
Azteca, S.A. de C.V. and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
10.5 Subscription Agreement, dated August 31, 1999, between TV
Azteca, S.A. de C.V. and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
10.6 Registration Rights Agreement, dated July 2, 1999, by and
among El Sitio, Inc. (formerly, El Sitio International
Corporation) and holders of its Class A Convertible
Preferred Stock*
10.7 El Sitio International Corporation 1999 Stock Option Plan*
10.8 Employment Agreement, dated June 18, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Roberto Cibrian-Campoy*
10.9 Employment Agreement, dated June 18, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Daniel Rotsztain*
10.10 Noncompete Agreement, dated July 2, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Roberto Cibrian-Campoy*
10.11 Noncompete Agreement, dated July 2, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Daniel Rotsztain*
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.12 Amendment No. 1 to the Stock Purchase Agreement, dated July
2, 1999, among El Sitio, Inc. (formerly, El Sitio
International Corporation), Washburn Enterprises, Inc.,
Chestnut Hill (El Sitio), LLC and Ibero-American Media
Partners II Ltd.*
10.13 Stockholders Agreement, dated July 2, 1999 by and among the
Stockholders of El Sitio International Corporation*
10.14 Quotas Purchase Agreement, dated October 6, 1999, between
IMPSAT Comunicacoes Ltda. and O Site Entretenimentos Ltda.*
10.15 Internet Service Agreement, dated October 6, 1999, between
IMPSAT Comunicacoes Ltda. and Mandic Internet Ltda.*
10.16 Share Purchase Agreement, dated October 6, 1999, between El
Sitio, Inc. and IMPSAT Corporation*
10.17 Amendment No. 1 to Registration Rights Agreement, dated
October 6, 1999, among El Sitio, Inc. and the holders of its
Class A Convertible Preferred Stock*
10.18 Amendment No. 1 to Stockholders Agreement, dated October 6,
1999, by and among IAMP (El Sitio) Investments Ltd.,
Washburn Enterprises Inc., GCC Investments, LLC, the Initial
Stockholders, and El Sitio, Inc.*
10.19 Assignment Agreement, dated November 5, 1999, between El
Sitio Argentina S.A. and IMPSAT S.A.*
10.20 Internet Service Agreement, dated November 5, 1999, between
El Sitio Argentina S.A. and IMPSAT S.A.*
10.21 Reseller and Management Agreement, dated November 5, 1999,
between El Sitio Argentina S.A. between El Sitio Argentina
S.A. and IMPSAT S.A.*
10.22 Share Purchase Agreement, dated November 9, 1999 by and
among El Sitio, Inc., Intel Atlantic, Inc., and Utilitivest
II, L.P and Utilitivest III, L.P. (investment funds managed
by Latinvest Asset Management do Brasil)
10.23 Amended and Restated Registration Rights Agreement, dated
November 9, 1999 by and among El Sitio, Inc. and the holders
of its Class B Convertible Preferred Stock.
10.24 Amended and Restated Shareholders' Agreement dated
November 9, 1999 by and among El Sitio, Inc. and certain of
its shareholders
10.25 Warrant Acquisition Agreement, dated June 25, 1999, by and
between Bear, Stearns & Co. Inc. and El Sitio, Inc.
(formerly El Sitio International Corporation)
10.26 Employment Agreement, dated July 1, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Horacio Milberg
21.1 Subsidiaries of the Company*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche, Argentina
23.3 Consent of Deloitte Touche Tohmatsu, Brazil
23.4 Consent of Deloitte & Touche, Colombia
23.5 Consent of Deloitte & Touche LLP
23.6 Consent of Conyers Dill & Pearman (contained in Exhibits
5.1)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney for directors and officers of El Sitio,
Inc.*
</TABLE>
- ------------------------
* previously filed
(B) FINANCIAL STATEMENTS SCHEDULE.
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than 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 Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement on Form F-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, New York, on December 3, 1999.
<TABLE>
<S> <C> <C>
EL SITIO, INC.
By: /s/ HORACIO MILBERG
-----------------------------------------
Horacio Milberg
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following person in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chief Executive Officer and
------------------------------------------- Director (Principal December 3, 1999
Roberto Cibrian-Campoy Executive Officer)
/s/ HORACIO MILBERG Chief Financial Officer
------------------------------------------- (Principal Financial December 3, 1999
Horacio Milberg Officer)
Chief Administrative
* Officer, Controller and
------------------------------------------- Treasurer (Principal December 3, 1999
Alfredo Jimenez de Arechaga Accounting Officer)
* Chairman of the Board of
------------------------------------------- Directors December 3, 1999
Roberto Vivo-Chaneton
* Director
------------------------------------------- December 3, 1999
Guillermo Liberman
* Director
------------------------------------------- December 3, 1999
Ricardo Verdaguer
* Director
------------------------------------------- December 3, 1999
Michael Greeley
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Director
------------------------------------------- December 3, 1999
Michael Levitt
* Director
------------------------------------------- December 3, 1999
Carlos Cisneros
* Director
------------------------------------------- December 3, 1999
Sofia Pescarmona
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ HORACIO MILBERG
--------------------------------------
Horacio Milberg
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURE OF AUTHORIZED REPRESENTATIVE
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of El Sitio, Inc. has signed
this Amendment No. 1 to the Registration Statement on Form F-1 in New York, New
York on December 3, 1999.
/s/ PAOLA PRADO
--------------------------------------
Paola Prado
AUTHORIZED REPRESENTATIVE
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement between El Sitio, Inc. and
the underwriters
2.1 Framework Agreement, dated August 4, 1999, between IMPSAT
Corporation and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
3.1 Amended and Restated Memorandum of Association of
El Sitio, Inc. (formerly, El Sitio International
Corporation)*
3.2 Amended and Restated Articles of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation)*
3.3 Amended and Restated Memorandum of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation) (to be
filed with the British Virgin Islands registrar of companies
prior to the closing of the offering to which the
Registration Statement relates)
3.4 Amended and Restated Articles of Association of El Sitio,
Inc. (formerly, El Sitio International Corporation) (to be
filed with the British Virgin Islands registrar of companies
prior to the closing of the offering to which the
Registration Statement relates)
4.1 Form of Common Share Certificate
5.1 Form of Opinion of Conyers Dill & Pearman regarding validity
of common shares
8.1 Form of Opinion of Conyers Dill & Pearman as to tax matters
10.1 Stock Purchase Agreement, dated June 21, 1999, among
El Sitio, Inc. (formerly, El Sitio International
Corporation), Washburn Enterprises, Inc., Chestnut Hill
(El Sitio), LLC and Ibero-American Media Partners II Ltd.*
10.2 Form of Internet Data Services Agreement, dated June 14,
1999, between Exodus Communications, Inc. and El Sitio
U.S.A., Inc.*
10.3 Form of Internet, Backbone and Co-location Service
Agreement, dated April 29, 1999, between IMPSAT Corporation
USA IP-Internet Backbone & Co. and El Sitio U.S.A., Inc.*
10.4 Letter Agreement, dated February 11, 1999, between TV
Azteca, S.A. de C.V. and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
10.5 Subscription Agreement, dated August 31, 1999, between TV
Azteca, S.A. de C.V. and El Sitio, Inc. (formerly, El Sitio
International Corporation)*
10.6 Registration Rights Agreement, dated July 2, 1999, by and
among El Sitio, Inc. (formerly, El Sitio International
Corporation) and holders of its Class A Convertible
Preferred Stock*
10.7 El Sitio International Corporation 1999 Stock Option Plan*
10.8 Employment Agreement, dated June 18, 1999, between
El Sitio, Inc. (formerly, El Sitio International
Corporation) and Roberto Cibrian-Campoy*
10.9 Employment Agreement, dated June 18, 1999, between
El Sitio, Inc. (formerly, El Sitio International
Corporation) and Daniel Rotsztain*
10.10 Noncompete Agreement, dated July 2, 1999, between
El Sitio, Inc. (formerly, El Sitio International
Corporation) and Roberto Cibrian-Campoy*
10.11 Noncompete Agreement, dated July 2, 1999, between
El Sitio, Inc. (formerly, El Sitio International
Corporation) and Daniel Rotsztain*
10.12 Amendment No. 1 to the Stock Purchase Agreement, dated
July 2, 1999, among El Sitio, Inc. (formerly, El Sitio
International Corporation), Washburn Enterprises, Inc.,
Chestnut Hill (El Sitio), LLC and Ibero-American Media
Partners II Ltd.*
10.13 Stockholders Agreement, dated July 2, 1999 by and among the
Stockholders of El Sitio International Corporation*
10.14 Quotas Purchase Agreement, dated October 6, 1999, between
IMPSAT Comunicacoes Ltda. and O Site
Entretenimentos Ltda.*
10.15 Internet Service Agreement, dated October 6, 1999, between
IMPSAT Comunicacoes Ltda. and Mandic Internet Ltda.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.16 Share Purchase Agreement, dated October 6, 1999, between
El Sitio, Inc. and IMPSAT Corporation*
10.17 Amendment No. 1 to Registration Rights Agreement, dated
October 6, 1999, among El Sitio, Inc. and the holders of
its Class A Convertible Preferred Stock*
10.18 Amendment No. 1 to Stockholders Agreement, dated October 6,
1999, by and among IAMP (El Sitio) Investments Ltd.,
Washburn Enterprises Inc., GCC Investments, LLC, the Initial
Stockholders, and El Sitio, Inc.*
10.19 Assignment Agreement, dated November 5, 1999, between El
Sitio Argentina S.A. and Impsat S.A.*
10.20 Internet Service Agreement, dated November 5, 1999, between
El Sitio Argentina S.A. and Impsat S.A.*
10.21 Reseller and Management Agreement, dated November 5, 1999,
between El Sitio Argentina S.A. and Impsat S.A.*
10.22 Share Purchase Agreement, dated November 9, 1999, by and
among El Sitio, Inc., Intel Atlantic, Inc., Utilitivest II,
L.P. and Utilitivest III, L.P. (investment funds managed by
Latinvest Asset Management do Brasil)
10.23 Amended and Restated Registration Rights Agreement, dated
November 9, 1999, by and among El Sitio, Inc. and the
holders of its Class B Convertible Preferred Stock
10.24 Amended and Restated Shareholders' Agreement, dated
November 9, 1999, by and among El Sitio, Inc. and certain of
its shareholders
10.25 Warrant Acquisition Agreement, dated June 25, 1999, by and
between Bear, Stearns & Co. Inc. and El Sitio, Inc.
(formerly El Sitio International Corporation)
10.26 Employment Agreement, dated July 1, 1999, between El Sitio,
Inc. (formerly, El Sitio International Corporation) and
Horacio Milberg
21.1 Subsidiaries of the Company*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche, Argentina
23.3 Consent of Deloitte Touche Tohmatsu, Brazil
23.4 Consent of Deloitte & Touche, Colombia
23.5 Consent of Deloitte & Touche LLP
23.6 Consent of Conyers Dill & Pearman (contained in Exhibits
5.1)
24.1 Power of Attorney for directors and officers of
El Sitio, Inc.*
</TABLE>
- ------------------------
* previously filed
<PAGE>
ST&B Draft 12/2/99
8,200,000 SHARES
EL SITIO, INC.
COMMON SHARES
UNDERWRITING AGREEMENT
December __, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY INC.
WIT CAPITAL CORPORATION
As Representatives of the several
Underwriters named in Schedule 1
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Ladies and Gentlemen:
El Sitio, Inc., a British Virgin Islands company (the "Company"),
proposes to sell to the Underwriters named in Schedule 1 hereto (the
"Underwriters"), for which Credit Suisse First Boston Corporation ("CSFBC"),
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney Inc. and Wit Capital Corporation are acting as
Representatives (the "Representatives"), 8,200,000 common shares, par value
U.S.$0.01 per share (the "Common Shares") (such 8,200,000 Common Shares being
referred to herein as the "Firm Shares"). In addition, the Company proposes to
grant to the Underwriters an option to purchase up to an additional 1,230,000
Common Shares on the terms and for the purposes set forth in Section 2 hereof
(the "Option Shares"). The Firm Shares and the Option Shares, if purchased, are
hereinafter collectively called the "Shares".
As part of the offering contemplated by this Agreement, Lehman Brothers
Inc. (the "Designated Underwriter") has agreed to reserve out of the Firm Shares
to be purchased by it pursuant to this Agreement, up to 820,000 Shares, for sale
to the Company's directors, officers, employees and other persons associated
with the Company (collectively, "Directed Share Participants"), as set forth in
the Prospectus (as defined herein) under the heading "Underwriting" (the
"Directed Share Program"). The Firm Shares to be sold by the Designated
Underwriter pursuant to the Directed Share Program (the "Directed Shares") will
be sold by the Designated Underwriter
<PAGE>
2
pursuant to this Agreement at the public offering price. Any Directed Shares not
orally confirmed for purchase by a Directed Share Participant by the end of the
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus.
This is to confirm the agreement concerning the purchase of the Shares
from the Company by the Underwriters.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents, warrants and agrees that:
(a) A registration statement on Form F-1 (Registration No.
333-91263), and one or more amendments thereto, with respect to the
Shares have (i) been prepared by the Company in conformity with the
requirements of the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the U.S. Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act; and
a second registration statement on Form F-1 with respect to the Shares
(i) may also be prepared by the Company in conformity with the
requirements of the Securities Act and the Rules and Regulations and
(ii) if to be so prepared, will be filed with the Commission under the
Securities Act pursuant to Rule 462(b) of the Rules and Regulations on
the date hereof. Copies of the first such registration statement and the
amendments to such registration statement, together with the form of any
such second registration statement, have been delivered by the Company
to the Representatives. As used in this Agreement, "Effective Time"
means (i) with respect to the first such registration statement, the
date and the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared effective
by the Commission and (ii) with respect to any second registration
statement, the date and time as of which such second registration
statement is filed with the Commission, and "Effective Times" is the
collective reference to both Effective Times; "Effective Date" means (i)
with respect to the first such registration statement, the date of the
Effective Time of such registration statement and (ii) with respect to
any second registration statement, the date of the Effective Time of
such second registration statement, and "Effective Dates" is the
collective reference to both Effective Dates; "Preliminary Prospectus"
means each prospectus included in any such registration statement, or
amendments thereof, before it became effective under the Securities Act
and any prospectus filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the Rules and
Regulations; "Primary Registration Statement" means the first
registration statement referred to in this Section 1(a), as amended at
its Effective Time; "Rule 462(b) Registration Statement" means the
second registration statement, if any, referred to in this Section 1(a),
as filed with the Commission; and "Registration Statements" means both
the Primary Registration Statement and any Rule 462(b) Registration
Statement, including in each case all information contained in the final
prospectus filed with the Commission
<PAGE>
3
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section 5(a) hereof and deemed to be a part of the Registration
Statements as of the Effective Time of the Primary Registration
Statement pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as first
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
(b) The Primary Registration Statement conforms, and the Rule
462(b) Registration Statement, if any, the Prospectus and any further
amendments or supplements to the Registration Statements or the
Prospectus, when they become effective or are filed with the Commission,
as the case may be, will conform, in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do
not and will not, as of the applicable Effective Date (as to the
Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED that
no representation or warranty is made as to information contained in or
omitted from the Registration Statements or the Prospectus in reliance
upon and in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The Company has been duly incorporated and is validly
existing as a company in good standing under the laws of the British
Virgin Islands. Each of the subsidiaries of the Company has been duly
organized and is validly existing as a corporation, company or other
corporate entity, as the case may be, in good standing, if applicable,
under the laws of its respective jurisdiction of organization. Each of
the Company and its subsidiaries is duly qualified to do business and is
in good standing in each jurisdiction in which its respective ownership
or lease of property or assets or the conduct of its respective
businesses requires such qualification, and has all power and authority
necessary to own or hold its respective properties or assets and to
conduct the businesses in which it is engaged. El Sitio Argentina S.A.,
O Site Entretenimentos Ltda., El Sitio Entretenimientos, S.A. de C.V.,
El Sitio U.S.A., Inc. and El Sitio (Uruguay) Sociedad Anonima, each of
which is a subsidiary of the Company, are the sole "significant
subsidiaries" (as defined in Section 16 hereof) of the Company.
(d) The Company has an authorized capitalization as set forth in
the Prospectus; all of the issued and outstanding Common Shares have
been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; there are no authorized classes of capital stock of the
Company other than the Common Shares and ______ Class A convertible
<PAGE>
4
preferred shares, par value U.S.$0.01 per share ( "Class A Convertible
Preferred Shares"), which will automatically convert into Common Shares
on the First Delivery Date (as defined in Section 4 hereof) and
1,111,111 Class B convertible preferred shares, par value U.S.$0.01 per
share (the "Class B Convertible Preferred Shares"); and all of the
issued and outstanding shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable and (other than a de minimis number of shares
required in certain jurisdictions to satisfy diversity of ownerships
requirements) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(e) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and non-assessable; the holders
of the Shares will have no liability under the laws of the British
Virgin Islands for any debt or other obligation of the Company towards
third parties in their capacity as holders thereof; the Shares will
conform to the description thereof contained in the Prospectus; except
as described in the Prospectus, there are no outstanding securities
convertible into or exchangeable for, or warrants, rights or options to
purchase from the Company and its subsidiaries, or obligations of the
Company and its subsidiaries to issue, any class of capital stock of the
company or any of its subsidiaries; and except as described in the
Prospectus, there are no restrictions on transfer or voting of any
capital stock of the Company pursuant to the Company's Amended and
Restated Memorandum of Association and Amended and Restated Articles of
Association (the "Memorandum and Articles of Association") or any
agreement to which the Company is a party or by which it may be bound or
to which any of its property or assets may be subject.
(f) The Company has full power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby (including, without limitation, the
issuance, sale and delivery of the Shares).
(g) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles and except, further, as enforceability of indemnification
provisions may be limited by considerations of public policy.
(h) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby
will not (A) conflict with or result in a breach or violation of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or
<PAGE>
5
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound or to which any
of the properties or assets of the Company or any of its subsidiaries is
subject, (B) result in any violation of the Company's Memorandum and
Articles of Association or of the charter, ESTATUTOS, by-laws or any
other constitutive document of any of the Company's subsidiaries or (C)
result in any violation of any statute or any regulation, rule or order
of any governmental agency or body or court having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets.
(i) No consent, approval, authorization or order of, or filing
or registration with, any governmental agency or body or court is
required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby, except for the registration of the Shares under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the U.S. Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and applicable U.S. state
securities or "blue sky" laws in connection with the purchase and
distribution of the Shares by the Underwriters and except for the filing
with the British Virgin Islands Registrar of Companies of any amendment
to the Company's Memorandum and Articles of Association pursuant to
Section 7(r) hereof.
(j) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
other person which grant such person the right to require the Company to
file a registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or to
require the Company to include such securities as part of the securities
registered pursuant to the Registration Statements or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
(k) Except for offers and sales of the Company's Class A
Convertible Preferred Shares and Class B Convertible Preferred Shares,
and Common Shares in respect of outstanding options, rights or warrants,
in each case as described in the Prospectus, the Company has not offered
or sold any Common Shares or securities convertible or exchangeable into
Common Shares during the six-month period preceding the date of the
Prospectus (including, without limitation, any offers or sales pursuant
to (i) Section 4(2) of , or Regulation D under, the Securities Act or
(ii) Rule 144A under, or Regulation S of, the Securities Act). The offer
and sale by the Company of its Class A Convertible Preferred Shares and
Class B Convertible Preferred Shares as described in the Prospectus and
in Item 15 of the Primary Registration Statement should not have been,
and should not be, required to be integrated with the offering of the
Shares as contemplated under this Agreement and, accordingly, to be
registered under the Securities Act.
<PAGE>
6
(l) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus; and, since such date, there has not been any change in
the capital stock, any increase in current liabilities or any decrease
in shareholders' equity of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the business, properties,
results of operations, financial condition or prospects of the Company
and its subsidiaries taken as a whole ( "Material Adverse Effect"),
otherwise than as set forth in the Prospectus.
(m) The consolidated financial statements of the Company and its
subsidiaries and the statement of historical net assets to be sold by
IMPSAT Corporation at September 30, 1999 and the statements of net
revenues and direct costs and expenses for the retail dial-up access
businesses of each of IMPSAT S.A. (Argentina), MANDIC INTERNET LTDA.
(formerly MANDIC.COM LTDA.) (Brazil) and IMPSAT S.A. (Colombia)
(collectively, the "IMPSAT Entities") filed as part of the Registration
Statements or included in the Prospectus present fairly, in all material
respects, the financial condition and results of operations of the
entities purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with U.S. generally
accepted accounting principles applied on a consistent basis throughout
the periods indicated. The summary financial data and selected financial
data included in the Registration Statements and the Prospectus have
been fairly and accurately extracted from the financial statements and
pro forma consolidated financial information of the Company filed as
part of the Registration Statements or included in the Prospectus. The
pro forma consolidated financial information included in the Prospectus
(i) is presented fairly in all material respects, (ii) has been prepared
in accordance with the Rules and Regulations with respect to pro forma
financial statements and (iii) has been properly compiled on the bases
described therein, and the assumptions used in the preparation of the
pro forma consolidated financial information included in the Prospectus
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions or circumstances referred to therein.
(n) No forward-looking statement (with the meaning to Section
27A of the Securities Act and Section 21E of the Exchange Act) contained
in the Prospectus has been made or reaffirmed without a reasonable basis
or has been disclosed other than in good faith.
(o) Deloitte & Touche LLP and its affiliates in Argentina,
Brazil and Colombia (collectively, "Deloitte & Touche"), which have
certified the financial statements of the Company and of the IMPSAT
Entities, whose reports appear in the
<PAGE>
7
Prospectus and which have delivered the initial comfort letter referred
to in Section 5(q) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(p) Each of the Company and its subsidiaries owns, leases or
licenses all properties and assets necessary to conduct its business as
presently conducted and as proposed to be conducted.
(q) Neither the Company nor any of its subsidiaries owns any
real property; the Company and each of its subsidiaries have good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and all real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries.
(r) Except as set forth in the Prospectus, each of the Company
and its subsidiaries possesses adequate certificates, authorities,
approvals, licenses or permits issued by appropriate governmental
agencies or bodies necessary to conduct its business as presently
conducted and as proposed to be conducted, and has not received any
notice of proceedings relating to the revocation or modification of any
such certificate, authority, approval, license or permit.
(s) The Company and each of its subsidiaries carry, or are
covered by, insurance from insurers of recognized financial
responsibility in such amounts and covering such risks as is adequate
for the conduct of their respective businesses and the value of their
respective properties and as is prudent and customary for companies
engaged in similar businesses in similar industries; all policies of
insurance insuring the Company or any of its subsidiaries or their
respective businesses, assets, directors, officers and employees are in
full force and effect; the Company and its subsidiaries are in
compliance with the terms of such policies and instruments in all
material respects; and there are no claims by the Company or any of its
subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation
of rights clause; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the
Company nor any such subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that could not
reasonably be expected to have a Material Adverse Effect.
<PAGE>
8
(t) Except as set forth in the Prospectus, the Company and each
of its subsidiaries own or possess adequate rights to use all material
uniform resource locators (URLs), patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights and licenses necessary for them to
conduct their respective businesses as now conducted and as proposed to
be conducted and have no reason to believe that the conduct of their
respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any such rights of any other
person or entity.
(u) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse
Effect; and to the Company's knowledge, no such proceedings are
threatened or contemplated by any governmental agency or body or
threatened by any other person or entity.
(v) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to either of the
Registration Statements by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statements.
(w) No relationship, direct or indirect, exists between or among
the Company or any of its subsidiaries on the one hand, and the
directors, officers, shareholders, customers or suppliers of the Company
or such subsidiary, as the case may be, on the other hand, which is
required to be described in the Prospectus which is not so described.
(x) No labor disturbance by the employees of the Company or its
subsidiaries exists or, to the knowledge of the Company, is imminent,
which could reasonably be expected to have a Material Adverse Effect.
Each of the Company and its subsidiaries is in compliance in all
material respects with all applicable laws in their respective
jurisdictions relating to employees (including, without limitation, laws
relating to pension contributions and obligations).
(y) Each of the Company and its subsidiaries has filed with all
appropriate taxing authorities all material income, franchise or other
tax returns required to be filed through the date hereof and has paid
all taxes due thereon; each such tax return, report or other
information, was, when filed, accurate and complete in all material
respects; and no tax deficiency has been determined adversely to the
Company or any of its subsidiaries which has had (nor does the Company
have any knowledge of any tax deficiency which, if determined adversely
to the Company or any of its subsidiaries, could reasonably be expected
to have) a Material Adverse Effect.
<PAGE>
9
(z) All dividends and other distributions properly declared and
payable on the Shares may under the current laws and regulations of the
British Virgin Islands be paid in U.S. dollars that may be freely
transferred from or out of the British Virgin Islands without the
necessity of obtaining any consents, approvals, authorizations, orders
or clearances from or registering with any governmental agency or body
or court of the British Virgin Islands.
(aa) No stamp or other issuance or transfer taxes or duties and
no capital gains, income, withholding or other taxes are payable by or
on behalf of the Underwriters to the government of the British Virgin
Islands or any political subdivision or taxing authority thereof or
therein in connection with (i) the issuance and sale of the Shares by
the Company to the Underwriters in accordance with this Agreement, (ii)
the delivery of the Shares to or for the respective accounts of the
Underwriters in the manner contemplated in this Agreement or (iii) the
resale and delivery by the Underwriters of the Shares to the initial
purchasers therefrom as contemplated in the Prospectus.
(bb) The Common Shares have been approved for listing, subject
only to official notice of issuance, on The Nasdaq Stock Market's
National Market (the "Nasdaq National Market").
(cc) None of the Company, any subsidiary of the Company or any
director or officer of the Company or of any subsidiary of the Company
is (i) a director, officer, or partner of any brokerage firm, broker or
dealer that is a member of the National Association of Securities
Dealers, Inc. ( "NASD"; and each such member, an "NASD member") or (ii)
directly or indirectly, a "person associated with" a NASD member or an
"affiliate" of a NASD member, as such terms are used in the NASD by-laws
or rules.
(dd) Since the date as of which information is given in the
Prospectus, and except as set forth in the Prospectus, the Company has
not (i) issued or granted any securities, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and obligations
which were incurred in the ordinary course of business, (iii) entered
into any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on the Common Shares.
(ee) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary
to permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted
only in accordance with management's authorization and (D) the reported
<PAGE>
10
accountability for its assets is compared with existing assets at
reasonable intervals.
(ff) Neither the Company nor any of its subsidiaries, nor any
director, officer, employee, authorized agent or other person acting on
behalf of the Company or any of its subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(gg) Neither the Company nor any of its subsidiaries (i) is in
violation of, in the case of the Company, its Memorandum and Articles of
Association, and in the case of each such subsidiary, of its charter,
ESTATUTOS, by-laws or any other constitutive document, as the case may
be, (ii) is in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which
any of its properties or assets is subject or (iii) is in violation in
any material respect of any statute or any rule, regulation or order of
any governmental agency or body or court to which it or its properties
or assets may be subject.
(hh) For the purpose described in Section 18 hereof, under the
laws of the State of New York relating to submission to jurisdiction,
the Company has validly and irrevocably submitted to the jurisdiction of
any New York state or U.S. federal court located in the Borough of
Manhattan, New York City, has validly and irrevocably waived any
objection to the venue of a proceeding in any such court, and has
validly and irrevocably appointed CT Corporation System as its
authorized agent for service of process.
(ii) As of the date hereof, neither the Company nor any of its
subsidiaries is, or intends to conduct its business activities in such a
manner that it would become, and, after giving effect to the
transactions contemplated hereunder, neither the Company nor any of its
subsidiaries will be required to be registered as, an "investment
company" pursuant to the U.S. Investment Company Act of 1940, as amended
(the "Investment Company Act" ), and the rules and regulations of the
Commission thereunder.
(jj) Under the laws of the British Virgin Islands, the
submission by the Company to the jurisdiction of any New York state or
U.S. federal court sitting in the Borough of Manhattan, New York City,
and the choice of the law of the State of New York to govern this
Agreement, will be binding upon the Company and would be enforceable in
any judicial or administrative proceeding in the British Virgin Islands
(subject to any applicable exceptions to the recognition or enforcement
<PAGE>
11
of foreign judgments in the British Virgin Islands).
(kk) Neither the Company nor any of its subsidiaries has (i)
violated any material environmental statute, rule, regulation, order,
judgment, decree or permit in any jurisdiction in which the Company or
such subsidiary conducts any business or owns or holds any properties or
assets or (ii) received notice of any actual or potential liability for
the investigation or remediation of any disposal or release of hazardous
or toxic substance or wastes, pollutants or contaminants, except where
such violation or liability could not reasonably be expected to have a
Material Adverse Effect.
(ll) The acquisitions of the retail dial-up access customers and
related assets of the IMPSAT Entities in Argentina and Brazil have been
completed in all material respects, as set forth in the Prospectus.
Other than the pending acquisition of the retail dial-up access
customers and related assets of IMPSAT S.A. (Colombia), there are no
material acquisitions of businesses or assets by the Company or any of
its subsidiaries pending or currently being negotiated.
(mm) Based on its projected income and assets (including
goodwill), which it believes to be reasonable, the nature of the
Company's business and assets and taking into account the receipt of
proceeds from the offering and sale of the Shares, the Company believes
that it will not be classified as a passive foreign investment company (
"PFIC") within the meaning of Section 1297(a) of the U.S. Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"),
including the regulations and rulings and interpretations thereunder,
for its current taxable year.
(nn) The Company has tested its computers, servers and other
equipment. The Company has sought written confirmation from each of its
third-party suppliers and service providers as to their respective
readiness. The Company expects to complete upgrades and testing by the
end of 1999. The Company also expects to receive confirmation as to year
2000 compliance from all key vendors and suppliers in December 1999. The
cost to the Company of such upgrades and testing and of the reasonably
foreseeable consequences of year 2000 to the Company (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Material Adverse Effect. Except for such
of the upgrades referred to in the preceding sentence as may be
necessary, the computer and management information systems of the
Company and its subsidiaries are and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit the Company to
conduct its business without a Material Adverse Effect.
(oo) The Primary Registration Statement and each Preliminary
Prospectus conforms, and the Rule 462(b) Registration Statement, if any,
the Prospectus and any further amendments or supplements to the
Registration Statements or the Prospectus will conform, with any
applicable laws or regulations of foreign jurisdictions in
<PAGE>
12
which such documents are distributed in connection with the Directed
Share Program; and no consent, approval, authorization or order of, or
filing or registration with, any governmental agency or body or court is
required or advisable under any applicable laws or regulations of
foreign jurisdictions in which the Directed Shares are offered outside
the United States.
(pp) The Company has not offered, or caused the Underwriters to
offer, any Shares to any person pursuant to the Directed Share Program
with the intent to influence unlawfully (i) a customer or supplier of
the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its
products.
(qq) Neither the Company nor any of its officers, directors or
affiliates has taken, directly or indirectly, any action designed to
stabilize or manipulate the trading price of the Common Shares, or that
might reasonably be expected to cause or result in stabilization or
manipulation of the trading price of the Common Shares.
2. PURCHASE OF THE SHARES BY THE UNDERWRITERS. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 8,200,000 Firm Shares
to the several Underwriters, and each of the Underwriters, severally and not
jointly, agrees to purchase the number of Firm Shares set opposite that
Underwriter's name in Schedule 1 hereto.
In addition, the Company grants to the Underwriters an option to
purchase up to 1,230,000 Option Shares. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 4 hereof. The Option Shares shall be
purchased severally for the account of the Underwriters in proportion to the
number of Firm Shares set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Shares shall be adjusted by CSFBC to eliminate fractions.
The purchase price to be paid by the Underwriters for the Firm Shares
and any Option Shares shall be U.S.$__.00 per share.
The Company shall not be obligated to deliver any of the Shares to be
delivered except upon payment for all the Shares to be purchased on such
Delivery Date (as defined below) as provided herein.
3. OFFERING OF SHARES BY THE UNDERWRITERS. Upon authorization by the
Representatives of the release of the Firm Shares, the several Underwriters
propose to offer the Firm Shares for sale upon the terms and conditions set
forth in the Prospectus; PROVIDED, HOWEVER, that no Shares registered pursuant
to the Rule 462(b) Registration Statement, if any, shall be offered prior to the
Effective Time thereof.
<PAGE>
13
4. DELIVERY OF AND PAYMENT FOR THE SHARES. Delivery of and payment for
the Firm Shares shall be made at the office of Simpson Thacher & Bartlett, U.S.
counsel to the Underwriters, located at 425 Lexington Avenue, New York, New York
10017, United States, at 10:00 A.M., New York City time, on December __, 1999 or
at such other date or place as shall be determined by agreement between CSFBC
and the Company. This date and time are sometimes referred to as the "First
Delivery Date". On the First Delivery Date, the Company shall deliver or cause
to be delivered certificates representing the Firm Shares to the Representatives
for the account of each Underwriter against payment to or upon the order of the
Company of the purchase price by wire transfer in immediately available funds to
a bank account that has been designated by the Company in writing at least one
business day prior to the First Delivery Date and is reasonably acceptable to
CSFBC. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Shares shall be registered
in such names and in such denominations as CSFBC shall request in writing not
less than two full business days prior to the First Delivery Date. For the
purpose of expediting the checking and packaging of the certificates for the
Firm Shares, the Company shall make the certificates representing the Firm
Shares available for inspection by the Representatives in New York, New York,
not later than 2:00 P.M., New York City time, on the business day prior to the
First Delivery Date.
At any time on or before the 30th day after the date of this Agreement,
the option granted in Section 2 hereof may be exercised in whole or in part from
time to time by written notice being given to the Company by CSFBC. Such notice
shall set forth the aggregate number of Option Shares as to which the option is
being exercised, the names in which the Option Shares are to be registered, the
denominations in which the Option Shares are to be issued and the date and time,
as determined by the Representatives, when the Option Shares are to be
delivered; PROVIDED, HOWEVER, that this date and time shall not be earlier than
the First Delivery Date nor earlier than the second business day after the date
on which the option shall have been exercised nor later than the fifth business
day after the date on which the option shall have been exercised. The date and
time the Option Shares are delivered are sometimes referred to as an "Optional
Delivery Date" and the First Delivery Date and the Optional Delivery Date are
sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Shares shall be made at the place
specified in the first paragraph of this Section 4 (or at such other place as
shall be determined by agreement between the Representatives and the Company) at
10:00 A.M., New York City time, on the Optional Delivery Date. On the Optional
Delivery Date, the Company shall deliver or cause to be delivered the
certificates representing the Option Shares to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by wire transfer in immediately available funds to the
bank account designated by the Company pursuant to the first paragraph of this
Section 4. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Option Shares shall be registered
in such names and in such denominations as the Representatives shall request in
the aforesaid written notice. For the purpose of expediting the checking and
packaging of the certificates for the Option Shares, the Company
<PAGE>
14
shall make the certificates representing the Option Shares available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Optional Delivery
Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees:
(a) To prepare the Rule 462(b) Registration Statement, if
necessary, in a form approved by the Representatives and to file such
Rule 462(b) Registration Statement with the Commission on the date
hereof; to prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and delivery
of this Agreement; to make no further amendment or any supplement to the
Registration Statements or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice
thereof, of the time when any amendment to either Registration Statement
has been filed or becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof to advise the Representatives,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Shares for offering or sale in
any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending
or supplementing of the Registration Statements or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
U.S. counsel to the Underwriters a copy of each draft of the
Registration Statements as submitted for confidential review by the
Commission and a signed copy of each of the Registration Statements as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and other exhibits submitted
or filed therewith;
(c) To deliver promptly to the Representatives in New York City
such number of the following documents as the Representatives shall
request: (i) conformed copies of the Registration Statements as
originally filed with the Commission and each amendment thereto (in each
case excluding exhibits other than this Agreement and the computation of
per share earnings), (ii) each Preliminary Prospectus, the Prospectus
(not later than 10:00 A.M., New York City time, of the day following the
execution and delivery of this Agreement) and any amended or
supplemented Prospectus (not later than 10:00 A.M., New York City time,
on the day following the date of such amendment or supplement) and, if
the delivery of a
<PAGE>
15
prospectus is required at any time after the Effective Time of the
Primary Registration Statement in connection with the offering or sale
of the Shares (or any other securities relating thereto) and if at such
time any event shall have occurred as a result of which the Prospectus
as then amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or, if for any other reason it shall be necessary during
such same period to amend or supplement the Prospectus in order to
comply with the Securities Act, to notify the Representatives and, upon
their request, to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the Representatives
may from time to time request of an amended or supplemented Prospectus
which will correct such statement or omission or effect such compliance.
Notwithstanding the foregoing provisions of this Section 5(c), neither
the Representatives' consent to, nor any Underwriters' delivery of, any
such amended or supplemented Prospectus shall constitute a waiver of,
any of the conditions set forth in Section 7 hereof;
(d) To file promptly with the Commission any amendment to the
Registration Statements or the Prospectus or any amendment or supplement
to the Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission (i) any amendment to
either of the Registration Statements or amendment any or supplement to
the Prospectus or (ii) any Prospectus pursuant to Rule 424 of the Rules
and Regulations, to furnish a copy thereof to the Representatives and
counsel for the Underwriters and obtain the consent of the
Representatives to the filing (which consent shall not be unreasonably
withheld);
(f) As soon as practicable after the Effective Date of the
Primary Registration Statement, to make generally available to the
Company's security holders and to deliver to the Representatives an
earning statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule
158);
(g) For a period of three years following the Effective Date of
the Primary Registration Statement, to furnish to the Representatives
copies of all materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements furnished by
the Company to (i) the principal U.S. national securities exchange or
automatic quotation system upon which the Common Shares may be listed or
quoted pursuant to requirements of or agreements with such securities
exchange or system or (ii) the Commission pursuant to the Exchange Act
or any rule or regulation of the Commission thereunder;
<PAGE>
16
(h) Promptly from time to time to cooperate with the
Representatives in connection with the qualification or registration of
the Shares for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to comply with such
laws so as to permit sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Shares; PROVIDED, HOWEVER, that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction in any action
other than one arising out of the offering or sale of the Shares;
(i) (i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (a) offer for sale, sell or
contract to sell, pledge or otherwise dispose of, or announce an
offering of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition or purchase by
any person at any time in the future of) any Common Shares or other
equity securities of the Company or any securities convertible into or
exchangeable for any Common Shares or other equity securities, or sell
or grant options, rights or warrants with respect to any Common Shares
or equity securities of the Company or any securities convertible into
or exchangeable for any Common Shares or other equity securities (other
than (i) shares issued pursuant to share option or other employee
benefit plans and (ii) pursuant to currently outstanding options,
warrants or rights, in each case as in effect on the date hereof), or
(b) enter into any swap or other derivatives transaction that transfers
to another, in whole or in part, any of the economic benefits or risks
of ownership of any Common Shares or other equity Securities, whether
any such transaction described in clause (a) or (b) above is to be
settled by delivery of Common Shares or other equity securities in cash
or otherwise, in each case without the prior written consent of CSFBC on
behalf of the Underwriters except that, prior to the expiration of such
180-day period, the Company may file one or more registration statements
with the Commission on Form S-8 relating to the Company's existing share
option plan as described in the Registration Statement; and (ii) to
cause each director, executive officer, employee and shareholder of the
Company listed on Schedule 2 to furnish to the Representatives, prior to
the First Delivery Date, a "lock-up" letter (each, a "Lock-up Letter"),
substantially in the form of Exhibit A hereto;
(j) To use its best efforts to cause the Shares to be accepted
for settlement through the facilities of The Depository Trust Company (
"DTC");
<PAGE>
17
(k) To complete the 2-for-1 share split (as defined in Section
7(r) hereof) in respect of the Common Shares as contemplated in the
Prospectus (including, without limitation, to provide that the holders
of the Company's Class B Convertible Preferred Shares shall be entitled
to convert such shares solely into post-share split Common Shares);
(l) To duly appoint The Bank of New York (or such other leading
U.S. financial institution as may be reasonably satisfactory to the
Representatives) as registrar and transfer agent for the Company's
Common Shares;
(m) To apply the net proceeds from the sale of the Shares being
sold by the Company as set forth in the Prospectus under the caption
"Use of Proceeds";
(n) Between the date hereof and the First Delivery Date (both
dates inclusive), to notify and consult with the Representatives, and to
cause its subsidiaries and all other parties acting on its or their
behalf to notify and consult with the Representatives, prior to issuing
any press release or other announcement which could be material in the
context of the distribution of the Shares;
(o) To conduct its business activities in a manner to avoid the
requirement to be registered as an "investment company" pursuant to the
Investment Company Act and the rules and regulations of the Commission
thereunder, and that none of the Company's subsidiaries shall become an
"investment company" within the meaning of such term under the
Investment Company Act and the rules and regulations of the Commission
thereunder;
(p) From and after the First Delivery Date, to use its best
efforts to maintain the Shares as "marketable securities" within the
meaning of Section 1296(e) of the Internal Revenue Code and the
regulations, rulings and interpretations thereunder; to monitor its PFIC
status and take all reasonable steps to notify U.S. shareholders as
promptly as practicable in the event that the Company believes it will
become a PFIC in any taxable year; and if the Company becomes a PFIC, to
provide U.S. shareholders, upon request, with the annual information
statement and any other information necessary for U.S. shareholders to
make a "qualified electing fund" election under Section 1295 of the
Internal Revenue Code and the regulations thereunder;
(q) To indemnify and hold harmless the Underwriters against any
British Virgin Islands documentary, stamp or similar issuance tax,
including any interest and penalties, on the issuance, sale and delivery
by the Company of the Shares and on the execution and delivery of this
Agreement;
(r) In connection with the Directed Share Program, to ensure
that the Directed Shares shall be restricted to the extent required by
the NASD or pursuant to the rules of the NASD from sale, transfer,
assignment, pledge or hypothecation for a period of three months
following the Effective Dates and also to direct the transfer agent to
place stop transfer restrictions upon the Directed Shares for such
period of time (it being understood that the Designated Underwriter
shall notify the Company as to which Directed Share Participants shall
be required to be so restricted); and
<PAGE>
18
(s) To comply with all applicable laws and regulations in each
foreign jurisdiction in which the Directed Shares are offered or sold
pursuant to the Directed Share Program.
6. EXPENSES. The Company agrees to pay the following fees, costs and
expenses on a timely basis:
(a) The costs incident to the authorization, issuance, sale and
delivery of the Shares (and any VAT or other taxes payable in that
connection);
(b) The costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any
amendments and exhibits thereto;
(c) The costs of printing and distributing the Registration
Statements as originally submitted to the Commission for confidential
review and as formally filed with the Commission and each amendment
thereto and any post-effective amendments thereof (including, in each
case, exhibits), any Preliminary Prospectus, the Prospectus and any
amendment or supplement to the Prospectus, all as provided in this
Agreement;
(d) The costs of producing and distributing this Agreement, and
any other related documents in connection with the offer, sale and
delivery of the Shares;
(e) The filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the
required review by the NASD of the terms of sale of the Shares, provided
that such fees and expenses of U.S. counsel to the Underwriters shall
not exceed U.S.$15,000;
(f) Any applicable listing or other fees, including, without
limitation, the fees for listing of the Common Shares on the Nasdaq
National Market;
(g) The fees and expenses of qualifying the Shares under the
securities laws of the several jurisdictions as provided in Section 5(h)
hereof and of preparing, printing and distributing a "blue sky"
memorandum, including related fees and expenses of U.S. counsel to the
Underwriters, provided that such fees and expenses of U.S. counsel to
the Underwriters shall not exceed U.S.$5,000;
(h) The fees and expenses of U.S., British Virgin Islands and
other counsel to the Company and of Deloitte & Touche, in each case
relating to the transactions contemplated by this Agreement;
(i) All costs and expenses of the Underwriters, including the
related fees and disbursements of U.S. counsel to the Underwriters,
incident to the offer and sale of
<PAGE>
19
the Shares by the Underwriters to the Directed Sale Share Purchasers
(and any stamp duties or other taxes payable by the Designated
Underwriter in connection with the Directed Share Program);
(j) All costs and expenses incurred by or on behalf of the
Company in connection with the "road show" for the offering of the
Shares; and
(k) All other costs and expenses incident to the performance of
the obligations of the Company under this Agreement.
The Underwriters shall pay their own costs and expenses incident to the
performance of their obligations hereunder, including the costs and expenses of
U.S. counsel to the Underwriters, any transfer taxes in respect of the Shares
that they may sell, and the expenses of any advertising relating to the offering
of the Shares made by the Underwriters.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations
of the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Rule 462(b) Registration Statement, if any, and the
Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the effectiveness
of either of the Registration Statements or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated
or threatened by the Commission; and any request of the Commission for
inclusion of additional information in either of the Registration
Statements or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that either of the
Registration Statements or the Prospectus or any amendment or supplement
thereto contains any untrue statement of a fact which, in the opinion of
a majority in interest of the Underwriters (including, without
limitation, the Representatives), is material or omits to state any fact
which is material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Common
Shares (including the Shares), the Registration Statements and the
Prospectus, and all other legal matters relating to this Agreement and
the transactions contemplated hereby shall be satisfactory in all
respects to U.S. counsel for the Underwriters, and the Company shall
have furnished to such counsel all documents and information that they
may reasonably request to enable them to pass upon such matters and to
furnish to the
<PAGE>
20
Representatives their written opinion, addressed to the Underwriters and
dated such Delivery Date, covering such matters as the Representatives
may reasonably request.
(d) Paul, Hastings, Janofsky & Walker LLP, U.S. counsel to the
Company, shall have furnished to the Representatives their written
opinion, addressed to the Underwriters and dated such Delivery Date, in
form and substance satisfactory to the Representatives, to the effect
that:
(i) The Primary Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion; the Rule 462(b) Registration
Statement, if any, was filed with the Commission on the date
specified therein; the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein; and no stop order suspending the effectiveness of
either of the Registration Statements has been issued and, to
the knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(ii) The Registration Statements, as of their respective
Effective Dates, and the Prospectus, as of its date, and any
further amendments or supplements thereto, as of their
respective dates, made by the Company prior to such Delivery
Date (other than the financial statements and other financial
data contained therein, as to which such counsel need express no
opinion) complied as to form in all material respects with the
requirements of the Securities Act and the Rules and
Regulations;
(iii) To such counsel's knowledge, there are no
contracts or other documents which are required to be described
in the Prospectus or filed as exhibits to the Registration
Statements under the Securities Act or under the Rules and
Regulations which have not been described or filed as exhibits
to the Registration Statements;
(iv) To such counsel's knowledge and except as set forth
in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or asset of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
would reasonably be expected to have a Material Adverse Effect;
and, to such counsel's knowledge, no such proceedings are
threatened or contemplated by any governmental agency or body or
threatened by any other person or entity;
(v) Assuming due authorization, execution and delivery
by the Company under the laws of the British Virgin Islands,
this Agreement has been duly executed and delivered by the
Company in accordance with the laws of the State of New York and
constitutes a valid and legally binding
<PAGE>
21
agreement of the Company enforceable in accordance with its
terms, except as enforcement thereof may be limited by
bankruptcy, insolvency moratorium and similar laws affecting
enforcement of creditors' rights generally and by general
principles of equity (regardless of whether in a proceeding in
equity or at law) and except, further, as indemnification
provisions may be limited by considerations of public policy;
(vi) To such counsel's knowledge, and except as set
forth in the Prospectus, there are no preemptive or other rights
to subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any Shares pursuant to any agreement,
contract or other instrument to which the Company is a party;
(vii) The Company is not and, after giving effect to the
offering and the sale of the Shares, will not be an "investment
company" or an entity "controlled" by an "investment company"
(as such terms are defined in the Investment Company Act);
(viii) In any action or proceeding arising out of or
relating to any of this Agreement in a New York or United States
federal court sitting in the Borough of Manhattan, the City of
New York, such court, in a properly pleaded and argued case,
should recognize and give effect to the submission by the
Company to the jurisdiction of such court contained in this
Agreement to the extent the court otherwise has subject matter
jurisdiction over the dispute in question; the Company has
validly and irrevocably appointed CT Corporation System (or such
other successor agent as the parties hereto shall mutually
agree), as its authorized agent for the purposes described in
Section 17 of this Agreement; and service of process effected in
the manner set forth in Section 17 of this Agreement will be
effective to confer valid personal jurisdiction over the Company
in any such action; and the Company has legally, validly,
effectively and irrevocably waived (A) the defense of an
inconvenient forum to the maintenance of any such suit or
proceeding and (B) any immunity to jurisdiction to which it may
otherwise be entitled in any such suit or proceeding;
(ix) To such counsel's knowledge, the issue and sale of
the Shares being delivered on such Delivery Date by the Company
and the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach
or violation of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument filed by the Company as an exhibit to the
Registration Statements to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties
<PAGE>
22
or assets of the Company or any of its subsidiaries is subject,
nor will such actions result in any violation of any U.S.
federal or New York state statute or any order, rule or
regulation known to such counsel of any U.S. federal or New York
state governmental agency or body or court having jurisdiction
over the Company or any of its subsidiaries or any of their
properties or assets;
(x) No consent, approval, authorization or order of, or
filing or registration with, any U.S. federal or New York state
governmental agency or body or court is required for the
execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby, except for the registration of the Shares under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act in connection with the listing of the Common Shares
on the Nasdaq National Market or under U.S. state securities or
"blue sky" laws in connection with the purchase and distribution
of the Shares by the Underwriters;
(xi) The offer and sale by the Company of its Class A
Convertible Preferred Shares and its Class B Convertible
Preferred Shares as described in the Prospectus and in Item 15
of the Primary Registration Statement should not have been, and
should not be, required to be integrated with the offering of
the Shares as contemplated under this Agreement and,
accordingly, to be registered under the Securities Act (taking
into account Rule 152 under the Securities Act and relevant
no-action letters issued by the Commission);
(xii) To such counsel's knowledge and except as set
forth in the Prospectus, there are no contracts or agreements
between the Company and any person granting such person the
right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statements or in any securities
being registered pursuant to any other registration statement
filed by the Company under the Securities Act, except for
registration rights of holders of the Class A Convertible
Preferred Shares and Class B Convertible Preferred Shares under
certain registration rights agreements, as amended, with the
Company filed as exhibits to the Registration Statements, which
registration rights have been waived in connection with this
offering;
(xiii) The statements contained in the Prospectus under
the caption "Taxation--U.S. Federal Income Tax Considerations",
insofar as they purport to summarize U.S. federal tax statutes,
rules and regulations, constitute
<PAGE>
23
accurate summaries thereof in all material respects[ and the tax
opinion filed as Exhibit 8.1 to the Registration Statement is
confirmed]; and
(xiv) The statements contained in the Prospectus under
the caption "Shares Eligible for Future Sale", insofar as they
purport to constitute summaries of the terms of U.S. federal
securities laws or rules and regulations thereunder or contracts
or other documents, constitute accurate and complete summaries
of the terms of such statutes, rules and regulations and
contracts and other documents in all material respects.
The opinion of such counsel shall also include a statement
substantially to the effect that (x) such counsel has acted as U.S.
counsel to the Company in connection with previous financing
transactions and has acted as U.S. counsel to the Company in connection
with the preparation of the Registration Statements and the Prospectus,
and (y) based on the foregoing, no facts have come to the attention of
such counsel which lead them to believe that the Registration
Statements, as of their respective Effective Dates, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The foregoing statement may be qualified by a
statement to the effect that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statements or the Prospectus
(except as stated in paragraphs xiii and xiv above).
In rendering the foregoing opinion, such counsel may (i) state
that their opinion is limited to matters governed by the U.S. federal
laws and New York state laws and (ii) rely, as to matters involving the
laws of the British Virgin Islands, upon the opinion of Conyers Dill &
Pearman rendered pursuant to Section 7(e) hereof.
(e) Conyers Dill & Pearman, British Virgin Islands counsel to
the Company, shall have furnished to the Representatives their written
opinion, addressed to the Underwriters and dated such Delivery Date, in
form and substance satisfactory to the Representatives, to the effect
that:
(i) The Company is duly incorporated and validly
existing under the laws of the British Virgin Islands and in
good standing;
(ii) The Company has the necessary corporate power and
authority to own, lease and operate its properties and assets
and conduct the businesses in which it is engaged;
<PAGE>
24
(iii) The execution and delivery of this Agreement, the
issue and sale of Shares being delivered on such Delivery Date
by the Company and the performance by the Company of its
obligations under this Agreement and the consummation of the
transactions contemplated hereby will not result in any
violation of the Company's Memorandum and Articles of
Association or any British Virgin Islands statute or any
applicable law, regulation, order or decree in the British
Virgin Islands;
(iv) The Company has an authorized and issued share
capital as set forth under the caption "Description of Share
Capital" in the Prospectus; all of the issued and outstanding
Common Shares of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
and the Shares being delivered by the Company to the
Underwriters upon such Delivery Date have been duly and validly
authorized and, when issued against payment and delivery in
accordance with this Agreement, will be duly and validly issued,
fully paid and non-assessable and will conform to the
description of thereof contained in the Prospectus;
(v) The Company has taken all corporate action required
to authorize its execution, delivery and performance of this
Agreement; this Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally
binding obligation of the Company enforceable in the British
Virgin Islands in accordance with its terms;
(vi) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the capital stock of the
Company pursuant to the Company's Memorandum and Articles of
Association or British Virgin Islands law;
(vii) No consent, approval, authorization or order of,
or filing or registration with, any British Virgin Islands
governmental agency or body or court is required for the
execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby, except for the filing with the British Virgin Islands
Registrar of Companies of an amendment to the Company's
Memorandum and Articles of Association pursuant to Section 7(r)
hereof (which filing has been made and is effective);
(viii) To such counsel's knowledge there are no
judgments against the Company nor any legal or governmental
proceedings pending in the British Virgin Islands to which the
Company is subject;
<PAGE>
25
(ix) The filing of the Registration Statements with the
Commission and the listing of the Common Shares on the Nasdaq
National Market have been duly authorized by the Company;
(x) To ensure the legality, validity, enforceability or
admissibility in evidence of this Agreement in the British
Virgin Islands, it is not necessary that any document be filed,
recorded or enrolled with any government or other authority in
the British Virgin Islands, or any British Virgin Islands stamp
or similar tax be paid in respect of the Agreement; and all
formalities required in the British Virgin Islands for the
validity and enforceability of this Agreement have been
accomplished, and no notarization is required, for the validity
and enforceability thereof;
(xi) The Underwriters have standing to commence an
action or proceedings in British Virgin Islands courts of
competent jurisdiction based on this Agreement; and it is not
necessary or advisable in order for the Underwriters to enforce
their rights under this Agreement, including the exercise of
remedies thereunder, that it be licensed, qualified or otherwise
entitled to carry on business in the British Virgin Islands;
(xii) There is no income or other tax imposed by
withholding or otherwise on any payment to be made to or by the
Company pursuant to this Agreement or the issue or transfer of
the Shares by the Company, the delivery of the Share to the
Underwriters in the manner contemplated in this Agreement or the
sale and transfer of the Shares by the Underwriters;
(xiii) The Underwriting Agreement will not be subject to
ad valorem stamp duty in the British Virgin Islands and no
registration, documentary, recording, transfer or other similar
tax, fee or charge is payable in the British Virgin Islands in
connection with the execution, delivery, filing, registration or
performance of the Underwriting Agreement;
(xiv) Under the laws of the British Virgin Islands, the
choice of the laws of the State of New York to govern this
Agreement is a valid choice of law and would be recognized and
given effect to in any action brought before a court of
competent jurisdiction in the British Virgin Islands, except for
those laws (i) which such court considers to be procedural in
nature, (ii) which are revenue or penal laws or (iii) the
application of which would be inconsistent with public policy,
as such term is interpreted under the laws of the British Virgin
Islands (and such counsel has no reason to believe that the
application of which would be inconsistent with public policy);
(xv) The Company is not entitled to any immunity in
respect of its obligations under this Agreement and could not
interpose any immunity,
<PAGE>
26
whether characterized as sovereign immunity or otherwise, as a
defense to any suit or action brought or maintained in respect
of its obligations under this Agreement;
(xvi) The courts of the British Virgin Islands would
recognize and enforce a judgment of a U.S. federal or New York
state court in respect of any legal suit or proceedings arising
out of or relating to this Agreement without retrial on the
merits based on the principle that a judgment of a competent
foreign court imposes upon the judgment debtor an obligation to
pay the sum for which judgment has been given; PROVIDED THAT (a)
such courts had proper jurisdiction over the parties subject to
such judgment, (b) such courts did not contravene the rules of
natural justice of the British Virgin Islands, (c) such judgment
was not obtained by fraud, (d) the enforcement of the judgment
would not be contrary to the public policy of the British Virgin
Islands, (e) no new admissible evidence relevant to the action
is submitted prior to the rendering of the judgment by the
courts of the British Virgin islands, and (f) the due compliance
with the correct procedures under the laws of the British Virgin
islands (and such counsel has no reason to believe that
enforcement of such a judgment would contravene such rules of
natural justice or be contrary of such public policy);
(xvii) The submission by the Company to the
non-exclusive jurisdiction of the U.S. federal or New York state
courts sitting in the Borough of Manhattan, New York City as set
forth in this Agreement and the appointment of CT Corporation
System (or such other successor agent as the parties hereto
shall mutually agree) as its authorized agent for the purpose
described in Section 19 of this Agreement are valid and binding
on the Company insofar as British Virgin Islands law is
concerned;
(xviii) Under current British Virgin Islands laws and
regulations, hold, sell and remit foreign currency and
securities without restrictions, including the declaration and
payment of any dividends in U.S. dollars or in any other
currency; and
(xix) The statements in the Prospectus under the
captions (A) "Risk Factors -- Our shareholders may face
difficulties in protecting their interests because we are a
British Virgin Islands company" and "-- You may experience
difficulty in enforcing civil liabilities against our company",
insofar as they describe certain matters of British Virgin
Islands law, (B) "Description of Share Capital", insofar as they
describe certain provisions of the Company's Memorandum and
Articles of Association relating to the capital stock of the
Company and the British Virgin Islands International Business
Companies Act and (C) "Taxation -- British Virgin Islands Tax
Considerations", insofar as they constitute a summary of matters
of British
<PAGE>
27
Virgin Islands tax law, constitute accurate summaries thereof in
all material respects.
In rendering the foregoing opinion, such counsel may (i) state
that their opinion is limited to matters governed by the laws of the
British Virgin Islands and (ii) rely, as to matters involving the laws
of the United States and the State of New York, upon the opinion of Paul
Hastings Janofsky & Walker LLP rendered pursuant to Section 7(d) hereof.
(f) Amaro, Stuber e Advogados Associados, special Brazilian
counsel to the Company and its Brazilian subsidiaries, O Site
Entretenimento Ltda. ( "O Site") and Mandic Internet Ltda ( "Mandic
Internet"), shall have furnished to the Representatives their written
opinion, addressed to the Underwriters and dated such Delivery Date, in
form and substance satisfactory to the Representatives to the effect
that:
(i) Each of O Site and Mandic Internet has been duly
incorporated and is validly existing as a limited liability
company (SOCIEDADE COMERCIAL POR QUOTAS DE RESPONSABILIDADE
LIMITADA) under the laws of Brazil and has all power and
authority necessary to own or hold its properties and assets and
conduct the businesses in which it is engaged;
(ii) The Company does not conduct business in its own
name in Brazil; each of O Site and Mandic Internet possesses
certificates, authorities, approvals, licenses or permits issued
by governmental agencies or bodies in Brazil necessary to
conduct its business as presently conducted and as proposed to
be conducted;
(iii) All of the issued shares of capital stock of O
Site have been duly and validly authorized and issued, are
partially (in accordance with its articles of formation) paid
and non-assessable, and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(iv) All of the issued shares of capital stock of Mandic
Internet have been duly and validly authorized and issued, are
partially paid (in accordance with its articles of formation)
and non-assessable, and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(v) The statements in the Prospectus under the caption
"Business--Government Regulation--Brazil", insofar as they
describe the relevant laws and regulations in Brazil applicable
to the business developed by O Site and Mandic Internet, and
"Business--Technology--Connectivity"
<PAGE>
28
insofar as they purport to constitute summaries of the Internet
Services Agreement, constitute accurate summaries thereof in all
material respects;
(vi) To such counsel's knowledge, there are no material
legal or governmental proceedings pending in Brazil to which the
Company, O Site or Mandic Internet is a party or of which any
property or assets of the Company, O Site or Mandic Internet or
is the subject; and to such counsel's knowledge, no such
proceedings are threatened or contemplated by any Brazilian
governmental agency or body or threatened by any other person or
entity in Brazil; and
(vii) The Internet Services Agreement, dated October 6,
1999, between IMPSAT Communicacoes Ltda ( "IMPSAT Brazil") and
Mandic Internet Ltda. ( "Mandic Internet") relates to the
provision by IMPSAT Brazil to Mandic Internet of
telecommunications infrastructure to enable Mandic Internet and
O Site to provide retail Internet dial-up access services,
constitutes a valid and legally binding obligation of Mandic
Internet and IMPSAT Brazil, respectively, and is enforceable
against Mandic Internet or IMPSAT Brazil, as the case may be, in
accordance with the terms thereof;
In rendering such Brazilian legal opinion, such counsel may
state that their opinion is limited to matters governed by the laws of
the Federative Republic of Brazil.
(g) Estudio Marval, O'Farrell & Mairal, special Argentine
counsel to the Company and its Argentine subsidiary, El Sitio Argentina
S.A., formerly Cibrian Campoy Creativos S.A. ( "El Sitio Argentina"),
shall have furnished to the Representatives their written opinion,
addressed to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives to the effect that [TO BE
REVISED UPON DISCUSSION WITH ARGENTINE COUNSEL]:
(i) El Sitio Argentina has been duly organized and is
validly existing as a corporation (sociedad anonima) under the
laws of Argentina and has all power and authority necessary to
own or hold its properties and assets and conduct the businesses
in which it is engaged;
(ii) Each of the Company and El Sitio Argentina
possesses adequate certificates, authorities, approvals,
licenses or permits issued by appropriate governmental agencies
or bodies in Argentina necessary to conduct its business as
presently conducted and as proposed to be conducted;
(iii) All of the issued shares of capital stock of El
Sitio Argentina have been duly and validly authorized and
issued, are fully paid and non-
<PAGE>
29
assessable, and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(iv) El Sitio Argentina has full power and authority to
enter into this Agreement; this Agreement has been duly
authorized, executed and delivered by El Sitio Argentina; and
assuming due authorization, execution and delivery thereof by
the other parties hereto and assuming that this Agreement
constitutes a valid and legally binding agreement under the laws
of the State of New York, this Agreement constitutes a valid and
legally binding agreement of El Sitio Argentina enforceable in
Argentina in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles; and the
indemnification and contribution provisions of this Agreement do
not contravene Argentine law;
(v) The execution and delivery of this Agreement, the
issue and sale of Shares being delivered on such Delivery Date
by the Company and the compliance by the Company and El Sitio
Argentina with all of the provisions of this Agreement and the
consummation of the transactions contemplated hereby will not
contravene, or result in a breach or violation of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel
which is governed by the law of Argentina and to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the properties or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any
violation of the ESTATUTOS of El Sitio Argentina or any
Argentine statute or any order, rule or regulation of any
Argentine governmental agency or body or court having
jurisdiction over the Company or any of its subsidiaries;
(vi) No consent, approval, authorization or order of, or
filing or registration with, any Argentine governmental agency
or body or court is required for the execution, delivery and
performance of this Agreement by El Sitio Argentina;
(vii) The statements in the Prospectus under the
captions (A) "Business--Government Regulation--Argentina",
insofar as they describe the relevant laws and regulations in
Argentina and (B) "Business--Dial-Up Access" and
"Business--Technology--Dial-Up Access", insofar as they purport
to constitute summaries of intellectual property-related laws
and other matters, constitute accurate summaries thereof in all
material respects;
<PAGE>
30
(viii) To such counsel's knowledge, there are no legal
or governmental proceedings pending in Argentina to which the
Company or El Sitio Argentina is a party or of which any
property or assets of the Company or El Sitio Argentina is the
subject; and to such counsel's knowledge, no such proceedings
are threatened or contemplated by any Argentine governmental
agency or body or threatened by any other person or entity in
Argentina; and
(ix) The Internet Services Agreement, dated October __,
1999, between IMPSAT S.A. ( "IMPSAT Argentina") and El Sitio
Argentina, which relates to the provision to the Company of
telecommunications infrastructure for Internet access by IMPSAT
Argentina, constitutes a valid and legally binding obligation of
El Sitio Argentina and IMPSAT Argentina, respectively, and is
enforceable against El Sitio Argentina or IMPSAT Argentina, as
the case may be, in accordance with the terms thereof.
In rendering such opinion, such counsel may state that their
opinion is limited to matters governed by the laws of the Argentine
Republic.
(h) Garcia-Alvarez Salom & Asociados, S.C., special Mexican
counsel to the Company and its Mexican subsidiary, El Sitio
Entretenimientos S.A. de C.V. ( "El Sitio Mexico"), shall have furnished
to the Representatives their written opinion, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that:
(i) El Sitio Mexico was duly incorporated and is validly
existing as a mercantile corporation (SOCIEDAD ANOnima de
Capital Variable) under the laws of Mexico and has all power and
authority necessary to own or hold its properties and assets and
conduct the business in which it is engaged;
(ii) Each of the Company and El Sitio Mexico possesses
adequate certificates, authorities, approvals, licenses or
permits issued by appropriate governmental agencies or bodies in
Mexico necessary to conduct its business as presently conducted
and as proposed to be conducted;
(iii) All of the issued shares of capital stock of El
Sitio Mexico have been duly and validly authorized and issued,
are fully paid and non-assessable, and (other than a de minimis
number of shares required to satisfy diversity of ownership
requirements in Mexico) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(iv) The statements in the Prospectus under the caption
"Business -- Government Regulation -- Mexico", insofar as they
describe the relevant
<PAGE>
31
laws and regulations in Mexico, constitute accurate summaries
thereof in all material respects; and
(v) To such counsel's knowledge, there are no legal or
governmental proceedings pending in Mexico to which the Company
or El Sitio Mexico is a party or of which any property or assets
of the Company or any of its subsidiaries is the subject; and to
such counsel's knowledge, no such proceedings are threatened or
contemplated by any Mexican governmental agency or body or court
or threatened by any other person or entity in Mexico.
In rendering such opinion, such counsel may state that their
opinion is limited to matters governed by the laws of the United Mexican
States.
(i) Guyer y Regules, special Uruguayan counsel to the Company
and its Uruguayan subsidiary, El Sitio (Uruguay) Sociedad Anonima ( "El
Sitio Uruguay"), shall have furnished to the Representatives their
written opinion, addressed to the Underwriters and dated such Delivery
Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) El Sitio Uruguay has been duly organized and is
validly existing as a corporation (SOCIEDAD ANOnima) under the
laws of Uruguay and has all power and authority necessary to own
or hold its properties and assets and conduct the businesses in
which it is engaged;
(ii) Each of the Company and El Sitio Uruguay possesses
adequate certificates, authorities, approvals, licenses or
permits issued by appropriate governmental agencies or bodies in
Uruguay necessary to conduct its business as presently conducted
and as proposed to be conducted;
(iii) All of the issued shares of capital stock of El
Sitio Uruguay have been duly and validly authorized and issued,
are fully paid and non-assessable, and are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iv) The statements in the Prospectus under the caption
"Business -- Government Regulation -- Uruguay", insofar as they
describe the relevant laws and regulations in Uruguay,
constitute accurate summaries of the material aspects of such
information; and
(v) To such counsel's knowledge, there are no legal or
governmental proceedings pending in Uruguay to which the Company
or El Sitio Uruguay is a party or of which any property or
assets of the Company or any of its subsidiaries is the subject;
and to such counsel's knowledge, no
<PAGE>
32
such proceedings are threatened or contemplated by any Uruguayan
governmental agency or body or court or threatened by any other
person or entity in Uruguay.
In rendering such opinion, such counsel may state that their
opinion is limited to matters governed by the laws of the Republic of
Uruguay.
(j) De La Pena, Villanueva & Bajandas, special U.S. counsel to
the Company's U.S. subsidiary, El Sitio U.S.A., Inc. ( "El Sitio
U.S.A."), shall have furnished to the Representatives their written
opinion, addressed to the Underwriters and dated such Delivery Date, in
form and substance satisfactory to the Representatives to the effect
that:
(i) El Sitio U.S.A. has been duly organized, is validly
existing and in good standing as a corporation under the laws of
the State of Florida and has all corporate power and authority
necessary to own or hold its properties and assets and conduct
the businesses in which it is engaged;
(ii) All of the issued shares of capital stock of El
Sitio U.S.A. have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(iii) El Sitio U.S.A. possesses adequate certificates,
authorities, approvals, licenses or permits issued by
appropriate governmental agencies or bodies in the State of
Florida to conduct its business as presently conducted and as
proposed to be conducted; the Company does not conduct business
in its own name within the State of Florida; and accordingly,
there is no requirement for certification, authorization,
approval, licensure or permits for the Company within the State
of Florida; and
(iv) To such counsel's knowledge, there are no U.S.
federal or Florida state legal or governmental proceedings
pending to which the Company or El Sitio U.S.A. is a party or of
which any property or assets of the Company or El Sitio U.S.A.
is the subject which, if determined adversely to the Company or
El Sitio U.S.A., might have a Material Adverse Effect on the
Company and El Sitio U.S.A.; and, to such counsel's knowledge,
no such proceedings are threatened or contemplated by any U.S.
federal or Florida state governmental agency or body or
threatened by any other person or entity in the United States.
(k) With respect to the "comfort letter" of Deloitte & Touche
delivered to the Representatives concurrently with the execution of this
Agreement (the "initial comfort letter"), the Company shall have
furnished to the Representatives a letter (the
<PAGE>
33
"bring-down letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are independent
public accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down comfort
letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than three days prior
to the date of the bring-down comfort letter), the conclusions and
findings of such firm with respect to the financial information and
other matters covered by the initial comfort letter and (iii) confirming
in all material respects the conclusions and findings set forth in the
initial letter.
(l) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its chairman of the board,
president and chief executive officer, and chief financial officer, in
form and substance satisfactory to the Representatives, to the effect
that:
(i) The representations, warranties and agreements of
the Company in Section 1 hereof are true and correct as of such
Delivery Date; the Company has complied with all its agreements
contained herein; and the conditions set forth in Section 7(a)
hereof have been fulfilled;
(ii) (A) Neither the Company nor any of its subsidiaries
has sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus or (B) since such
date there has not been any change in the capital stock, any
increase in current liabilities and any decrease in
shareholders' equity of the Company or any of its subsidiaries
or any change, or any development involving a prospective
change, in or affecting the business, properties, results of
operations, financial condition or prospects of the Company and
its subsidiaries taken as a whole, except as set forth in the
Prospectus;
(iii) They have carefully examined the Registration
Statements and the Prospectus and, in their opinion (A) the
Registration Statements, as of their respective Effective Dates,
and the Prospectus, as of each of the Effective Dates, did not
include any untrue statement of a material fact and did not omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B)
since the Effective Date of the Primary Registration Statement,
no event has occurred
<PAGE>
34
which would be required by the Securities Act to be set forth in a
supplement or amendment to either of the Registration Statements or the
Prospectus; and
(iv) No stop order suspending the effectiveness of
either of the Registration Statements or any part thereof has
been issued and no proceeding for that purpose has been
initiated or threatened by the Commission.
(m) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus and (ii) since such date there shall not have been any change
in the capital stock, any increase in current liabilities and any
decrease in shareholders' equity of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the business, properties, results of operations,
financial condition or prospects of the Company and its subsidiaries,
except as set forth in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(n) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange, the Nasdaq National Market or in the over-the-counter
market, or trading in any securities of the Company on any exchange or
in the over-the-counter market shall have been suspended or minimum
prices shall have been established on any such exchange or such market
by the Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by the British Virgin Islands or U.S. federal
or New York state authorities, (iii) the United States or any of the
British Virgin Islands, Brazil, Argentina or Mexico shall have become
engaged in hostilities, there shall have been an escalation in
hostilities involving any of such countries or there shall have been a
declaration of a national emergency or war by any of such countries; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest
of the several Underwriters, impracticable or inadvisable to proceed
with the public offering or delivery of the Shares being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
<PAGE>
35
(o) The Company, each director, executive officer, employee and
shareholder shall have furnished to the Representatives an original
counterpart of each executed Lock-up Letter, in each case in form and
substance satisfactory to the Representative.
(p) The Common Shares shall have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance
and evidence of satisfactory distribution.
(q) The Common Shares shall have been accepted for settlement
through the facilities of DTC.
(r) The Common Shares shall have been divided into two Common
Shares of U.S.$0.50 each and the par value reduced from U.S.$0.50 to
U.S.$0.01 (the "2-for-1 share split") in respect of the Common Shares
shall have been completed as contemplated in the Prospectus, and the
Company shall have duly filed with the British Virgin Islands Registrar
of Companies amendments to its Memorandum and Articles of Association to
appropriately reflect the 2-for-1 share split and other matters relating
to the Common Shares in form and substance reasonably satisfactory to
the Representatives.
(s) The private placement of the Class B Convertible Preferred
Shares by the Company to three strategic institutional investors shall
have been consummated as set forth in the Prospectus and on terms
reasonably satisfactory to the Representatives.
All opinions, letters, evidence and certificates referred to above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to Simpson Thacher & Bartlett, U.S. counsel for the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each
Underwriter, its directors, officers and employees and each person, if
any, who controls any Underwriter within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to
purchases and sales of Shares), to which that Underwriter, director,
officer, employee or controlling person may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, either of the Registration
Statements or the Prospectus, or in any amendment or supplement thereto,
or (B) in any blue sky
<PAGE>
36
application or other document prepared or executed by the Company (or
based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Shares
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue
Sky Application"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, either of the Registration Statements or the
Prospectus, or in any amendment or supplement thereto, or in any Blue
Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act
or failure to act, or any alleged act or failure to act, by any
Underwriter in connection with, or relating in any manner to, the Shares
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon matters covered by clause (i) or (ii) above (PROVIDED
that the Company shall not be liable in the case of any matter covered
by this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such act or
failure to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or wilful misconduct), and shall reimburse
each Underwriter and each such director, officer, employee and
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter, director, officer, employee or
controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; PROVIDED, HOWEVER, that (A) the
Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any such amendment or supplement, or
in any Blue Sky Application in reliance upon and in conformity with the
written information furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein
and described in Section 8(e) hereof and (B) with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission
from any Preliminary Prospectus, the indemnity agreement contained in
this Section 8(a) shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or
liabilities purchased the Shares concerned, to the extent that the
Prospectus was required to be delivered by such Underwriter under the
Securities Act in connection with such purchase and any such loss,
claim, damage or liability of such Underwriter results from the fact
that there was not sent or given to such person, prior to or at the
written confirmation of the sale of such Shares to such person, a copy
of the Prospectus if the Company had previously furnished sufficient
copies thereof to such Underwriter. The foregoing indemnity agreement is
in addition to any liability which the Company may otherwise have to any
Underwriter or to any director, officer, employee or controlling person
of that Underwriter.
<PAGE>
37
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its directors (including any person who,
with his or her consent, is named in either of the Registration
Statements as about to become a director of the Company), officers and
employees and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to
which the Company or any such director, officer, employee or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of,
or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, either
of the Registration Statements or the Prospectus, or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the
omission or alleged omission to state in any Preliminary Prospectus,
either of the Registration Statements or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with the
written information furnished to the Company through the Representatives
by or on behalf of that Underwriter specifically for inclusion therein
and described in Section 8(e) hereof, and shall reimburse the Company
and any such director, officer, employee or controlling person for any
legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating
or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director,
officer or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; PROVIDED, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under
this Section 8 except to the extent it has been materially prejudiced by
such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified
<PAGE>
38
party under this Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof
other than reasonable costs of investigation; PROVIDED, HOWEVER, that
the Representatives shall have the right to employ counsel to represent
jointly the Representatives and those other Underwriters and their
respective directors, officers, employees and controlling persons who
may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the Underwriters against the Company under
this Section 8 if, in the reasonable judgment of the Representatives, it
is advisable for the Representatives and those Underwriters, directors,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the Company. No indemnifying party
shall (i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable
for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss of
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred
to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company on the one hand and the
Underwriters on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company, on the one hand, and the total underwriting
discounts and commissions received by the Underwriters
<PAGE>
39
with respect to the Shares purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the shares
of the Shares under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this
Section 8(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid or payable
by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this
Section 8(d) shall be deemed to include, for purposes of this Section
8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it
and distributed to the public was offered to the public exceeds the
amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 8(d) are several
in proportion to their respective underwriting obligations and not
joint.
(e) The Underwriters severally confirm, and the Company
acknowledges, that the statements with respect to the selling concession
and reallowance figures in the third paragraph, the sixth paragraph, the
tenth paragraph, on behalf of Wit Capital Corporation the twelfth
paragraph [and on behalf of Fidelity Capital Markets, a division of
National Financial Services Corporation, the thirteenth paragraph], all
under the caption "Underwriting" in, the Prospectus are correct and
constitute the only information furnished in writing to the Company by
or on behalf of the Underwriters specifically for inclusion in the
Registration Statements and the Prospectus.
(f) The Company shall indemnify and hold harmless the Designated
Underwriter, its directors, officers and employees and each person, if
any, who controls the Designated Underwriter within the meaning of the
Securities Act (the "Designated Entities"), from and against any loss,
claim, damage or liability or any action in respect thereof (including,
without limitation, any loss, claim, damage, liability or action
relating to purchases and sales of Directed Shares, to which that
<PAGE>
40
Designated Underwriter, director, officer, employee or controlling
person may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such loss, claim, damage, liability or action
arises out of or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants
in connection with the Directed Share Program; (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(iii) the failure of any Directed Share Participant to pay for and
accept delivery of Directed Shares that the Directed Share Participant
agreed to purchase; or (iv) the Directed Share Program (PROVIDED that
the Company shall not be liable in the case of any matter covered by
clauses and (iii) and (iv) hereof to the extent that it is determined in
a final judgment by a court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly from any act or
failure to act undertaken or omitted to be taken by the Designated
Underwriter through its gross negligence or wilful misconduct), and
shall reimburse the Designated Underwriter and each such director,
officer, employee and controlling person promptly upon demand for any
legal or other expenses reasonably incurred by the Designated
Underwriter, director, officer, employee or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition
to any liability which the Company may otherwise have to any Underwriter
or to any director, officer, employee or controlling person of that
Underwriter.
9. DEFAULTING UNDERWRITERS. If, on any Delivery Date, any Underwriter
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated severally to purchase
the Shares which the defaulting Underwriter agreed but failed to purchase on
such Delivery Date in the respective proportions which the number of Firm Shares
set opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of Firm Shares set opposite the names of all
the remaining non-defaulting Underwriters in Schedule 1 hereto; PROVIDED,
HOWEVER, that the remaining non-defaulting Underwriters shall not be obligated
to purchase any of the Shares on such Delivery Date if the total number of
Shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such date exceeds 9.09% of the total number of the Shares to be
purchased on such Delivery Date, and any remaining non-defaulting Underwriter
shall not be obligated to purchase more than 110% of the number of Shares which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 2
hereof. If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Shares to be purchased
on such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to an Optional Delivery Date,
the obligation of the Underwriters to purchase, and of the Company to sell, the
Option Shares) shall terminate without liability on the part
<PAGE>
41
of any non-defaulting Underwriter or the Company, except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 11 hereof. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Shares which a defaulting Underwriter agreed but
failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Shares of a defaulting or
withdrawing Underwriter, either the Representatives or the Company may postpone
the First Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Shares if, prior to that time, any
of the events described in Sections 7(m) or 7(n) hereof shall have occurred or
if the Underwriters shall decline to purchase the Shares for any reason
permitted under this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company shall
fail to tender the Shares for delivery to the Underwriters for any reason
permitted under this Agreement, or (b) the Underwriters shall decline to
purchase the Shares for any reason permitted under this Agreement (other than
the termination of this Agreement pursuant to Section 10 hereof due to any event
described in Section 7(n) (i), (ii) and (iii)), the Company shall reimburse the
Underwriters for the fees and expenses of their U.S. counsel and for such other
out-of-pocket expenses as shall have been incurred by them in connection with
this Agreement and the proposed purchase of the Shares, and upon demand the
Company shall pay the full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 9 hereof by reason of the default of
one or more Underwriters, the Company shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
12. JUDGMENT CURRENCY. The Company shall indemnify each Underwriter
against any loss incurred by it as a result of any judgment or order being given
or made and expressed and paid in a currency (the "Judgment Currency") other
than U.S. dollars and as a result of any variation as between (i) the rate of
exchange at which the U.S. dollar amount is converted into the Judgment Currency
for the purpose of such judgment or order and (ii) the spot rate of exchange in
New York, New York at which such Underwriter on the date of payment of such
judgment or order is able to purchase U.S. dollars with the amount of the
Judgment Currency actually received by such Underwriter. The foregoing indemnity
shall constitute a separate and independent obligation of the Company and shall
continue in full force and effect notwithstanding any such judgment or order as
aforesaid. The term "spot rate of exchange" shall include any premiums and costs
of exchange payable in connection with the purchase of, or conversion into, U.S.
dollars.
<PAGE>
42
13. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Credit Suisse First Boston
Corporation, Eleven Madison Avenue, New York, New York 10010, Attention:
Investment Banking -- Transactions Advisory Group (Fax: 212-325-8278);
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in the
Primary Registration Statement, Attention: Horacio Milberg, Chief
Financial Officer (Fax: 011-54-11-4343-6700 ext. 104);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made by CSFBC on behalf of the
Representatives or on behalf of the Underwriters.
14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the Company and the Underwriters and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (A) the representations,
warranties, indemnities and agreements of the Company contained in this
Agreement shall also be deemed to be for the benefit of the directors, officers
and employees of each Underwriter and the person or persons, if any, who control
each Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section 8(b) of this
Agreement shall be deemed to be for the benefit of the directors, officers and
employees of the Company and any person controlling the Company within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 14, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
15. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company on the one hand and the Underwriters on
the other contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Shares or any termination or cancellation of this Agreement and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
<PAGE>
43
16. CERTAIN DEFINITIONS. For purposes of this Agreement, (a) "business
day" means any day on which the Nasdaq National Market is open for trading, (b)
"subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations
and (c) "significant subsidiary" has the meaning set forth in Rule 405 of the
Rules and Regulations.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
18. CONSENT TO JURISDICTION. The Company agrees that any legal
suit, action or proceeding brought against it by any party to this Agreement or
by each person, if any, who controls any such party 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, and waives any objection
which it may now or hereafter have to the laying of venue of any such
proceeding, and irrevocably submits to the non-exclusive jurisdiction of such
courts in any suit, action or proceeding. The Company, to the fullest extent
permitted by applicable law, irrevocably waives any defense of immunity and the
defense of an inconvenient forum to the maintenance of such suit, action or
proceeding.
The Company hereby designates and appoints CT Corporation
System (or such other successor agent as the parties hereto shall mutually
agree) (the "Process Agent"), as its authorized agent, upon whom process may be
served in any such suit, action or proceeding. The Company that it has notified
the Process Agent of such designation and appointment and that the Process Agent
has accepted the same in writing. The Company hereby irrevocably authorizes and
directs the Process Agent to accept such service. The Company further agrees
that service of process upon the Process Agent and written notice of such
service to the Company, mailed by first class mail or delivered to the Process
Agent shall be deemed in every respect effective service of process upon the
Company in any such suit or proceeding.
Nothing herein shall affect the right of any person to serve
process in any other manner permitted by law. The Company agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgement or in any other lawful
manner.
The provisions of this Section 18 shall survive the
termination of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
44
If the foregoing correctly sets forth the agreement among the Company
and the Underwriters, please indicate your acceptance in the space provided for
that purpose below.
Very truly yours,
EL SITIO, INC.
By:
----------------------------------------
Name:
Title:
Accepted:
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY INC.
WIT CAPITAL CORPORATION
By: Credit Suisse First Boston Corporation
By
-------------------------------
AUTHORIZED REPRESENTATIVE
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
<PAGE>
45
<TABLE>
<CAPTION>
SCHEDULE 1
Number of
UNDERWRITERS FIRM SHARES
<S> <C>
Credit Suisse First Boston Corporation
Lehman Brothers Inc. ...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Salomon Smith Barney Inc. ..........................................
Wit Capital Corporation.............................................____________
Total 8,200,000
</TABLE>
<PAGE>
SCHEDULE 2
Directors, Executive Officers, Employees and Shareholders
To Deliver Lock-Up Letters
DIRECTORS
Roberto Vivo-Chaneton
Roberto Cibrian-Campoy
Guillermo Liberman
Ricardo Verdaguer
Carlos Cisneros
Michael Greeley
Michael Levitt
Sofia Pescarmona
EXECUTIVE OFFICERS
Daniel Rotsztain
Horacio Milberg
Alfredo Jimenez de Arechaga
Eduardo Weber
Walter Forwood
Lucia Suarez
EMPLOYEES
Hector R. Bandoni
Sergio S. Monti
Hector A. Sierra
Alberto E. Tapia
Damian Said
Roberto Jose Garat
<PAGE>
SHAREHOLDERS
IAMP (El Sitio) Investments, Ltd.
Militello Limited
GCC Investments, LLC
Tower Plus International
SLI.com Inc.
IMPSAT Corporation
TV Azteca S.A. de C.V.
Bear, Stearns & Co., Inc
Banco Nominees Ltd. (c/o Bear, Stearns & Co. Inc.)
Intel Atlantic, Inc.
Utilitivest II, L.P.
Utilitivest III, L.P.
Compania de Inversiones de Montevideo S.A.
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER
December ___, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS INC.
And the other several Underwriters named in
Schedule 1 to the Underwriting Agreement
Ladies and Gentlemen:
In consideration of the participation of the several Underwriters,
including Credit Suisse First Boston Corporation and Lehman Brothers Inc., in
the underwriting of the proposed initial public offering (the "Offering") of
common shares ("Common Shares") of El Sitio, Inc., a British Virgin Islands
company (the "Company"), as contemplated by a Registration Statement on Form F-1
filed with the Securities and Exchange Commission (Registration No. 333-91263)
and for other good and valuable consideration (the receipt of which is hereby
acknowledged) the undersigned hereby agrees that from the date hereof the
undersigned will not, until 180 days after the date of the final Prospectus
included as part of the Registration Statement (the "Public Offering Date"),
directly or indirectly, (a) offer for sale, sell or contract to sell, pledge or
otherwise dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition or purchase by any person
at any time in the future of) any Common Shares or other equity securities of
the Company or any securities convertible into or exchangeable for any Common
Shares or other equity securities, or sell or grant options, rights or warrants
with respect to any Common Shares or other equity securities of the Company or
any securities convertible into or exchangeable for any Common Shares or other
equity securities, or (b) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic benefits or
risks of ownership whether any such transaction described in clause (a) or (b)
above is to be settled by delivery of any Common Shares or other equity
securities, in cash or otherwise, in each case without the prior written consent
of Credit Suisse First Boston Corporation on behalf of the Underwriters.
Notwithstanding the preceding sentence, the undersigned may transfer any
such Common Shares or other equity securities to (i) immediate family members,
(ii) trusts the beneficiaries of which are the undersigned and immediate family
members, (iii) donees of charitable gifts and (iv) pledges under security
arrangements relating to loans or other financings in favor of the undersigned
or immediate family members; PROVIDED, HOWEVER, that in the case of each of the
clauses (i) through (iv), the transferee agrees in writing with you to be bound
by the terms hereof.
<PAGE>
A-2
The undersigned also agrees that (i) any Common Shares received upon
exercise of options granted to the undersigned will also be subject to the terms
hereof and (ii) any Common Shares acquired by the undersigned in the open market
will not be subject to the terms hereof; provided the transferee agrees to be
bound in writing by the terms hereof.
The undersigned further agrees that, in furtherance of the foregoing,
the Company and its transfer agent and registrar are hereby authorized to
decline to make any transfer of Common Shares if such transfer would constitute
a violation or breach of the terms hereof.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this agreement, and that, upon request,
the undersigned will execute any additional documents necessary or desirable in
connection with the enforcement hereof. All authority herein conferred or agreed
to be conferred shall survive the death or incapacity of the undersigned and any
obligations of the undersigned shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
The agreements set forth in this letter shall be binding on the
undersigned and his, her or its successors, heirs, personal representatives and
assigns. The agreements set forth in this letter shall lapse and become null and
void in the event that the Public Offering Date shall not have occurred on or
before March 31, 2000.
This letter constitutes an agreement that shall be governed by, and
construed in accordance with, the laws of the State of New York.
Very truly yours,
By:__________________________
Name:
<PAGE>
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
EL SITIO, INC.
NAME
1. The name of the Company is El Sitio, Inc.
REGISTERED OFFICE
2. The Registered Office of the Company will be situated at Romasco Place,
PO Box 3140, Wickhams Cay I, Road Town, Tortola, British Virgin
Islands.
REGISTERED AGENT
3. The Registered Agent of the Company will be Codan Trust Company
(B.V.I.) Ltd., with its address at Romasco Place, PO Box 3140, Wickhams
Cay I, Road Town, Tortola, British Virgin Islands.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or
activity that is not prohibited under any law for the time
being in force in the British Virgin Islands.
(2) The Company may not
(a) carry on business with persons resident in the
British Virgin Islands;
(b) own an interest in real property situated in the
British Virgin Islands, other than a lease referred
to in paragraph (e) of subclause (3);
(c) carry on banking or trust business, unless it is
licensed to do so under the Banks and Trust Companies
Act, 1990;
<PAGE>
(d) carry on business as an insurance or reinsurance
company, insurance agent or insurance broker, unless
it is licensed under and enactment authorizing it to
carry on that business;
(e) carry on the business of company management, unless
it is licensed under the Company Management Act,
1990; or
(f) carry on the business of providing the registered
office or the registered agent for companies
incorporated in the British Virgin Islands.
(3) For purposes of paragraph (a) of subclause (2) the Company
shall not be treated as carrying on business with persons
resident in the British Virgin Islands if
(a) it makes or maintains deposits with a person carrying
on banking business within the British Virgin
Islands;
(b) it makes or maintains professional contact with
solicitors, barristers, accountants, bookkeepers,
trust companies, administration companies, investment
advisers or other similar persons carrying on
business within the British Virgin Islands;
(c) it prepares or maintains books and records within the
British Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings
of its directors or Members;
(e) it holds a lease of property for use as an office
from which to communicate with Members or where books
and records of the Company are prepared or
maintained;
(f) it holds shares, debt obligations or other securities
in a company incorporated under the International
Business Companies Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the
Company are owned by any person resident in the
British Virgin Islands or by any company incorporated
under the International Business Companies Act or
under the Companies Act.
(4) The Company shall have all such powers as are permitted by law
for the time being in force in the British Virgin Islands,
irrespective of corporate benefit, to
2
<PAGE>
perform all acts and engage in all activities necessary or
conducive to the conduct, promotion or attainment of the
object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of the United
States of America.
AUTHORIZED CAPITAL
6. The authorized capital of the Company is US$3,000,000.00
CLASSES, NUMBER AND PAR VALUE OF SHARES
7. The authorized capital is made up of the following classes of shares:
(i) 200,000,000 Common Shares of US$0.01 par value each (the
"Common Shares");
(ii) 100,000,000 Preferred Shares of US$0.01 par value each (the
"Preferred Shares"), of which 40,000,000 are designated Class
A Convertible Preferred Shares (the "Class A Preferred
Shares") and 1,888,889 are designated Class B Convertible
Preferred Shares (the "Class B Preferred Shares").
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
8. The rights attaching to the various classes of shares are as follows:
A. COMMON SHARES
(1) Holders of Common Shares shall have the right to one vote per
share; and
(2) Holders of Common Shares shall have the same rights with
regard to dividends and distributions upon liquidation of the
Company.
B. PREFERRED SHARES
Holders of Preferred Shares shall have the following rights and be
subject to the following restrictions:
(1) RANKING.
(a) The Class A Preferred Shares shall rank, with respect
to dividend distributions and distributions upon a
Liquidation (as defined in paragraph (4) of this
Section B below), (i) PARI PASSU with the Class B
Preferred Shares and (ii) senior to all Common Shares
of the Company
3
<PAGE>
and to each other class of shares established after
the Class A Preferred Shares Issue Date by the Board
of Directors (collectively referred to with the
Common Shares of the Company as "Class A Junior
Securities").
(b) The Class B Preferred Shares shall rank, with respect
to dividend distributions and distributions upon a
Liquidation (as defined in paragraph (4) of this
Section B below), (i) PARI PASSU with the Class A
Preferred Shares and (ii) senior to all Common Shares
of the Company and to each other class of shares
established after the Class B Preferred Shares Issue
Date by the Board of Directors (collectively referred
to with the Common Shares of the Company as "Class B
Junior Securities").
(2) DIVIDENDS.
(a) The holders of the Class A Preferred Shares and the
Class B Preferred Shares shall be entitled to
receive, when, as and if dividends are declared by
the Board of Directors out of funds of the Company
legally available therefor, cumulative preferential
dividends at the annual rate of 8% on the Class A
Liquidation Preference or Class B Liquidation
Preference, as the case may be, payable quarterly in
cash or, at the option of the Board of Directors, in
additional Class A Preferred Shares or Class B
Preferred Shares, as the case may be, to the holders
of record at the close of business on the date
specified by the Board of Directors at the time such
dividend is declared. Holders of Class A Preferred
Shares and Class B Preferred Shares shall be entitled
to receive the dividends provided for herein in
preference to and in priority over any dividends upon
any of the Class A Junior Securities and Class B
Junior Securities, respectively.
(b) Dividends on the Class A Preferred Shares and Class B
Preferred Shares shall accrue on a daily basis from
the Class A Preferred Shares Issue Date and Class B
Preferred Shares Issue Date, respectively, and, to
the extent they are not paid, shall accumulate on an
annual basis on each December 31, whether or not the
Company has earnings or profits, whether or not there
are funds legally available for the payment of such
dividends and whether or not dividends are declared.
(c) Unless full cumulative dividends on all outstanding
Class A Preferred Shares and Class B Preferred Shares
shall have been declared and paid in full, then: (i)
no dividend (other than a dividend payable solely in
shares of any Class A Junior Securities or Class B
Junior Securities) shall be declared or paid upon, or
any sum set apart for the payment of
4
<PAGE>
dividends upon, any shares of Class A Junior
Securities or Class B Junior Securities; (ii) no
other distribution shall be declared or made upon, or
any sum set apart for the payment of any distribution
upon, any shares of Class A Junior Securities or
Class B Junior Securities, other than a distribution
consisting solely of Class A Junior Securities or
Class B Junior Securities; (iii) no shares of Class A
Junior Securities or Class B Junior Securities shall
be purchased, redeemed or otherwise acquired or
retired other than securities received from an
employee pursuant to a severance agreement for value
(excluding an exchange for shares of other Class A
Junior Securities or Class B Junior Securities) by
the Company or any of its Subsidiaries; and (iv) no
monies shall be paid into or set apart or made
available for a sinking or other like fund for the
purchase, redemption or other acquisition or
retirement for value of any shares of Class A Junior
Securities or Class B Junior Securities by the
Company or any of its Subsidiaries.
(d) In the event that the Company declares and pays any
dividends upon the Common Shares (whether payable in
cash, securities or other property) other than
dividends payable solely in Common Shares, the
Company shall also declare and pay to the holders of
the Class A Preferred Shares and the holders of the
Class B Preferred Shares at the same time it declares
and pays such dividends to the holders of the Common
Shares, the dividends which would have been declared
and paid with respect to the Common Shares issuable
upon conversion of the Class A Preferred Shares and
the Class B Preferred Shares had all of the issued
and outstanding Class A Preferred Shares and the
Class B Preferred Shares been converted immediately
prior to the record date for such dividend, or if no
record date is fixed, the date as of which the record
holders of Common Shares entitled to such dividends
are to be determined.
(3) CONVERSION.
(a) A holder of Class A Preferred Shares may convert such
shares, in whole or in part, at the option of such
holder into Common Shares at any time after the date
of issuance of such Class A Preferred Shares in whole
or in part at the option of such holder. For the
purposes of conversion, each Class A Preferred Share
shall be valued at the Class A Liquidation
Preference, which shall be divided by the Class A
Conversion Price in effect on the Conversion Date (as
defined in paragraph 3(c) below) to determine the
number of Common Shares issuable for each Class A
Preferred Share upon conversion.
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<PAGE>
Immediately following such conversion, the rights of
the holders of converted Class A Preferred Shares
shall cease and the Persons entitled to receive the
Common Shares upon the conversion of Class A
Preferred Shares shall be treated for all purposes as
having become the owners of such Common Shares.
A holder of Class B Preferred Shares may convert such
shares, in whole or in part, at the option of such
holder, into Common Shares at the Class B Conversion
Price on or after the earlier of (i) the six month
anniversary of the effectiveness of a registration
statement of the Company filed with the United States
Securities and Exchange Commission in connection with
the registration of Common Shares, and (ii) February
15, 2001. For the purposes of conversion, each Class
B Preferred Share shall be valued at the Class B
Liquidation Preference, which shall be divided by the
Class B Conversion Price in effect on the Conversion
Date to determine the number of Common Shares
issuable for each Class B Preferred Share upon
conversion. Immediately following such conversion,
the rights of the holders of converted Class B
Preferred Shares shall cease and the Persons entitled
to receive the Common Shares upon the conversion of
Class B Preferred Shares shall be treated for all
purposes as having become the owners of such Common
Shares.
(b) Upon the consummation of a Qualifying IPO, the
outstanding Class A Preferred Shares shall be
automatically converted into Common Shares at the
Class A Conversion Price in effect immediately after
giving effect to the consummation of such Qualifying
IPO. Promptly following the occurrence of such
conversion, the Company shall give written notice
thereof to each record holder of converted Class A
Preferred Shares, including instructions to be
followed to obtain a certificate for the Common
Shares into which such holder's Class A Preferred
Shares were converted.
Upon the six month anniversary of the consummation of
a Qualifying IPO, the outstanding Class B Preferred
Shares shall be automatically converted into Common
Shares at the Class B Conversion Price then in
effect. Promptly following the occurrence of such
conversion, the Company shall give written notice
thereof to each record holder of converted Class B
Preferred Shares, including instructions to be
followed to obtain a certificate for the Common
Shares into which such holder's Class B Preferred
Shares were converted.
(c) To convert Preferred Shares (other than an automatic
conversion pursuant to paragraph 3(b) above), a
holder must (i) surrender the
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<PAGE>
certificate or certificates evidencing the Preferred
Shares to be converted, duly endorsed in a form
satisfactory to the Company, at the office of the
Company or transfer agent for the Preferred Shares,
(ii) notify the Company at such office that he elects
to convert Preferred Shares and the number of shares
to be converted and (iii) state in writing the name
or names in which he wishes the certificate or
certificates for Common Shares to be issued. The date
on which the holder satisfies all such requirements
or the date on which the Preferred Shares is
automatically converted pursuant to paragraph 3(b),
as the case may be, shall be the "CONVERSION DATE."
As soon as practicable thereafter, the Company shall
deliver a certificate for the number of full Common
Shares issuable upon the conversion, except that the
Company shall not be required to deliver such
certificate in the case of an automatic conversion
until the holders of the converted Preferred Shares
shall have complied with the provisions of clauses
(i) and (iii) of the first sentence of this paragraph
3(c). The Person in whose name the Common Shares
certificate is registered shall be treated as the
shareholder of record on and after the Conversion
Date.
(d) The Company shall pay cash (based upon the Fair
Market Value of the Common Shares) in lieu of issuing
any fractional Common Shares upon conversion of
Preferred Shares.
(e) If a holder converts Preferred Shares, the Company
shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Common Shares upon
the conversion. However, the holder shall pay any
such tax that is due because the shares are issued in
a name other than the holder's name.
(f) The Company has reserved and shall continue to
reserve out of its authorized but unissued Common
Shares or its Common Shares held in treasury a
sufficient number of Common Shares to permit the
conversion of the Preferred Shares in full. All
Common Shares that may be issued upon conversion of
Preferred Shares shall be fully paid and
non-assessable. The Company shall endeavor to comply
with all securities laws regulating the offer and
delivery of Common Shares upon conversion of
Preferred Shares and if the Common Shares are then
listed or thereafter become listed on any national
securities exchange or automated quotation system,
the Company shall use its best efforts to list such
shares on each such exchange or system on which the
Common Shares are or become listed, as the case may
be.
(g) In case the Company shall at any time divide (by any
share split, share dividend or otherwise) its
outstanding Common Shares into a greater
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<PAGE>
number of shares, the Class A Conversion Price and
the Class B Conversion Price in effect immediately
prior to such division shall be proportionately
reduced, and, conversely in case the issued and
outstanding Common Shares shall be combined into a
smaller number of shares, the Class A Conversion
Price and the Class B Conversion Price in effect
immediately prior to such combination shall be
proportionately increased.
(h) Except for an event which the holders of the
Preferred Shares elect to treat as a Liquidation in
accordance with the provisions of paragraph 4, if any
capital reorganization or reclassification of the
shares of the Company, or a merger or consolidation
of the Company with or into another company or the
sale of all or substantially all of the Company's
properties and assets to any other Person, shall be
effected in such a way that holders of Common Shares
shall be entitled to receive shares, stock,
securities or assets with respect to or in exchange
for Common Shares, then, as a condition of such
reorganization, reclassification, merger,
consolidation or sale, lawful and adequate provisions
shall be made whereby each holder of Preferred Shares
shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified
herein and in lieu of Common Shares immediately
theretofore receivable upon the conversion of such
Preferred Shares, such shares, securities or assets
as may be issued or payable with respect to or in
exchange for a number of outstanding Common Shares
equal to the number of such Common Shares immediately
theretofore receivable upon such conversion had such
reorganization, reclassification, merger,
consolidation or sale not taken place, and in any
such case appropriate provisions shall be made with
respect to the rights and interests of such holder to
the end that the provisions hereof (including without
limitation provisions for adjustments of the
Conversion Price with respect to such Preferred
Shares) shall thereafter be applicable, as nearly as
may be, in relation to any shares, stock, securities
or assets thereafter deliverable upon the exercise of
such conversion rights.
(i) No adjustment in the Class A Conversion Price or
Class B Conversion Price need be made until all
cumulative adjustments amount to 1% or more of the
Class A Conversion Price or Class B Conversion Price,
respectively, as last adjusted. Any adjustments that
are not made shall be carried forward and taken into
account in any subsequent adjustment. All
calculations under this paragraph 3 shall be made to
the nearest 1/10,000th of a cent or to the nearest
1/10,000th of a share, as the case may be. No
adjustment in the Class A Conversion Price or
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<PAGE>
Class B Conversion Price shall reduce the Class A
Conversion Price or Class B Conversion Price below
the then par value of the Common Shares.
(j) As used in this paragraph 3, the term "COMMON SHARES"
shall mean and include the Company's authorized
Common Shares, par value US$0.01 per share, as
constituted on the date of filing this instrument,
and shall also include any shares of any class of the
Company thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in
respect of the rights of the holders thereof to
participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided
that the Common Shares receivable upon conversion of
Preferred Shares shall include only shares designated
as Common Shares of the Company on the date of filing
of this instrument, or in case of any reorganization
or reclassification of the outstanding shares
thereof, the shares, securities or assets provided
for in paragraph 3(g).
(k) Whenever the Class A Conversion Price or the Class B
Conversion Price is adjusted, the Company shall
promptly mail to holders of Preferred Shares, first
class, postage prepaid, a notice of the adjustment.
The Company shall file with the transfer agent for
the Class A Preferred Shares or Class B Preferred
Shares, as applicable if any (and make available to
holders of Preferred Shares upon request), a
certificate from the Company's independent public
accountants briefly stating the facts requiring the
adjustment and the manner of computing it.
(l) In case at any time (i) the Company shall declare any
dividend upon its Common Shares payable in cash or
shares or make any other distribution to the holders
of its Common Shares, (ii) the Company shall offer
for subscription pro rata to the holders of its
Common Shares any additional shares of any class or
other rights, (iii) there shall be any capital
reorganization or reclassification of the share
capital of the Company, or a consolidation or merger
of the Company with or into, or a sale of all or
substantially all its assets to, another Person or
Persons or (iv) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of
the Company, then, in any one or more of said cases,
the Company shall give, by first class mail, postage
prepaid, or by facsimile, addressed to each holder of
any issued and outstanding Preferred Shares at the
address of such holder as shown on the books of the
Company, (A) at least 20 days' prior
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<PAGE>
written notice of the date on which the books of the
Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up
and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same
shall take place. Such notice in accordance with the
foregoing clause (A) shall also specify, in the case
of any such dividend, distribution or subscription
rights, the date on which the holders of Common
Shares shall be entitled thereto and such notice in
accordance with the foregoing clause (B) shall also
specify the date or projected date on which the
holders of Common Shares shall be entitled to
exchange their Common Shares for securities or other
property deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case
may be.
(m) The Company will at no time close its transfer books
against the transfer of any Preferred Shares or of
any Common Shares issued or issuable upon the
conversion of any Preferred Shares in any manner
which interferes with the timely conversion of such
Preferred Shares, except as may otherwise be required
to comply with applicable securities laws.
(4) LIQUIDATION RIGHTS.
Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company resulting in a distribution of
assets to the holders of the Company's shares (each such
event, a "LIQUIDATION"), each holder of Class A Preferred
Shares will be entitled to payment out of the assets of the
Company available for distribution of an amount equal to the
Class A Liquidation Preference per Class A Preferred Share and
each holder of Class B Preferred Shares will be entitled to
payment out of the assets of the Company available for
distribution of an amount equal to the Class B Liquidation
Preference per Class B Preferred Share. Upon any Liquidation,
each holder of Class A Preferred Shares and each holder of
Class B Preferred Shares shall be entitled to payment out of
the assets of the Company available for distribution in full
up to the amount of the Class A Liquidation Preference per
Class A Preferred Share and the amount of the Class B
Liquidation Preference per Class B Preferred Share,
respectively, before any holder of any other series or class
of Preferred Shares or the Common Shares shall be entitled to
any payment out of the assets of the Company available for
distribution.
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<PAGE>
If, upon any Liquidation, the Class A Liquidation Preference
per Class A Preferred Share and the Class B Liquidation
Preference per Class B Preferred Share are not paid in full,
the holders of the issued and outstanding Class A Preferred
Shares and the holders of the issued and outstanding Class B
Preferred Shares will share equally and ratably in any
distribution of assets of the Company in proportion to the
full liquidation preference and accumulated and unpaid
dividends, to which each is entitled.
For the purposes of this paragraph 4, holders of a majority of
the issued and outstanding Preferred Shares may designate that
a consolidation or merger of the Company (other than a merger
(i) in which the Company is the surviving company, (ii) which
involves only a change in the Company's state of
incorporation, or (iii) with a wholly-owned Subsidiary of the
Company) or the sale of all or substantially all of the
Company's assets shall be deemed to be a Liquidation with
respect to the Preferred Shares (each such event, an "ORGANIC
CHANGE"), if (A) the amount of consideration (including the
Fair Market Value of any non-cash consideration per share )
received would be less than the sum of the Class A Liquidation
Preference and the Class B Liquidation Preference, or (B) such
consideration consists solely or in part of securities that
are not readily marketable on a national exchange or on the
Nasdaq National Market System. In the event that the holders
of Preferred Shares shall deem any transaction to be a
"LIQUIDATION" in accordance with this paragraph 4, the holders
of the issued and outstanding Preferred Shares shall be
entitled to payment of the amount set forth in the first
paragraph of this paragraph 4. To the extent any consideration
consists of non-cash items, the consideration shall be the
Fair Market Value of such non-cash items.
(5) VOTING RIGHTS.
(a) The holders of the issued and outstanding Preferred
Shares shall have the right to vote, together with
the holders of all the issued and outstanding Common
Shares and not by classes, except as otherwise
required by British Virgin Islands law or the
Articles of Association, on all matters on which
holders of Common Shares are entitled to vote. Each
holder of Preferred Shares shall have the right to
cast one vote for each whole Common Share which would
be issued to such holder upon conversion of such
holder's Preferred Shares, assuming that such
conversion were to occur on the date immediately
prior to the record date for the determination of
shareholders entitled to vote.
(b) Subject to paragraph 13 hereof, the Company shall
not, without the affirmative vote or consent of the
holders of at least a majority of the Preferred
Shares then issued and outstanding (with shares held
by the Company or any of its Affiliates not being
considered to be
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<PAGE>
outstanding for this purpose) voting or consenting,
as the case may be, as one class:
(i) amend or otherwise alter the Memorandum
(including the provisions of paragraph 5
hereof) in any manner that adversely affects
the specified rights, preferences,
privileges or voting rights of holders of
Preferred Shares;
(ii) authorize the issuance of any additional
Preferred Shares;
(iii) waive compliance with any provision of the
Memorandum; or
(iv) declare or pay any dividend or distribution
on any Class A Junior Securities or Class B
Junior Securities.
(6) REDEMPTION.
(a) At the option and written election of any holder of
issued and outstanding Preferred Shares (a
"REDEMPTION OPTION") given at any time on or after
five (5) years after the Class A Preferred Shares
Issue Date, the Company shall, subject to applicable
law, redeem all or any part of the issued and
outstanding Class A Preferred Shares and/or Class B
Preferred Shares beneficially owned by such holder at
the price and upon the terms stated in this paragraph
6, at any time on or after five (5) years after the
Class A Preferred Shares Issue Date.
(b) The Company shall redeem the Preferred Shares
requested to be redeemed on the Redemption Date (as
such term is defined below), unless otherwise
prevented by law, at a cash redemption price per
share payable in a single installment equal to the
Class A Liquidation Preference, in the case of the
Class A Preferred Shares and the Class B Liquidation
Preference, in the case of the Class B Preferred
Shares. The total sum payable per Class A Preferred
Share requested to be redeemed on the Redemption Date
is hereinafter referred to as the "CLASS A REDEMPTION
PRICE," and the payment to be made on the Redemption
Date to the holders of the Class A Preferred Shares
requested to be redeemed is hereinafter referred to
as the "CLASS A REDEMPTION PAYMENT." The total sum
payable per Class B Preferred Share requested to be
redeemed on the Redemption Date is hereinafter
referred to as the "CLASS B REDEMPTION PRICE," and
the payment to be made to the holders of the Class B
Preferred Shares requested to be redeemed on the
Redemption Date is hereinafter referred to as the
"CLASS B REDEMPTION PAYMENT." The Class A Redemption
Price and the Class B Redemption Price are
hereinafter referred to collectively as
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<PAGE>
the "REDEMPTION PRICES", and the Class A Redemption
Payment and the Class B Redemption Payment are
hereinafter referred to collectively as the
"REDEMPTION PAYMENTS."
(c) On and after the Redemption Date, all rights of any
holder of Preferred Shares requested to be redeemed,
except the right to receive the applicable Redemption
Price per Preferred Share as hereinafter provided,
shall cease and terminate, and such Preferred Shares
shall no longer be deemed to be outstanding, whether
or not the certificates representing such shares have
been received by the Company; provided, however,
that, notwithstanding anything to the contrary set
forth herein, (i) if the Company defaults in the
payment of the applicable Redemption Payment, the
rights of the holders of the affected Preferred
Shares with respect to such Preferred Shares shall
continue until the Company cures such default, and
(ii) without limiting any other rights of such
holders, upon the occurrence of (A) a subsequent
Liquidation or (B) an Organic Change, with respect to
the Preferred Shares requested to be redeemed in
respect of which no Redemption Payment has been
received by a holder of Preferred Shares where the
Company had been required to make the payment, such
holder shall be accorded the rights and benefits set
forth in paragraph 4 hereof in respect of such
shares, as if no prior redemption request had been
made.
(d) Within five (5) Business Days of receipt of a
redemption request by any holder of Preferred Shares,
the Company shall notify in writing all other holders
of Preferred Shares of the request for the redemption
of Preferred Shares (the "COMPANY NOTICE"). Each
Company Notice shall state (i) the Redemption Date,
(ii) the number of Preferred Shares to be redeemed,
(iii) the Class A Redemption Price and Class B
Redemption Price, and the calculation thereof, (iv)
the place or places where certificates for such
shares are to be surrendered for payment of the
applicable Redemption Price, and (v) that dividends
on the shares to be redeemed will cease to accrue on
such Redemption Date. On the date specified in the
Company Notice as the Redemption Date, which date
shall be no later than the 60th day following the
date upon which the Company shall have sent such
Company Notice, the Company shall pay each holder of
Preferred Shares requested to be redeemed the
applicable Redemption Price, provided that the
Company or its transfer agent has received the
certificates representing each Preferred Share to be
redeemed. Such payment date shall be referred to
herein as the "REDEMPTION DATE." If, on the
Redemption Date, less than all the Preferred Shares
requested to be redeemed may be legally
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<PAGE>
redeemed by the Company, the redemption of such
Preferred Shares shall be made pro rata based upon
the total amount that would be paid by the Company to
each holder of Preferred Shares being redeemed if all
of the Preferred Shares requested to be redeemed by
the holders of Preferred Shares being redeemed were
so redeemed, and any Preferred Shares requested to be
redeemed that are not so redeemed shall be redeemed,
at the holder's election, on any date following the
Redemption Date on which the Company may lawfully
redeem such shares. The Company shall redeem (unless
otherwise prevented by law) the Preferred Shares
being redeemed by each holder on the Redemption Date,
and the Company shall promptly advise each such
holder of Preferred Shares of the Redemption Date, or
of the relevant facts applicable thereto preventing
such redemption. Upon redemption of only a portion of
the number of shares covered by a Preferred Share
certificate, the Company shall issue and deliver to
or upon the written order of the holder of such
Preferred Share certificate, at the expense of the
Company, a new certificate covering the number of
Preferred Shares representing the unredeemed portion
of the Preferred Share certificate, which new
certificate shall entitle the holder thereof to all
the rights, powers, and privileges of a holder of
such shares.
In the event the Preferred Shares requested to be
redeemed are not redeemed after a Redemption Option
is exercised, then, in addition to any other remedies
the holders of such Preferred Shares may have, such
holders shall be entitled to elect a majority of the
Members of the Board of Directors, to serve until the
redemption obligations of the Company hereunder have
been satisfied in full.
VARIATION OF CLASS RIGHTS
9. The rights attached to any class or series (unless otherwise provided
by the terms of issue of the shares of that class or series) may,
whether or not the Company is being wound up, be varied with the
consent in writing of the majority of the issued shares of that class
or series and of the majority of the issued shares of any other class
or series of shares which may be affected by such variation.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
10. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari
passu therewith.
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<PAGE>
REGISTERED SHARES
11. Shares in the Company may only be issued as registered shares and may
not be exchanged for shares issued to bearer.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
12. The Company may amend its Memorandum of Association and Articles of
Association by a resolution of Members or by a resolution of directors,
except for those amendments, which are expressly stated in the
Memorandum or Articles of Association or British Virgin Islands
legislation in force, to be reserved exclusively to the Members.
DEFINITIONS
13. In this Memorandum of Association:
(1) the following terms shall have the following meanings (with
terms defined in the singular having comparable meanings when
used in the plural and vice versa):
"AFFILIATE" of any Person means any Person that directly or
indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition,
"CONTROL" (including with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean
the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a
Person (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
"BUSINESS DAY" means any day except a Saturday, a Sunday, or
any day on which banking institutions in New York, New York
are required or authorized by law or other governmental action
to be closed.
"CLASS A CONVERSION PRICE" shall initially equal US$3.50093
and thereafter shall be subject to adjustment from time to
time pursuant to the terms of Clause 8 paragraph 3 of this
Memorandum.
"CLASS A LIQUIDATION PREFERENCE" means an amount per share
equal to US$7.00186, plus all accrued and unpaid dividends,
whether or not declared and which if not paid shall cumulate
on an annual basis on each December 31.
"CLASS A PREFERRED SHARES ISSUE DATE" means the date on which
the Class A Preferred Shares are originally issued by the
Company under the Memorandum.
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<PAGE>
"CLASS B CONVERSION PRICE" shall initially equal US$9.00 and
thereafter shall be subject to adjustment from time to time
pursuant to the terms of Clause 8 paragraph 3 of this
Memorandum.
"CLASS B LIQUIDATION PREFERENCE" means an amount per share
equal to US$9.00, plus all accrued and unpaid dividends,
whether or not declared and which if not paid shall cumulate
on an annual basis on each December 31.
"CLASS B PREFERRED SHARES ISSUE DATE" means the date on which
the Class B Preferred Shares are originally issued by the
Company under the Memorandum.
"CONVERSION PRICE" means the Class A Conversion Price or the
Class B Conversion Price, as applicable.
"FAIR MARKET VALUE" of any security means the average of the
closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed,
or, if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq
National Market System as of 4:00 P.M., New York time, or, if
on any day such security is not quoted in the Nasdaq National
Market System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged
over a period of twenty-one (21) days consisting of the day as
of which "Fair Market Value" is being determined and the
twenty (20) consecutive Business Days prior to such day. If at
any time such security is not listed on any U.S. securities
exchange or quoted in the Nasdaq National Market System or the
over-the-counter market, the "FAIR MARKET VALUE" shall be the
fair value thereof determined jointly by the Company and the
holders of Preferred Shares. If such parties are unable to
reach agreement within a reasonable period of time, such fair
value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the
Company and the holders of Preferred Shares. The determination
of such appraiser shall be final and binding upon the parties,
and the Company shall pay the fees and expenses of such
appraiser.
"MEMORANDUM" means the Memorandum of Association of the
Company.
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust,
unincorporated organization or other entity.
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<PAGE>
"QUALIFYING IPO" means an underwritten initial public offering
of Common Shares pursuant to an effective registration
statement under the U.S. Securities Act of 1933, as then in
effect (or any comparable statement under any similar U.S.
federal statute then in force or effect) in which the
cumulative gross proceeds to the Company are equal to or
greater than US$35.0 million.
"SUBSIDIARY" of any Person means (i) any company,
corporation, association or business entity of which more than
50% of the total voting power of shares entitled (without
regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person
or a combination thereof and (ii) any partnership (a) the sole
general partner or the managing general partner of which is
such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more
Subsidiaries of such Person or any combination thereof.
(2) terms which have not been defined herein but have been defined
in the Articles of Association have the same meaning when used
herein.
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We, COMMONWEALTH MANAGEMENT LIMITED, of P.O. Box 3321, Road Town, Tortola,
British Virgin Islands, being a licensed registered agent, for the purpose of
incorporating an International Business Company under the laws of the British
Virgin Islands hereby subscribe our name to this Memorandum of Association.
FOR: COMMONWEALTH MANAGEMENT LIMITED
Sgd: Scott F. Wilson
---------------
Authorized Signatory
DATED this 16th day of July, 1997
WITNESS to the above signature:
Sgd: Renwick Z. Ham
--------------
c/o P.O. Box 3321
Road Town, Tortola
British Virgin Islands
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<PAGE>
EXHIBIT 3.4
TERRITORY OF
THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
EL SITIO, INC.
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following
table shall bear the meanings set opposite them respectively in the
second column thereof.
WORDS MEANING
----- -------
AFFILIATE a Person that directly, or
indirectly through one or more
intermediaries, controls or is
controlled by, or is under
common control with, a
specified Person
ARTICLES these Amended and Restated
Articles of Association as from
time to time amended
BOARD OF DIRECTORS those persons elected as
directors of the Company or
appointed by the subscribers
to the Memorandum and
Articles.
CAPITAL the sum of the aggregate par
value of all outstanding shares
with par value of the Company
and shares with par value held
by the Company as treasury
shares plus
(a) the aggregate of the
amounts designated as
capital of all
outstanding shares
without par value of
the Company and shares
without par value held
by the Company as
treasury shares, and
(i) the amounts as are
from time to time
transferred from
surplus to capital by
Resolution of
Directors.
<PAGE>
EL SITIO SHARES collectively, the Common Shares
of the Company, the Preferred
Shares of the Company, and any
other class of shares of the
Company issued at any time by
the Company.
IBERO GROUP means Members which are
Affiliates of IberoAmerican
Media Partners II Ltd.
INTEREST the aggregate voting interest
represented by the El Sitio
Shares directly or indirectly
held, as of the date of
determination, by such Member,
expressed as a percentage of
the total aggregate voting
interest represented by the El
Sitio Shares directly or
indirectly held by all the
Members.
MEMBER a Person who holds Common
Shares or Preferred Shares in
the Company.
PERSON an individual, a corporation, a
company, a trust, the estate of
a deceased individual, a
partnership or an
unincorporated association of
persons.
RESOLUTION OF DIRECTORS (a) a resolution approved at
a duly convened and
constituted meeting of
directors of the Company
or of a committee of
directors of the Company
by the affirmative vote
of a simple majority of
the directors present at
the meeting who voted and
did not abstain; or
(b) a resolution consented to
in writing by all
directors of the Company
or of all members of the
committee of directors,
as the case may be;
except that where a
director is given more
than one vote, he shall
be counted by the number
of votes he casts for the
purpose of establishing a
majority.
RESOLUTION OF MEMBERS (a) a resolution approved at
a duly convened and
constituted meeting of
the Members of the
Company by the
affirmative vote of
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(1) a simple majority of
the votes of the
shares entitled to
vote thereon which
were present at the
meeting and were
voted and not
abstained, or
(2) a simple majority of
the votes of each
class or series of
shares which were
present at the
meeting and entitled
to vote thereon as a
class or series and
were voted and not
abstained and of a
simple majority of
the votes of the
remaining shares
entitled to vote
thereon which were
present at the
meeting and were
voted and not
abstained; or
(b) a resolution consented to
in writing by
(1) an absolute majority
of the votes of
shares entitled to
vote thereon, or
(2) an absolute majority
of the votes of each
class or series of
shares entitled to
vote thereon as a
class or series and
of an absolute
majority of the
votes of the
remaining shares
entitled to vote
thereon.
SECURITIES shares and debt obligations of
every kind, and options,
warrants and rights to acquire
shares, or debt obligations.
SECURITIES ACT the United States
Securities Act of 1933, as
amended, or any similar United
States federal law then in
force.
SURPLUS the excess, if any, at the time
of the determination of the
total assets of the Company
over the aggregate of its total
liabilities, as shown in its
books of account, plus the
Company's capital.
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THE ACT the International Business
Companies Act, 1984 (Cap. 291)
including any modification,
extension, reenactment or
renewal thereof and any
Articles made thereunder.
THE MEMORANDUM the Amended and Restated
Memorandum of Association of
the Company as from time to
time amended.
THE SEAL any Seal which has been duly
adopted as the Seal of the
Company.
THESE ARTICLES these Amended and Restated
Articles of Association as from
time to time amended.
TREASURY SHARES shares in the Company that
were previously issued but
were repurchased, redeemed or
otherwise acquired by the
Company and not cancelled.
2. "Written" or any term of like import includes words typewritten,
printed, painted, engraved, lithographed, photographed or represented
or reproduced by any mode of reproducing words in a visible form,
including telex, facsimile, telegram, cable or other form of writing
produced by electronic communication.
3. Save as aforesaid any words or expressions defined in the Act shall
bear the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by Members holding the shares except
that it is the votes allocated to the shares that shall be counted and
not the number of Members who actually voted and a reference to shares
being present at a meeting shall be given a corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be
issued according to the provisions of the Memorandum, or its foreign
currency equivalent at the time any determination is made.
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REGISTERED SHARES
7. Every Member holding registered shares in the Company shall be entitled
to a certificate signed by a director or officer of the Company
specifying the share or shares held by him and the signature of the
director or officer and the Seal may be facsimile.
8. If several Persons are registered as joint holders of any shares, any
one or more of such Persons may give an effectual receipt for any
dividend payable in respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
9. Subject to the provisions of these Articles and any Resolution of
Members, the unissued shares of the Company shall be at the disposal of
the directors who may, without limiting or affecting any rights
previously conferred on the holders of any existing shares or class or
series of shares, offer, allot, grant options over or otherwise dispose
of shares to such Persons, at such times and upon such terms and
conditions as the Company may by Resolution of Directors determine.
10. No share in the Company may be issued until the consideration in
respect thereof is fully paid, and when issued the share is for all
purposes fully paid and non-assessable save that a share issued for a
promissory note or other written obligation for payment of a debt may
be issued subject to forfeiture in the manner prescribed in these
Articles.
11. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or
other binding obligation to contribute money or property or any
combination of the foregoing as shall be determined by a Resolution of
Directors.
12. Shares in the Company may be issued for such amount of consideration as
the directors may from time to time by Resolution of Directors
determine, except that in the case of shares with par value, the amount
shall not be less than the par value, and in the absence of fraud the
decision of the directors as to the value of the consideration received
by the Company in respect of the issue is conclusive unless a question
of law is involved. The consideration in respect of the shares
constitutes capital to the extent of the par value and the excess
constitutes surplus.
13. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company,
shall be treated for all purposes as having been issued for money equal
to the consideration received or deemed to
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have been received by the Company in respect of the other share, debt
obligation or security.
14. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the
Company may by Resolution of Directors determine.
15. The Company may issue fractions of a share and a fractional share shall
have the same liabilities, limitations, preferences, privileges,
qualifications, restrictions, rights and other attributes of a whole
share of the same class or series of shares.
16. Upon the issue by the Company of a share without par value, if an
amount is stated in the Memorandum to be authorized capital represented
by such shares then each share shall be issued for no less than the
appropriate proportion of such amount which shall constitute capital,
otherwise the consideration in respect of the share constitutes capital
to the extent designated by the directors and the excess constitutes
surplus, except that the directors must designate as capital an amount
of the consideration that is at least equal to the amount that the
share is entitled to as a preference, if any, in the assets of the
Company upon liquidation of the Company.
17. The Company may purchase, redeem or otherwise acquire and hold its own
shares but only out of surplus or in exchange for newly issued shares
of equal value.
18. Subject to provisions to the contrary in
(a) the Memorandum or these Articles;
(b) the designations, powers, preferences, rights, qualifications,
limitations and restrictions with which the shares were issued; or
(c) the subscription agreement for the issue of the shares,
the Company may not purchase, redeem or otherwise acquire its own
shares without the consent of Members whose shares are to be purchased,
redeemed or otherwise acquired, it being understood that the tendering
of shares by such Members shall constitute consent for these purposes.
19. No purchase, redemption or other acquisition of shares shall be made
unless the directors determine that immediately after the purchase,
redemption or other acquisition the Company will be able to satisfy its
liabilities as they become due in the ordinary course of its business
and the realizable value of the assets of the Company will not be less
than the sum of its total liabilities, other than deferred taxes, as
shown in the books of account, and its capital and, in the absence of
fraud,
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the decision of the directors as to the realizable value of the assets
of the Company is conclusive, unless a question of law is involved.
20. A determination by the directors under the preceding Article is not
required where shares are purchased, redeemed or otherwise acquired
(a) pursuant to a right of a Member to have his shares redeemed or to
have his shares exchanged for money or other property of the
Company;
(b) by virtue of a transfer of capital pursuant to Article 42;
(c) by virtue of the provisions of Section 83 of the Act; or
(d) pursuant to an order of the Court.
21. Shares that the Company purchases, redeems or otherwise acquires
pursuant to the preceding Article may be cancelled or held as treasury
shares except to the extent that such shares are in excess of 80
percent of the issued shares of the Company, in which case they shall
be cancelled but they shall be available for reissue.
22. Where shares in the Company are held by the Company as treasury shares
or are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the
election of directors of the other company, such shares of the Company
are not entitled to vote or to have dividends paid thereon and shall
not be treated as outstanding for any purpose except for purposes of
determining the Capital of the Company.
23. The Company may purchase, redeem or otherwise acquire its shares at a
price lower than the fair value if permitted by, and then only in
accordance with, the terms of
(a) the Memorandum or these Articles; or
(b) a written agreement for the subscription for the shares to be
purchased, redeemed or otherwise acquired.
24. The Company may by Resolution of Directors include in the computation
of surplus, for any purpose the unrealized appreciation of the assets
of the Company and, in the absence of fraud, the decision of the
directors as to the value of the assets is conclusive unless a question
of law is involved.
FORFEITURE
25. When shares issued for a promissory note or other written obligation
for payment of a debt have been issued subject to forfeiture, the
following provisions shall apply.
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<PAGE>
26. Written notice specifying a date for payment to be made and the shares
in respect of which payment is to be made shall be served on the Member
who defaults in making payment pursuant to a promissory note or other
written obligations to pay a debt.
27. The written notice specifying a date for payment shall
(a) name a further date not earlier than the expiration of 14 days from
the date of service of the notice on or before which payment
required by the notice is to be made; and
(b) contain a statement that in the event of non-payment at or before
the time named in the notice the shares, or any of them, in respect
of which payment is not made, will be liable to be forfeited.
28. Where a written notice has been issued and the requirements have not
been complied with within the prescribed time, the directors may at any
time before tender of payment forfeit and cancel the shares to which
the notice relates.
29. The Company is under no obligation to refund any moneys to the Member
whose shares have been forfeited and cancelled pursuant to these
provisions. Upon forfeiture and cancellation of the shares the Member
is discharged from any further obligation to the Company with respect
to the shares forfeited and cancelled.
LIEN
30. The Company shall have a first and paramount lien on every share issued
for a promissory note or for any other binding obligation to contribute
money or property or any combination thereof to the Company, and the
Company shall also have a first and paramount lien on every other share
standing registered in the name of a Member, whether singly or jointly
with any other Person or Persons, for all such promissory notes or
other binding obligations of such Member or his estate to the Company,
whether the same shall have been incurred before or after notice to the
Company of any interest of any Person other than such Member, and
whether the time for the payment or discharge of the same shall have
actually arrived or not, and notwithstanding that the same are joint
debts or liabilities of such Member or his estate and any other Person,
whether a Member of the Company or not. The Company's lien on a share
shall extend to all dividends payable thereon. The directors may at any
time either generally, or in any particular case, waive any lien that
has arisen or declare any share to be wholly or in part exempt from the
provisions of this Article.
31. In the absence of express provisions regarding sale in the promissory
note or other binding obligation to contribute money or property, the
Company may sell, in such
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<PAGE>
manner as the directors may by Resolution of Directors determine, any
share on which the Company has a lien, but no sale shall be made unless
some sum in respect of which the lien exists is presently payable nor
until the expiration of twenty-one days after a notice in writing,
stating and demanding payment of the sum presently payable and giving
notice of the intention to sell in default of such payment, has been
served on the holder for the time being of the share.
32. The net proceeds of the sale by the Company of any shares on which it
has a lien shall be applied in or towards payment of discharge of the
promissory note or other binding obligation to contribute money or
property or any combination thereof in respect of which the lien exists
so far as the same is presently payable and any residue shall (subject
to a like lien for debts or liabilities not presently payable as
existed upon the share prior to the sale) be paid to the holder of the
share immediately before such sale. For giving effect to any such sale
the directors may authorize some Person to transfer the share sold to
the purchaser thereof. The purchaser shall be registered as the holder
of the share and he shall not be bound to see to the application of the
purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the sale.
TRANSFER OF SHARES
33. The Company shall not be required to treat a transferee of a registered
share in the Company as a Member until the transferee's name has been
entered in the share register.
34. Subject to any limitations in the Memorandum and these Articles, the
Company must on the application of the transferor or transferee of a
registered share in the Company enter in the share register the name of
the transferee of the share save that the registration of transfers may
be suspended and the share register closed at such times and for such
periods as the Company may from time to time by Resolution of Directors
determine provided always that such registration shall not be suspended
and the share register closed for more than 60 days in any period of 12
months.
TRANSMISSION OF SHARES
35. The executor or administrator of a deceased Member, the guardian of an
incompetent Member or the trustee of a bankrupt Member shall be the
only Person recognized by the Company as having any title to his share
but they shall not be entitled to exercise any rights as a Member of
the Company until they have proceeded as set forth in the next
following three Articles.
36. The production to the Company of any document which is evidence of
probate of the will, or letters of administration of the estate, or
confirmation as executor, of a
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deceased Member or of the appointment of a guardian of an incompetent
Member or the trustee of a bankrupt Member shall be accepted by the
Company even if the deceased, incompetent or bankrupt Member is
domiciled outside the British Virgin Islands if the document evidencing
the grant of probate or letters of administration, confirmation as
executed appointment as guardian or trustee in bankruptcy is issued by
a foreign court which had competent jurisdiction in the matter. For the
purpose of establishing whether or not a foreign court had competent
jurisdiction in such a matter the directors may obtain appropriate
legal advice. The directors may also require an indemnity to be given
by the executor, administrator, guardian or trustee in bankruptcy.
37. Any Person becoming entitled by operation of law or otherwise to a
share or shares in consequence of the death, incompetence or bankruptcy
of any Member may be registered as a Member upon such evidence being
produced as may reasonably be required by the directors. An application
by any such Person to be registered as a Member shall for all purposes
be deemed to be a transfer of shares of the deceased, incompetent or
bankrupt Member and the directors shall treat it as such.
38. Any Person who has become entitled to a share or shares in consequence
of the death, incompetence or bankruptcy of any Member may, instead of
being registered himself, request in writing that some Person to be
named by him be registered as the transferee of such share or shares
and such request shall likewise be treated as if it were a transfer.
39. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and
the circumstances of the case.
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL
40. The Company may by a Resolution of Members only amend the Memorandum to
increase or reduce its authorized capital and in connection therewith
the Company may in respect of any unissued shares increase or reduce
the number of such shares, increase or reduce the par value of any such
shares or effect any combination of the foregoing.
41. The Company may amend the Memorandum to
(a) divide the shares, including issued shares, of a class or series
into a larger number of shares of the same class or series; or
(b) combine the shares, including issued shares, of a class or series
into a smaller number of shares of the same class or series,
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provided, however, that where shares are divided or combined under (a)
or (b) of this Article, the aggregate par value of the new shares must
be equal to the aggregate par value of the original shares.
42. The capital of the Company may by Resolution of Directors be increased
by transferring an amount of the surplus of the Company to capital.
43. Subject to the provisions of the two next succeeding Articles, the
capital of the Company may by Resolution of Directors be reduced by
transferring an amount of the capital of the Company to surplus.
44. No reduction of capital shall be effected that reduces the capital of
the Company to an amount that immediately after the reduction is less
than the aggregate par value of all outstanding shares with par value
and all shares with par value held by the Company as treasury shares
and the aggregate of the amounts designated as capital of all
outstanding shares without par value and all shares without par value
held by the Company as treasury shares that are entitled to a
preference, if any, in the assets of the Company upon liquidation of
the Company.
45. No reduction of capital shall be effected unless the directors
determine that immediately after the reduction the Company will be able
to satisfy its liabilities as they become due in the ordinary course of
its business and that the realizable assets of the Company will not be
less than its total liabilities, other than deferred taxes, as shown in
the books of the Company and its remaining capital, and, in the absence
of fraud, the decision of the directors as to the realizable value of
the assets of the Company is conclusive, unless a question of law is
involved.
MEETINGS OF MEMBERS
46. A meeting of Members for the election of directors and for the
transaction of such other business as may properly come before the
meeting (an "Annual Meeting") shall be held at least once every
calendar year at such place, on such date, and at such time as the
Board of Directors shall each year determine. The directors of the
Company may convene such other meetings of the Members of the Company
at such times and in such manner and places within or outside the
British Virgin Islands as the directors consider necessary or
desirable.
47. Upon the written request of Members holding 50 percent or more of the
outstanding voting shares in the Company the directors shall convene a
meeting of Members.
48. The directors shall give not less than 10 days and not more than 60
days prior written notice of meetings of Members to those Persons whose
names on the date the notice is given appear as Members in the share
register of the Company and are entitled to
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vote at the meeting. Except as otherwise required by law, notice of
each meeting of Members, whether an Annual Meeting or a special meeting
of Members, shall state the purpose or purposes of the meeting, the
place, date and hour of the meeting and, unless it is an Annual
Meeting, shall indicate that the notice is being issued by or at the
direction of the Person or Persons calling the meeting.
49. The directors may fix the date notice is given of a meeting of Members
as the record date for determining those shares that are entitled to
vote at the meeting.
50. A meeting of Members may be called on short notice:
(a) if Members holding not less than 90 percent of the total number of
shares entitled to vote on all matters to be considered at the
meeting, or 90 percent of the votes of each class or series of
shares where Members are entitled to vote thereon as a class or
series together with not less than a 90 percent majority of the
remaining votes, have agreed to short notice of the meeting, or
(b) if all Members holding shares entitled to vote on all or any
matters to be considered at the meeting have waived notice of the
meeting and for this purpose presence at the meeting shall be
deemed to constitute waiver.
51. The inadvertent failure of the directors to give notice of a meeting to
a Member, or the fact that a Member has not received notice, does not
invalidate the meeting.
52. A Member may be represented at a meeting of Members by a proxy who may
speak and vote on behalf of the Member.
53. The Company shall solicit proxies and provide proxy statements for all
meetings of Members. The instrument appointing a proxy shall be
delivered to such place or places (if any) as may be specified for that
purpose in or by way of note to or in any document accompanying the
notice convening the meeting not less than forty-eight (48) hours
before the time appointed for holding the meeting or adjourned meeting
at which the person named in the instrument proposes to vote and in
default the instrument of proxy shall not be treated as valid. No
instrument appointing a proxy shall be valid after the expiration of
twelve (12) months from the date named in it as the date of its
execution. Delivery of an instrument appointing a proxy shall not
preclude a Member from attending and voting in person at the meeting
convened and in such event, the instrument appointing a proxy shall be
deemed to be revoked. A vote given in accordance with the terms of an
instrument of proxy shall be valid notwithstanding the previous death
or insanity of the principal, or revocation of the instrument of proxy
or of the authority under which it was executed, provided that no
notification in writing of such death, insanity or revocation shall
have been
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received by the Company at such place as may be specified for the
delivery of instruments of proxy in the notice convening the meeting or
other documents sent therewith two (2) hours at least before the
commencement of the meeting at which the instrument of proxy is used.
54. An instrument appointing a proxy shall be in such form as the directors
may determine.
55. The following shall apply in respect of joint ownership of shares:
(a) if two or more Persons hold shares jointly each of them may be
present in Person or by proxy at a meeting of Members and may speak
as a Member;
(b) if only one of the joint owners is present in Person or by proxy he
may vote on behalf of all joint owners, and
(c) if two or more of the joint owners are present in or by proxy they
must vote as one.
56. A Member shall be deemed to be present at a meeting of Members if he
participates by telephone or other electronic means and all Members
participating in the meeting are able to hear each other.
57. A meeting of Members is duly constituted if, at the commencement of the
meeting, there are present in person or by proxy not less than 50
percent of the votes of the shares or class or series of shares
entitled to vote on Resolutions of Members to be considered at the
meeting. If a quorum be present, notwithstanding the fact that such
quorum may be represented by only one Person, then such Person may
resolve any matter and a certificate signed by such Person accompanied
where such Person be a proxy by a copy of the proxy form shall
constitute a valid Resolution of Members.
58. If within two hours from the time appointed for the meeting a quorum is
not present, the meeting, if convened upon the requisition of Members,
shall be dissolved; in any other case it shall stand adjourned to the
next business day at the same time and place or to such other time and
place as the directors may determine, and if at the adjourned meeting
there are present within one hour from the time appointed for the
meeting in person or by proxy not less than one third of the votes of
the shares or each class or series of shares entitled to vote on the
resolutions to be considered by the meeting, those present shall
constitute a quorum but otherwise the meeting shall be dissolved.
59. At every meeting of Members, the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of
the Board of Directors or if the Chairman of the Board of Directors is
not present at the meeting, the Members
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present shall choose some one of their number to be the chairman. If
the Members are unable to choose a chairman for any reason, then the
Person representing the greatest number of voting shares present in
person or by prescribed form of proxy at the meeting shall preside as
chairman.
60. The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
61. At any meeting of the Members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall
be announced to the meeting and recorded in the minutes thereof. If the
chairman shall have any doubt as to the outcome of any resolution put
to the vote, he shall cause a poll to be taken of all votes cast upon
such resolution, but if the chairman shall fail to take a poll then any
Member present in person or by proxy who disputes the announcement by
the chairman of the result of any vote may immediately following such
announcement demand that a poll be taken and the chairman shall
thereupon cause a poll to be taken. If a poll is taken at any meeting,
the result thereof shall be duly recorded in the minutes of that
meeting by the chairman.
62. Any Person other than an individual shall be regarded as one Member and
subject to the specific provisions hereinafter contained for the
appointment of representatives of such Persons the right of any
individual to speak for or represent such Member shall be determined by
the law of the jurisdiction where, and by the documents by which, the
Person is constituted or derives its existence. In case of doubt, the
directors may in good faith seek legal advice from any qualified Person
and unless and until a court of competent jurisdiction shall otherwise
rule, the directors may rely and act upon such advice without incurring
any liability to any Member.
63. Any Person other than an individual which is a Member of the Company
may by resolution of its directors or other governing body authorize
such Person as it thinks fit to act as its representative at any
meeting of the Company or of any class of Members of the Company, and
the Person so authorized shall be entitled to exercise the same powers
on behalf of the Person which he represents as that Person could
exercise if it were an individual Member of the Company.
64. The chairman of any meeting at which a vote is cast by proxy or on
behalf of any Person other than an individual may call for a notarially
certified copy of such proxy or authority which shall be produced
within 7 days of being so requested or the votes cast by such proxy or
on behalf of such Person shall be disregarded.
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65. Directors of the Company may attend and speak at any meeting of Members
of the Company and at any separate meeting of the holders of any class
or series of shares in the Company.
66. An action that may be taken by the Members at a meeting may also be
taken by a Resolution of Members consented to in writing or by telex,
telegram, cable, facsimile or other written electronic communication,
without the need for any notice, but if any Resolution of Members is
adopted otherwise than by the unanimous written consent of all Members,
a copy of such resolution shall forthwith be sent to all Members not
consenting to such resolution. The consent may be in the form of
counterparts, each counterpart being signed by one or more Members.
67. Notwithstanding any other provision of the Memorandum or these Articles
(other than Article 68), a Resolution of the Members shall be required
in order for the Company to:
(a) approve or adopt a share option or purchase plan or other
arrangement pursuant to which Common Shares or securities
convertible into Common Shares may be acquired by officers or
directors of the Company, provided that a Resolution of the Members
shall not be required: (i) where Common Shares or securities
convertible into Common Shares are issued to all Members, (ii)
where the plan or arrangement includes other employees of the
Company (such as an employee share option plan), (iii) where Common
Shares are issued to a Person not previously employed by the
Company as an inducement to such Person's entering into an
employment agreement with the Company; or (iv) where the number of
Common Shares which may be issued under the plan or other
arrangement or pursuant to the exercise of rights attached to
securities which are convertible into Common Shares which are to be
issued under the plan or other arrangement does not exceed the
lesser of 1% of the number of Common Shares issued and outstanding
assuming that all securities which are convertible into Common
Shares are so converted, such number of shares as would constitute
1% of all the votes attached to the issued and outstanding shares
of the Company, or 25,000 Common Shares;
(b) issue Common Shares or securities convertible into Common Shares
resulting in a change of control of the Company;
(c) issue Common Shares or securities convertible into Common Shares in
connection with the acquisition of shares, stock or assets of
another Person if:
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(i) any director or officer of the Company or Member holding 5% or
more of the Common Shares has a 5% or greater interest (or such
Persons collectively have a 10% or greater interest), directly
or indirectly, in the entity or assets to be acquired or in the
consideration to be paid in the transaction or series of
related transactions, and the number of Common Shares to be
issued in connection with the acquisition or upon the exercise
of rights attached to securities which are to be issued in
connection with the acquisitions and which are convertible into
Common Shares could result in a 5% or more increase in issued
and outstanding Common Shares; or
(ii) the number of Common Shares to be issued in connection with
the acquisition or upon the exercise of rights attached to
securities which are to be issued in connection with the
acquisition and which are convertible into Common Shares
constitute 20% of the Common Shares of the Company outstanding
prior to the issuance (other than a public offering for cash).
(d) issue Common Shares or securities convertible into Common Shares in
connection with a transaction (other than a public offering)
involving:
(i) the issue by the Company of Common Shares (or securities
convertible into or exercisable for Common Shares) at a price
less than the greater of book or market value which together
with sales by officers or directors of the Company or Members
holding 5% or more of the Common Shares equals 20% or more of
the Common Shares (assuming the conversion of the securities
into Common Shares); or
(ii) the issue by the Company of Common Shares (or securities
convertible into or exercisable into Common shares) equal to
20% or more of the Common Shares (assuming the conversion of
the securities into Common Shares) outstanding before the
issuance for less than the greater of book or market value of
the shares.
For purposes of this Article 67, the term "control" means the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through
the ownership of voting securities, by contract or otherwise.
68. A Resolution of Members is not required for a transaction referred to
in Article 67 if approval for the transaction has been obtained from
the Nasdaq National Market or other securities exchange on which the
Company's Common Shares are then listed and:
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(a) the delay in obtaining a Resolution of the Members would seriously
jeopardize the financial viability of the Company;
(b) the Audit Committee of the Company has approved not seeking a
Resolution of Members; and
(c) the Company has given to all Members not later than ten days before
issuance of the Common Shares or securities convertible into Common
Shares notice that it does not intend to seek the Resolution of the
Members that would otherwise be required and indicating that the
Audit Committee has expressly approved proceeding without obtaining
a Resolution of Members.
For purposes of this Article, only shares actually issued and
outstanding (excluding treasury shares or shares held by a subsidiary)
are to be used in making any calculation. Unissued shares reserved for
issuance upon conversion of shares or upon exercise of options or
warrants will not be regarded as outstanding.
DIRECTORS
69. The first directors of the Company shall be appointed by the
subscribers to the Memorandum; and thereafter, the directors shall be
elected by the Members. At least two of the Company's directors shall
be "independent directors." For purposes of these Articles,
"independent directors" shall mean directors that are not Affiliates of
the Company.
70. The minimum number of directors shall be nine (9).
71. Each director shall hold office until the next annual meeting of
members or until his earlier death, resignation or removal.
72. A director may resign his office by giving written notice of his
resignation to the Company and the resignation shall have effect from
the date the notice is received by the Company or from such later date
as may be specified in the notice.
73. The Company may determine by Resolution of Directors to keep a register
of directors containing
(a) the names and addresses of the persons who are directors of the
Company;
(b) the date on which each person whose name is entered in the register
was appointed as a director of the Company; and
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(c) the date on which each person named as director ceased to be a
director of the Company.
74. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by Resolution of Directors to register a copy of
the register with the Registrar of Companies.
75. With the prior or subsequent approval by Resolution of Members, the
directors may, by Resolution of Directors, fix the emoluments of
directors with respect to respect to services to be rendered in any
capacity to the Company. On or before December 31 in each calendar year
(beginning December 1, 1999), the Company shall pay to (i) the Ibero
Group and Chestnut Hill (El Sitio), LLC a monitoring fee equal to
$300,000 per annum in arrears (pro rated for any partial year), which
shall be shared by them pro rata based on their respective interests in
the Company, (ii) IMPSAT Corporation a monitoring fee equal to $100,000
per annum in arrears (pro rated for any partial year), and (iii) Tower
Plus International Corp., SLI.COM and Militello Limited a monitoring
fee equal to $300,000 per annum in arrears (pro rated for any partial
year), which shall be shared by them as agreed by such Members, for so
long as the ownership interest in the Company of each of Tower Plus
International Corp., SLI.COM and Militello Limited is at least equal to
1% of the total capital of the Company. The Board of Directors shall
have the right to review the compensation paid hereunder beginning at
any time after December 31, 2001, and may (in its sole discretion)
reduce, eliminate, maintain or increase all such fees.
76. A director shall not require a share qualification.
POWERS OF DIRECTORS
77. Subject to the provisions of these Articles and any Resolution of
Members, the business and affairs of the Company shall be managed by
the directors who may pay all expenses incurred preliminary to and in
connection with the formation and registration of the Company and may
exercise all such powers of the Company as are not by the Act or by the
Memorandum or these Articles required to be exercised by the Members of
the Company, subject to any delegation of such powers as may be
authorized by these Articles and to such requirements as may be
prescribed by Resolution of Members; but no requirement made by
Resolution of Members shall prevail if it be inconsistent with these
Articles nor shall such requirement invalidate any prior act of the
directors which would have been valid if such requirement had not been
made.
78. The directors may, by a Resolution of Directors, appoint any person,
including a person who is a director, to be an officer or agent of the
Company. The Resolution
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of Directors appointing an agent may authorize the agent to appoint one
or more substitutes or delegates to exercise some or all of the powers
conferred on the agent by the Company.
79. Every officer or agent of the Company has such powers and authority of
the directors, including the power and authority to affix the Seal, as
are set forth in these Articles or in the Resolution of Directors
appointing the officer or agent, except that no officer or agent has
any power or authority with respect to the matters requiring a
Resolution of Directors under the Act.
80. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at
meetings of the Board of Directors or with respect to unanimous written
consents.
81. The continuing directors may act notwithstanding any vacancy in their
body, save that if their number is reduced to their knowledge below the
number fixed by or pursuant to these Articles as the necessary quorum
for a meeting of directors, the continuing directors or director may
act only for the purpose of summoning a meeting of Members.
82. Subject to the Provisions of the Memorandum and these Articles, the
directors may by Resolution of Directors exercise all the powers of the
Company to borrow money and to mortgage or charge its undertakings and
property or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any
debt, liability or obligation of the Company or of any third party.
83. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as
the case may be, in such manner as shall from time to time be
determined by Resolution of Directors.
84. The Company may determine by Resolution of Directors to maintain at its
registered office a register of mortgages, charges and other
encumbrances in which there shall be entered the following particulars
regarding each mortgage, charge and other encumbrance:
(a) the sum secured;
(b) the assets secured;
(c) the name and address of the mortgagee, chargee or other
encumbrancer;
(d) the date of creation of the mortgage, charge or other encumbrance;
and
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(e) the date on which the particulars specified above in respect of the
mortgage, charge or other encumbrance are entered in the register.
(f) The Company may further determine by a Resolution of Directors to
register a copy of the register of mortgages, charges or other
encumbrances with the Registrar of Companies.
PROCEEDINGS OF DIRECTORS
85. The directors of the Company or any committee thereof may meet at such
times and in such manner and places within or outside the British
Virgin Islands as the directors may determine to be necessary or
desirable, provided that a meeting of directors shall be held at least
once in every quarter of each calendar year unless otherwise determined
by Resolution of Members. Questions arising at any meeting shall be
determined by the affirmative votes of a simple majority of directors
present at such meeting.
86. A director shall be deemed to be present at a meeting of directors if
he participates by telephone or other electronic means and all
directors participating in the meeting are able to hear each other.
87. A director shall be given not less than 3 days notice of meetings of
directors, but a meeting of directors held without 3 days notice having
been given to all directors shall be valid if all the directors
entitled to vote at the meeting who do not attend, waive notice of the
meeting and for this purpose, the presence of a director at a meeting
shall constitute waiver on his part. The inadvertent failure to give
notice of a meeting to a director, or the fact that a director has not
received the notice, does not invalidate the meeting.
88. A director may by a written instrument appoint an alternate who need
not be a director and an alternate is entitled to attend meetings in
the absence of the director who appointed him and to vote or consent in
place of the director.
89. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate
not less than four (4) directors.
90. At every meeting of the directors the Chairman of the Board of
Directors shall preside as chairman of the meeting. If there is no
Chairman of the Board of Directors or if the Chairman of the Board of
Directors is not present at the meeting the Vice-Chairman of the Board
of Directors shall preside. If there is no Vice-Chairman of the Board
of Directors or if the Vice-Chairman of the Board of Directors is not
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present at the meeting the directors present shall choose some one of
their number to be chairman of the meeting.
91. An action that may be taken by the directors or a committee of
directors at a meeting may also be taken by a Resolution of Directors
or a committee of directors consented to in writing or by telex,
telegram, cable, facsimile or other written electronic communication by
all directors or all Members of the committee as the case may be,
without the need for any notice. The consent may be in the form of
counterparts, each counterpart being signed by one or more directors.
92. The directors shall cause the following corporate records to kept:
(a) minutes of all meetings of directors, Members, committees of
directors, committees of officers and committees of Members;
(b) copies of all resolutions consented to by directors, Members,
committees of directors, committees of officers and committees of
Members; and
(c) such other accounts and records as the directors by Resolution of
Directors consider necessary or desirable in order to reflect the
financial position of the Company.
93. The books, records and minutes shall be kept at the registered office
of the Company, its principal place of business or at such other place
as the directors determine.
94. The directors, by Resolution of Directors, shall designate two
permanently sitting committees, the Compensation Committee and the
Audit Committee. Each committee shall consist of at least two
independent directors. A majority of the Audit Committee shall consist
of independent directors.
95. The Audit Committee shall: (i) make recommendations to the Board of
Directors as to the independent accountants to be appointed by the
Board of Directors; (ii) review with the independent accountants the
scope of their examinations; (iii) receive the reports of the
independent accountants for the purpose of reviewing and considering
questions relating to their examination and such reports; (iv) review,
either directly or through the independent accountants, the internal
accounting and auditing procedures of the Company; (v) review related
party transactions; and (vi) perform such other functions as may be
assigned to it from time to time by the Board of Directors. Each other
committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are
set forth in the Resolution of Directors establishing the committee,
except that no committee has any power or authority to amend the
Memorandum or these Articles, to appoint directors or fix their
emoluments or to appoint officers or agents of the Company.
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96. The meetings and proceedings of each committee of directors consisting
of three (3) or more directors shall be governed mutatis mutandis by
the provisions of those Articles regulating the proceedings of
directors so far as the same are not superseded by any provisions in
the resolution establishing the committee.
OFFICERS
97. The Company may by Resolution of Directors appoint officers of the
Company at such times as shall be considered necessary or expedient.
Such officers may consist of a Chairman of the Board of Directors, a
Vice-Chairman of the Board of Directors, a President and one or more
Vice-Presidents, Secretaries and Treasurer and such other officers as
may from time to time be deemed desirable. Any number of offices may be
held by the same person.
98. The officers shall perform such duties as shall be prescribed at the
time of their appointment subject to any modification in such duties as
may be prescribed thereafter by Resolution of Directors or Resolution
of Members, but in the absence of any specific allocation of duties it
shall be the responsibility of the Chairman of the Board of Directors
to preside at meetings of directors and Members, the Vice-Chairman to
act in the absence of the Chairman, the President to manage the day to
day affairs of the Company, the Vice-Presidents to act in order of
seniority in the absence of the President but otherwise to perform such
duties as may be delegated to them by the President, the Secretaries to
maintain the share register, minute books and records (other than
financial records) of the Company and to ensure compliance with all
procedural requirements imposed on the Company by applicable law, and
the Treasurer to be responsible for the financial affairs of the
Company.
99. The emoluments of all officers shall be fixed by the Compensation
Committee.
100. The officers of the Company shall hold office until their successor are
duly elected and qualified, but any officer elected or appointed by the
directors may be removed at any time, with or without cause, by
Resolution of Directors. Any vacancy occurring in any office of the
Company may be filled by Resolution of Directors.
CONFLICT OF INTERESTS
101. No Agreement or transaction between the Company and one or more of its
directors or any Person in which any director has a financial interest
or to whom any director is related, including as a director of that
other Person, is void or voidable for this reason only or by reason
only that the director is present at the meeting of directors or at the
meeting of the committee of directors that approves the agreement or
transaction or that the vote or consent of the director is counted for
that purpose if the
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material facts of the interest of each director in the agreement or
transaction are disclosed in good faith or are known by the other
directors.
102. A director who has an interest in any particular business to be
considered at a meeting of directors or Members may be counted for the
purposes of determining whether the meeting is duly constituted.
INDEMNIFICATION
103. Subject to the limitation hereinafter provided, the Company shall
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred
in connection with legal, administrative or investigative proceeding
against any Person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact
that the Person is or was a director, an officer or a liquidator of
the Company; or
(b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or partnership, joint venture, trust or other
enterprise.
104. The Company shall only indemnify a Person if the Person acted honestly
and in good faith with a view to the best interests of the Company and,
in the case of criminal proceedings, the Person had no reasonable cause
to believe that his conduct was unlawful.
105. The decision of the directors as to whether the Person acted honestly
and in good faith and with a view to the best interests of the Company
and as to whether the Person had no reasonable cause to believe that
his conduct was unlawful is, in the absence of fraud, sufficient for
the purposes of these Articles, unless a question of law is involved.
106. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself,
create a presumption that the Person did not act honestly and in good
faith and with a view to the best interests of the Company or that the
Person had reasonable cause to believe that his conduct was unlawful.
107. If a Person to be indemnified has been successful in defense of any
proceedings referred to above, the Person is entitled to be indemnified
against all expenses,
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including legal fees, and against all judgments, fines and amounts paid
in settlement and reasonable incurred by the Person in connection with
the proceedings.
108. The Company may purchase and maintain insurance in relation to any
Person who is or was a director, an officer or a liquidator of the
Company, or who at the request of the Company is or was serving as a
director, an officer or a liquidator of, or in any other capacity is or
was acting for, another company or a partnership, joint venture, trust
or other enterprise, against any liability asserted against the Person
and incurred by the Person in that capacity, whether or not the Company
has or would have had the power to indemnify the Person against the
liability as provided in these Articles.
SEAL
109. The Company may have more than one Seal and references herein to the
Seal shall be references to every Seal which shall have been duly
adopted by Resolution of Directors. The directors shall provide for the
safe custody of the Seal and for an imprint thereof to be kept at the
Registered Office. Except as otherwise expressly provided herein the
Seal when affixed to any written instrument shall be witnessed and
attested to by the signature of a director or any other Person so
authorized from time to time by Resolution of Directors. Such
authorization may be before or after the Seal is affixed, may be
general or specific and may refer to any number of sealings. The
Directors may provide for a facsimile of the Seal and of the signature
of any director or authorized Person which may be reproduced by
printing or other means on any instrument and it shall have the same
force and validity as if the Seal had been affixed to such instrument
and the same had been signed as hereinbefore described.
DIVIDENDS
110. The Company may by a Resolution of Directors declare and pay dividends
in money, shares, or other property, but dividends shall only be
declared and paid out of surplus. In the event that dividends are paid
in specie the directors shall have responsibility for establishing and
recording in the Resolution of Directors authorizing the dividends a
fair and proper value for the assets to be so distributed.
111. The directors may from time to time pay to the Members such interim
dividends as appear to the directors to be justified by the profits of
the Company.
112. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund,
and may invest the sum so set aside as a reserve fund upon such
securities as they may select.
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113. No dividend shall be declared and paid unless the directors determine
that immediately after the payment of the dividend the Company will be
able to satisfy its liabilities as they become due in the ordinary
course of its business and the realizable value of the assets of the
Company will not be less than the sum of its total liabilities, other
than deferred taxes, as shown in its books of account, and its capital.
In the absence of fraud, the decision of the directors as to the
realizable value of the assets of the Company is conclusive, unless a
question of law is involved.
114. Notice of any dividend that may have been declared shall be given to
each Member in manner hereinaftermentioned and all dividends unclaimed
for three (3) years after having been declared may be forfeited by
Resolution of Directors for the benefit of the Company.
115. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of
which the Company holds, directly or indirectly, shares having more
than 50 percent of the vote in electing directors.
116. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
117. In the case of a dividend of authorized but unissued shares with par
value, an amount equal to the aggregate par value of the shares shall
be transferred from surplus to capital at the time of the distribution.
118. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to
the amount that the shares are entitled to as a preference, if any, in
the assets of the Company upon liquidation of the Company.
119. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series
having a proportionately smaller par value does not constitute a
dividend of shares.
ACCOUNTS AND AUDIT
120. The Company may by Resolution of Members call for the directors to
prepare periodically a profit and loss account and a balance sheet. The
profit and loss account and balance sheet shall be drawn up so as to
give respectively a true and fair view of the profit and loss of the
Company for the financial period and a true and fair view of the state
of affairs of the Company as at the end of the financial period. The
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Company shall prepare and serve on Members copies of an annual report
of the Company containing audited financial statements of the Company
and its Subsidiaries. The annual report shall be distributed to Members
at least 30 days prior to the Company's Annual Meeting and shall be
laid before the Annual Meeting. The Company shall cause such annual
report to be filed with the Nasdaq National Market or other securities
exchange on which the Company's Common Shares are then listed for
trading at the time such annual report is distributed to Members. The
Company may by Resolution of Members call for the directors to prepare
periodically a profit and loss account and a balance sheet. The profit
and loss account and balance sheet shall be drawn up so as to give
respectively a true and fair view of the profit and loss of the Company
for the financial period and a true and fair view of the state of
affairs of the Company as at the end of the financial period. The
Company shall make available to Members any interim financial
statements or report which the Company may be required to file with the
United States Securities and Exchange Commission and any other United
States federal or state regulatory authority at the same time or as
soon as practicable following filing with such regulatory authority. If
required by the Nasdaq National Market or other securities exchange on
which the Company's Common Shares are then listed, the Company shall
file copies of such financial statements or reports therewith.
121. The Company may by Resolution of Members call for the accounts to be
examined by auditors.
122. The first auditors shall be appointed by Resolution of Directors;
subsequent auditors shall be appointed by Resolution of Members.
123. The auditors may be Members of the Company, but no director or other
officer shall be eligible to be an auditor of the Company during his
continuance in office.
124. The remuneration of the auditors of the Company:
(a) in the case of auditors appointed by the directors, may be fixed by
Resolution of Directors; and
(b) subject to the foregoing, shall be fixed by Resolution of Members
or in such manner as the Company may by Resolution of Members
determine.
125. The auditors shall examine each profit and loss account and balance
sheet required to be served on every Member of the Company or laid
before a meeting of the Members of the Company and shall state in a
written report whether or not
(a) in their opinion the profit and loss account and balance sheet give
a true and fair view respectively of the profit and loss for the
period covered by
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the accounts, and of the state of affairs of the Company at the end
of that period; and
(b) all the information and explanations required by the auditors have
been obtained.
126. The report of the auditors shall be annexed to the accounts and shall
be read at the meeting of Members at which the accounts are laid before
the Company or shall be served on the Members.
127. Every auditor of the Company shall have a right of access at all times
to the books of account of the Company, and shall be entitled to
require from the directors and officers of the Company such information
and explanations as he thinks necessary for the performance of the
duties of the auditors.
128. The auditors of the Company shall be entitled to receive notice of, and
to attend any meetings of Members of the Company at which the Company's
profit and loss account and balance sheet are to be presented.
NOTICES
129. Any notice, information or written statement to be given by the Company
to Members may be served in the case of Members holding registered
shares in any way by which it can reasonably be expected to reach each
Member or by mail addressed to each Member at the address shown in the
share register.
130. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or
by sending it by registered mail addressed to the Company, at its
registered office, or by leaving it with, or by sending it by
registered mail to, the registered agent of the Company.
131. Service of any summons, notice, order, document, process, information
or written statement to be served on the Company may be provided by
showing that the summons, notice, order, document, process, information
or written statement was delivered to the registered office or the
registered agent of the Company or that it was mailed in such time as
to admit to its being delivered to the registered office or the
registered agent of the Company in the normal course of delivery within
the period prescribed for service and was correctly addressed and the
postage was prepaid.
VOLUNTARY WINDING UP AND DISSOLUTION
132. The Company may voluntarily commence to wind up and dissolve by a
Resolution of Members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by Resolution of
Directors.
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CONTINUATION
133. The Company may by Resolution of Members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British
Virgin Islands in the manner provided under those laws.
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Exhibit 4.1
Number__ _____ Shares
EL SITIO, INC.
a British Virgin Islands International Business Company
Common Shares
Authorised Share Capital $3,000,000 divided
into 200,000,000 Common Shares of
$ .01 par value each and 100,000,000
Preferred Shares of $.01 par value each
THIS CERTIFIES THAT: _________________ is the record holder of
___________________________ (________) Common Shares in El Sitio, Inc.
(the "Company"), transferable only on the share register of the Company.
This certificate and the shares represented hereby are issued and shall
be held subject to all of the provisions of the Amended and Restated
Memorandum of Association and Amended and Restated Articles of Association of
the Company and any amendments thereto, to all of which the holder of this
certificate, by acceptance hereof, assents.
WITNESS the facsimile signatures of the Company's duly authorized
officers.
Dated:
Countersigned and Registered: _______________________________________
Roberto Cibrian-Campoy,
Chief Executive Officer
The Bank of New York
By:____________________________ _______________________________________
Authorized Signature Horacio Milberg,
Chief Financial Officer
<PAGE>
SHARE TRANSFER
I/WE [Seller]
of [Address]
in consideration of the sum of _______________________ US Dollars.
paid or to be paid to me/us
by: [Purchaser]
[Address]
DO HEREBY TRANSFER
to: [Purchaser]
____________________________ shares of U.S. $___each
standing in my/our name in the books of the above Company
TO HOLD unto the said
[Purchaser]
his/her/their heirs executors administrators and assigns/it successors and
assigns subject to the several conditions on which I/we held same on the
execution hereof
AND I/WE the said
[Purchaser]
do hereby agree to take the said shares subject to the same conditions
AS WITNESS our hands and seals the ___ day of________, _______.
Transferor Transferee
___________________________________ ___________________________________
___________________________________ ___________________________________
Witness Witness
<PAGE>
EXHIBIT 5.1
DRAFT
December 29, 1999
RJDB/sts/950538
-, 1999
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Saloman Smith Barney Inc.
Wit Capital Corporation
Fidelity Capital Markets
a division of National Financial Services Corporation
as Representatives of the several Underwriters referred to below
c/o Credit Suisse First Boston Corporation
11 Madison Avenue
New York, New York
10010-3629
Dear Sirs,
El Sitio, Inc. (THE "COMPANY")
We have acted as special legal counsel in the British Virgin Islands to the
Company in connection with the initial public offering of 8,200,000 common
shares of the Company (the "Shares") as described in the prospectus (the
"Prospectus") contained in the Company's Registration Statement on Form F-1
(File No. 333-91263) under the United States Securities Act of 1933, as
amended (the "Act") filed by the Company with the United States Securities
and Exchange Commission, and each amendment thereto, as it became effective
under the Act (the "Registration Statement").
For the purposes of giving this opinion, we have examined the following
documents:
(i) the Registration Statement, including the Prospectus contained
therein; and
(ii) a facsimile copy of the underwriting agreement dated
December -, 1999 among Credit Suisse First Boston Corporation,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
<PAGE>
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
- -, 1999
Page 2
Salomon Smith Barney Inc., Wit Capital Corporation,
and Fidelity Capital Markets (a division of National
Financial Services Corporation) (the "Underwriters"), as
representatives of the several underwriters named in
Schedule 1 of the agreement, the Company and certain
subsidiaries of the Company as referred to therein.
The document listed in item (ii) above is herein sometimes referred to as the
"Underwriting Agreement" (which term does not include any other instrument or
agreement whether or not specifically referred to therein or attached as an
exhibit or schedule thereto).
We have also reviewed the amended and restated memorandum of association and
the articles of association of the Company (the "Memorandum and Articles of
Association"), as [obtained from/filed with] the Registrar of Companies on -,
1999, minutes of a meeting of its directors with respect to the transactions
to which this opinion relates held on September 9, 1999, October 6, 1999,
October 28, 1999, November 4, 1999, November 7, 1999, November 9, 1999,
November -, 1999 and December -, 1999, and minutes of meetings of its
shareholders with respect to the transactions to which this opinion relates
held on October 6, 1999 and December -, 1999 ( all such board of directors
and shareholders' meeting minutes, including the resolutions reflected
therein, being referred to herein as the "Minutes"), a certificate of good
standing issued by the Registrar of Companies on December -, 1999 in respect
of the Company and such other documents and made such enquiries as to
questions of law as we have deemed necessary in order to render the opinion
set forth below.
We have assumed (a) the genuineness and authenticity of all signatures and
the conformity to the originals of all copies (whether or not certified)
examined by us and the authenticity and completeness of the originals from
which such copies were taken, (b) that where a document has been examined by
us in draft form, it will be or has been executed in the form of that draft,
and where a number of drafts of a document have been examined by us all
changes thereto have been marked or otherwise drawn to our attention, (c) the
capacity, power and authority of each of the parties to the Underwriting
Agreement, other than the Company, to enter into and perform its respective
obligations under the Underwriting Agreement, (d) the due execution of the
Underwriting Agreement by each of the parties thereto, other than the
Company, and the delivery thereof by each of the parties thereto, (e) the
accuracy and completeness of all factual representations made in the
Underwriting Agreement and other documents reviewed by us, (f) that the
resolutions contained in the Minutes remain in full force and effect and have
not been rescinded or amended, (g) that there is no provision of the law of
any jurisdiction, other than the British Virgin Islands, which would have any
implication in relation to the opinions expressed herein , (h) the validity
and binding effect under the laws of the State of New York (the "Foreign
Laws") of the Underwriting Agreement which is expressed to be governed by
such Foreign Laws in accordance with its terms, (i) the validity and binding
effect under the Foreign Laws of the submission by the Company pursuant to
the Underwriting Agreement to the non-exclusive jurisdiction of any New York
state or United States federal court sitting in the Borough of Manhattan, New
York City (the "Foreign Courts").
<PAGE>
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
- -, 1999
Page 3
We have also assumed that the Shares will be issued pursuant to a Qualifying
IPO (as defined in the Memorandum and Articles of Association), meaning that
the Shares will be issued pursuant to an underwritten initial public offering
of common shares of the Company pursuant to an effective registration
statement under the Act in which the cumulative gross proceeds to the Company
are equal to or greater than US$35,000,000.
The obligations of the Company under the Underwriting Agreement (a) will be
subject to the laws from time to time in effect relating to bankruptcy,
insolvency, liquidation, possessory liens, rights of set off, reorganisation,
amalgamation, moratorium or any other laws or legal procedures, whether of a
similar nature or otherwise, generally affecting the rights of creditors, (b)
will be subject to statutory limitation of the time within which proceedings
may be brought, (c) will be subject to general principles of equity and, as
such, specific performance and injunctive relief, being equitable remedies,
may not be available, (d) may not be given effect to by a British Virgin
Islands court, whether or not it was applying the Foreign Laws, if and to the
extent they constitute the payment of an amount which is in the nature of a
penalty and not in the nature of liquidated damages. Notwithstanding any
contractual submission to the jurisdiction of specific courts, a British
Virgin Islands court has inherent discretion to stay or allow proceedings in
the British Virgin Islands courts.
We express no opinion as to the enforceability of any provision of the
Underwriting Agreement which provides for the payment of a specified rate of
interest on the amount of a judgment after the date of judgment or which
purports to fetter the statutory powers of the Company.
We have made no investigation of and express no opinion in relation to the
laws of any jurisdiction other than the British Virgin Islands. This opinion
is to be governed by and construed in accordance with the laws of the British
Virgin Islands and is limited to and is given on the basis of the current law
and practice in the British Virgin Islands. This opinion is issued solely for
your benefit and is not to be relied upon by any other person, firm or entity
or in respect of any other matter.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company is duly incorporated and existing under the laws of the
British Virgin Islands in good standing (meaning solely that it has not
failed to make any filing with any British Virgin Islands governmental
authority or to pay any British Virgin Islands government fee or tax
which would make it liable to be struck off the Register of Companies
and thereby cease to exist under the laws of the British Virgin
Islands).
<PAGE>
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
- -, 1999
Page 4
2. The Company has the necessary corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement. The execution and
delivery of the Underwriting Agreement, including the allotment,
issue and delivery of the Shares, by the Company and the performance
by the Company of its obligations thereunder (including section 8 of
the Underwriting Agreement) will not violate the Memorandum and
Articles of Association nor any applicable law, regulation, order or
decree in the British Virgin Islands.
3. The Company has an authorised and issued share capital as set forth
under the caption "Description of Share Capital" in the Prospectus and
the Shares have been duly and validly authorised, and will be validly
issued, fully paid and non-assessable (meaning that no further sums
will be payable to the Company on the Shares) when issued against
payment and delivery in accordance with the Underwriting Agreement.
The Shares will conform to the description thereof contained in the
Prospectus.
4. The Company has taken all corporate action required to authorise its
execution, delivery and performance of the Underwriting Agreement. The
Underwriting Agreement has been duly executed and delivered by or on
behalf of the Company, and constitutes the valid and binding
obligations of the Company in accordance with the terms thereof.
5. There are no pre-emptive rights or similar rights on the issue of the
Shares nor any restriction upon the voting of common shares of the
Company (other than such matters as may require the separate approval
of holders of Class A Preferred Shares or Class B Preferred Shares)
pursuant to the Memorandum and Articles of Association or British
Virgin Islands law.
6. No order, consent, approval, licence, authorisation or validation of or
exemption by any government or public body or authority of the British
Virgin Islands or any sub-division thereof is required to authorise or
is required in connection with the execution, delivery, performance and
enforcement of the Underwriting Agreement.
7. Based solely upon a search of the Cause Book of the Supreme Court of
the British Virgin Islands conducted at -[am/pm] on -, 1999 (which
would not reveal details of proceedings which have been filed but not
actually entered in the Cause Book at the time of our search), there
are no judgments against the Company, nor any legal or governmental
proceedings pending in the British Virgin Islands to which the Company
is subject.
<PAGE>
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
- -, 1999
Page 5
8. The filing of the Registration Statement with the United States
Securities and Exchange Commission and the listing of the Shares on
Nasdaq National Market System have been duly authorised by the
Company.
9. It is not necessary or desirable to ensure the enforceability in the
British Virgin Islands of the Underwriting Agreement that it be
registered in any register kept by, or filed with, any governmental
authority or regulatory body in the British Virgin Islands.
10. The Underwriters have standing to bring an action or proceedings
before the appropriate courts in the British Virgin Islands for the
enforcement of the Underwriting Agreement. It is not necessary or
advisable in order for the Underwriters to enforce their rights under
the Underwriting Agreement, including the exercise of remedies
thereunder, that it be licensed, qualified or otherwise entitled to
carry on business in the British Virgin Islands.
11. There is no income or other tax of the British Virgin Islands imposed
by withholding or otherwise on any payment to be made to or by the
Company pursuant to the Underwriting Agreement or the issue or
transfer of the Shares by the Company, the delivery of the Share to
the Underwriters in the manner contemplated in the Underwriting
Agreement or the sale and transfer of the Shares by the Underwriters.
12. The Underwriting Agreement will not be subject to ad valorem stamp
duty in the British Virgin Islands and no registration, documentary,
recording, transfer or other similar tax, fee or charge is payable in
the British Virgin Islands in connection with the execution, delivery,
filing, registration or performance of the Underwriting Agreement.
13. The choice of the Foreign Laws as the governing law of the
Underwriting Agreement is a valid choice of law and would be
recognised and given effect to in any action brought before a court
of competent jurisdiction in the British Virgin Islands, except for
those laws (i) which such court considers to be procedural in nature,
(ii) which are revenue or penal laws or (iii) the application of
which would be inconsistent with public policy, as such term is
interpreted under the laws of the British Virgin Islands (and we have
no reason to believe that the application of which would be held to
be inconsistent with public policy). The submission in the
Underwriting Agreement to the non-exclusive jurisdiction of the
Foreign Courts is valid and binding upon the Company.
14. The Company is not entitled to any immunity under the laws of the
British Virgin Islands, whether characterised as sovereign immunity or
otherwise, from any legal proceedings to enforce the Underwriting
Agreement in respect of itself or its property.
<PAGE>
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
- -, 1999
Page 6
15. The Underwriting Agreement is in an acceptable legal form under the
laws of the British Virgin Islands for enforcement thereof in the
British Virgin Islands.
16. The courts of the British Virgin Islands would recognise as a valid
judgment, a final and conclusive judgment in personam obtained in the
Foreign Courts against the Company based upon the Underwriting
Agreement under which a sum of money is payable (other than a sum of
money payable in respect of multiple damages, taxes or other charges
of a like nature or in respect of a fine or other penalty) and would
give a judgment based thereon provided that (a) such courts had
proper jurisdiction over the parties subject to such judgment,
(b) such courts did not contravene the rules of natural justice of
the British Virgin Islands, (c) such judgment was not obtained by
fraud, (d) the enforcement of the judgment would not be contrary to
the public policy of the British Virgin Islands, (e) no new admissible
evidence relevant to the action is submitted prior to the rendering
of the judgment by the courts of the British Virgin Islands and
(f) the due compliance with the correct procedures under the laws of
the British Virgin Islands (and we have no reason to believe that
enforcement of such a judgment would contravene such rules of natural
justice or be contrary of such public policy).
17. The Company may hold and sell foreign currency and securities without
restrictions, including the payment of dividends in United State
dollars or in any other currency.
18. The statements in the Prospectus under the captions (a) "Risk
Factors - Our shareholders may face difficulties in protecting their
interests because we are a British Virgin Islands company" and "-You
may experience difficulty in enforcing civil liberties against our
company", insofar as they describe certain provision of British Virgin
Islands, (b) "Description of Share Capital" insofar as they describe
certain provision of the Memorandum and Articles of Association
relating to the share capital of the Company and the International
Business Company Act, 1984 (British Virgin Islands) and (c)
"Taxation-British Virgin Islands Tax Considerations", insofar as they
constitute a summary of matters of British Virgin Islands tax law,
constitute accurate summaries thereof in all material respects.
Yours faithfully
CONYERS DILL & PEARMAN
<PAGE>
EXHIBIT 8.1
, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been requested by El Sitio, Inc. (the "Company"), a
British Virgin Islands company, to furnish our opinion in connection with the
registration statement (the "Registration Statement") on Form F-1 (Registration
Number 333-o), with respect to the registration of 8,200,000 shares (the
"Shares") of the Company's common shares, par value [$0.01] per share.
We have made such examination as we have deemed necessary for
the purpose of this opinion. Based upon such examination, it is our opinion
that, when the Registration Statement has become effective under the Securities
Act of 1933, when the Shares have been qualified as required under the laws of
those jurisdictions in which they are to be issued and sold and when the Shares
have been sold, issued and paid for in the manner described in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable
(meaning that no further sums will be payable to the Company on the Shares).
It is our opinion that the discussion of tax law set forth
under the heading "Taxation-British Virgin Islands Tax Considerations" in the
prospectus included in the Registration Statement is accurate as of the date
hereof in all material respects.
<PAGE>
Securities and Exchange Commission
(,1999
Page 2
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our name under the caption
"Legal Matters" and under the caption "Taxation-British Virgin Islands Tax
Considerations."
Yours faithfully,
CONYERS DILL & PEARMAN
<PAGE>
Exhibit 10.22
================================================================================
EL SITIO, INC.
SHARE PURCHASE AGREEMENT
November 9, 1999
================================================================================
<PAGE>
SHARE PURCHASE AGREEMENT, dated as of this 9th day of
November, 1999 (this "AGREEMENT"), among EL SITIO, INC., an international
business company organized and existing under the laws of the British Virgin
Islands (the "COMPANY"), and each of the persons or entities set forth on
EXHIBIT A (each, a "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Company desires to issue to the Purchasers, and
the Purchasers desire to purchase from the Company, the Preferred Shares (as
such term is defined below) as set forth below; and
WHEREAS, certain terms used in this Agreement are defined in
Section 9.1 hereof;
NOW, THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter contained, the parties hereto hereby agree
as follows:
1. SALE AND PURCHASE OF SECURITIES.
1.1 SALE AND PURCHASE OF PREFERRED SHARES. Subject to the
terms and conditions of this Agreement, on the Closing Date (as defined in
Section 3.1 hereof), the Company shall issue, sell and deliver to each of the
Purchasers, and each of the Purchasers shall purchase from the Company for the
Purchase Price (as defined in Section 2.1 hereof) that number of Class B
Convertible Preferred Shares of the Company (the "PREFERRED SHARES"), set forth
opposite such Purchaser's name on EXHIBIT A.
2. PURCHASE PRICE.
2.1 AMOUNT OF PURCHASE PRICE. The purchase price of the
Preferred Shares to be purchased pursuant to Section 1.1 by each Purchaser shall
be as set forth opposite such Purchaser's name on EXHIBIT A (the "PURCHASE
PRICE"). The Purchase Price shall be payable as provided in Section 2.2 hereof.
2.2 PAYMENT OF THE PURCHASE PRICE. At the Closing (as
defined in Section 3.1 hereof), each Purchaser shall pay its Purchase Price in
United States dollars by wire transfer of immediately available funds or by such
other method as may be reasonably acceptable to the Company and such Purchaser,
to such account of the Company as shall have been designated in advance to the
Purchasers by the Company.
3. CLOSING.
3.1 CLOSING DATE. The closing of the sale and purchase of
the Preferred Shares (the "Closing") shall take place on November 11, 1999, or
at such other time, date or place as the parties hereto may mutually agree;
provided that all conditions to the Closing set forth in this Agreement have
been satisfied or waived by such date. The date on which the Closing is held is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Section 8 hereof.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchasers that:
4.1 ORGANIZATION AND GOOD STANDING; CAPITALIZATION.
(a) The Company is duly organized and validly existing under
the laws of the British Virgin Islands and has the corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as now conducted and as it is proposed to be conducted, except where the lack
thereof would not have a Material Adverse Effect (as defined in Section 9.1).
The Company is duly qualified or authorized to do business as a foreign
corporation under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties or assets requires such
qualification or authorization except where the lack thereof would not have a
Material Adverse Effect.
(b) The authorized and issued share capital of the Company
immediately prior to and immediately after the Closing and the legal and
beneficial ownership thereof is as set forth on SCHEDULE 4.1(B). All the
outstanding shares of the Company have been duly authorized, and are validly
issued, fully paid and non-assessable. Except as disclosed on SCHEDULE 4.1(B),
(i) there is no option, warrant, call, right, commitment or other agreement of
any character to which the Company is a party, (ii) there are no securities of
the Company outstanding which upon conversion or exchange would require, and
(iii) there are no share appreciation rights, or other similar rights based on
securities of the Company which, in the case of clause (i), (ii) or (iii), would
require the issuance, sale or transfer of any additional share capital or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase share
capital or other equity securities of the Company. Except as disclosed on
SCHEDULE 4.1(B) and other than this Agreement, the Company is not a party to,
nor is it aware of, any voting trust or other voting agreement with respect to
any of the securities of the Company or to any agreement relating to the
issuance, sale, redemption, transfer or other disposition of the share capital
of the Company.
4.2 AUTHORIZATION OF AGREEMENT; ENFORCEABILITY. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and each other agreement, document, instrument and certificate to be
executed by the Company in connection with the consummation of the transactions
contemplated by this Agreement (the "TRANSACTION DOCUMENTS"), and to perform
fully its obligations hereunder and thereunder. The execution, delivery and
performance by the Company of this Agreement and the Transaction Documents have
been duly authorized by all necessary corporate action on the part of the
Company and its members. This Agreement and each of the Transaction Documents
have been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery thereof by the Purchasers, this
Agreement and each of the Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
2
<PAGE>
4.3 SUBSIDIARIES, JOINT VENTURES, PARTNERSHIPS, ETC.
(a) SCHEDULE 4.3(A) hereof sets forth a true, complete
and correct list of each company or other entity in which the Company holds an
interest of greater than fifty percent (50%) (each such corporation or other
entity is referred to herein as a "SUBSIDIARY" and, collectively, the
"SUBSIDIARIES") as well as each entity in which the Company holds a minority
interest. Each Subsidiary is duly organized and validly existing in good
standing (if applicable) under the laws of the jurisdiction of its incorporation
with corporate power and corporate authority under such laws to own, lease and
operate its properties and conduct its business as currently conducted except,
in each case, where the lack thereof would not have a Material Adverse Effect;
and each Subsidiary is duly qualified to transact business as a foreign
corporation and is in good standing (if applicable) in each other jurisdiction
in which it owns or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except to the extent that
the failure to so qualify or be in good standing would not result in a Material
Adverse Change. All of the issued and outstanding share capital of each
Subsidiary which are owned by the Company has been duly authorized and validly
issued, and is fully paid and non-assessable. The Company, directly or
indirectly, owns the percentage of capital indicated in SCHEDULE 4.3(A) next to
each such Subsidiary, free and clear of any Liens, except as set forth in
SCHEDULE 4.3(A).
(b) The Company is not a party to any joint venture,
partnership or similar arrangement in which the Company or any of its
Subsidiaries participates. 4.4 CONSENTS OF THIRD PARTIES. None of the execution
and delivery by the Company of this Agreement and the Transaction Documents, the
consummation of the transactions contemplated hereby or thereby, or compliance
by the Company with any of the provisions hereof or thereof will (a) conflict
with, or result in the breach of, any provision of the Memorandum of Association
or Articles of Association of the Company, (b) conflict with, violate, result in
the breach or termination of, or constitute a default or give rise to any right
of termination or acceleration or right to increase the obligations or otherwise
modify the terms thereof under any Permit or Order to which the Company is a
party or any Contract to which the Company or any of its Subsidiaries is bound
or by which the Company or any of its properties or assets is bound, (c)
constitute a violation of any Law applicable to the Company or (d) result in the
creation of any Lien upon the properties or assets of the Company. Except as set
forth on SCHEDULE 4.4 and other than those which have been obtained or made, no
consent, waiver, approval, Order, Permit or authorization of, or declaration or
filing with, or notification to, any Person or Governmental Body is required on
the part of the Company in connection with the execution and delivery of this
Agreement or the Transaction Documents, or the compliance by the Company with
any of the provisions hereof or thereof.
4.5 AUTHORIZATION OF PREFERRED SHARES.
(a) On the Closing Date, the issuance, sale, and delivery of
the Preferred Shares to be purchased pursuant to Section 1.1 will have been duly
authorized by all requisite action of the Company, and, when issued, sold,
delivered and paid for in accordance with this Agreement, the Preferred Shares
will be validly issued and outstanding, fully paid and non-
3
<PAGE>
assessable, with no personal liability attaching to the ownership thereof, and
not subject to preemptive or any other similar rights of the members of the
Company or others.
(b) On the Closing Date, the issuance and delivery of the
Common Shares to be delivered upon conversion of the Preferred Shares in
accordance with the terms of the Preferred Shares will have been duly authorized
by all requisite action of the Company and, when issued and delivered in
accordance with the terms of the Preferred Shares, the Common Shares will be
validly issued and outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and not subject to preemptive or
any other similar rights of the members of the Company or others.
4.6 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 4.6
are (a) copies of the audited balance sheet of the Company and its Subsidiaries,
on a consolidated basis as of December 31, 1998, the income statement of the
Company and its Subsidiaries, on a consolidated basis for the fiscal year ended
December 31, 1998, and the cash flow statement of the Company and its
Subsidiaries, on a consolidated basis for the fiscal year ended December 31,
1998 (the "AUDITED FINANCIAL STATEMENTS") and (b) copies of the unaudited
balance sheet of the Company and its Subsidiaries, on a consolidated basis as of
June 30, 1999, the statement of income and retained earnings of the Company and
its Subsidiaries, on a consolidated basis for the six-month period ended June
30, 1999, and the cash flow statement of the Company and its Subsidiaries, on a
consolidated basis for the six-month period ended June 30, 1999 (the "UNAUDITED
FINANCIAL STATEMENTS", and together with the Audited Financial Statements, the
"FINANCIAL STATEMENTS"). Each of the Financial Statements was prepared in good
faith, is complete and correct in all material respects, has been prepared in
accordance with GAAP and in conformity with the practices consistently applied
by the Company and its Subsidiaries and presents fairly the financial position,
results of operations and cash flows of the Company and its Subsidiaries as of
the dates and for the periods indicated, subject, in the case of the Unaudited
Financial Statements, to the absence of footnotes and normal year-end
adjustments.
4.7 NO UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 4.7, neither the Company nor any of its Subsidiaries has any
liabilities (whether accrued, absolute, contingent or otherwise, and whether due
or to become due or asserted or unasserted), except (a) obligations under
Contracts described in SCHEDULE 4.15 or under Contracts that are not required to
be disclosed thereon as a result of dollar thresholds therein, (b) liabilities
provided for in the Financial Statements (other than liabilities which, in
accordance with GAAP, need not be disclosed), (c) liabilities (other than
accounts payable) incurred since the Audited Financial Statements, in the
ordinary course of business consistent with past practice, the sum of which is,
in the aggregate, no greater than $50,000, and (d) accounts payable in excess of
those shown on the Financial Statements, incurred in the ordinary course of
business consistent with past practice, the sum of which is, in the aggregate,
not greater than $50,000.
4.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
SCHEDULE 4.8 and since the date of the Audited Financial Statements:
(a) there has not been any Material Adverse Change nor has
any event occurred which could result in any Material Adverse Change;
4
<PAGE>
(b) there has not been any declaration, setting a record
date, setting aside or authorizing the payment of, any dividend or other
distribution in respect of any share capital of the Company or any of its
Subsidiaries or any repurchase, redemption or other acquisition by the Company
or any of its Subsidiaries, of any of the outstanding share capital or other
securities of, or other ownership interest in, the Company or any of its
Subsidiaries;
(c) there has not been any transfer, issue, sale or other
disposition by the Company of any share capital or other securities of the
Company or any of its Subsidiaries or any grant of options, warrants, calls or
other rights to purchase or otherwise acquire shares of such capital stock or
such other securities;
(d) neither the Company nor any of its Subsidiaries has (i)
awarded or paid any bonuses to Employees or Representatives of the Company, (ii)
entered into any employment, deferred compensation, severance or similar
agreements (nor amended any such agreement), (iii) agreed to increase the
compensation payable or to become payable by the Company or any of its
Subsidiaries to any of the Company's Employees or Representatives, or (iv)
agreed to increase the coverage or benefits available under any severance pay,
deferred compensation, bonus or other incentive compensation, pension or other
employee benefit plan, payment or arrangement made to, for or with such
Employees or Representatives, other than in the ordinary course of business
consistent with past practice which increases in the aggregate do not exceed
$50,000 in annual cost to the Company or any of its Subsidiaries and consistent
with the operating expense budget of the Company or any of its Subsidiaries, and
other than as may have been required by law or insurers;
(e) neither the Company nor any of its Subsidiaries has made
any loans, advances (other than advances to officers and employees of the
Company or its Subsidiaries which advances are made in the ordinary course of
business and do not exceed per individual the reasonable anticipated expenses
for legitimate business purposes), or capital contributions to, or investments
in, any Person or paid any fees or expenses to any Affiliate of the Company
other than a Subsidiary;
(f) neither the Company nor any of its Subsidiaries has
transferred or granted any rights under any Contracts, leases, licenses,
agreements or intangible property (as set forth in Section 4.12 hereof) used by
the Company in its business which could result in a Material Adverse Change;
(g) there has not been any damage, destruction or loss,
whether or not covered by insurance, with respect to the property or assets of
the Company or any of its Subsidiaries having a replacement cost of more than
$10,000 for any single loss or $50,000 for all such losses;
(h) neither the Company nor any of its Subsidiaries has
mortgaged, pledged or subjected to any Lien any of its assets, or acquired any
assets for a purchase price in excess of $50,000 in the aggregate or sold,
assigned, transferred, conveyed, leased or otherwise disposed of any assets of
the Company or any of its Subsidiaries for a sale price in excess of $50,000 in
the aggregate except for assets acquired or sold, assigned, transferred,
conveyed, leased or otherwise disposed of in the ordinary course of business;
5
<PAGE>
(i) neither the Company nor any of its Subsidiaries has
canceled or compromised any debt or claim or amended, canceled, terminated,
relinquished, waived or released any Contract or right except in the ordinary
course of business consistent with past practice and which, individually or in
the aggregate, would not be material to the Company or any of its Subsidiaries;
(j) neither the Company nor any of its Subsidiaries has made
any binding commitment to make any capital expenditures or capital additions or
betterments in excess of $25,000 individually or $75,000 in the aggregate;
(k) neither the Company nor any of its Subsidiaries has
incurred any debts, obligations or liabilities, whether due or to become due,
except current liabilities incurred in the ordinary course of business, none of
which current liabilities (individually or in the aggregate) could result in a
Material Adverse Change;
(l) neither the Company nor any of its Subsidiaries has
entered into any transaction other than in the ordinary course of business
except for (in the case of the Company) this Agreement;
(m) neither the Company nor any of its Subsidiaries has
encountered any labor difficulties or labor union organizing activities;
(n) neither the Company nor any of its Subsidiaries has made
any change in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted;
(o) neither the Company nor any of its Subsidiaries has
disclosed to any Person any material trade secrets except for disclosures made
to Persons subject to valid and enforceable confidentiality agreements;
(p) except in the ordinary course of business, neither the
Company nor any of its Subsidiaries has suffered or experienced any change in
the relationship or course of dealings between the Company and/or any of its
Subsidiaries and any of their suppliers or customers which supply goods or
services to the Company or any of its Subsidiaries or purchase goods or services
from the Company and or any of its Subsidiaries, which has had or is likely to
have a Material Adverse Effect; and
(q) neither the Company nor any of its Subsidiaries has made
any payment to, or received any payment from, or made or received any investment
in, or entered into any transaction or series of related transactions (including
without limitation, the purchase, sale, exchange or lease of assets, property or
services, or the making of a loan or guarantee) with any Affiliate in each case,
in excess of $50,000 or its equivalent (other than any transactions between or
among the Company and any of its Subsidiaries) (each, an "AFFILIATE
Transaction").
4.9 TAXES. The Company and each of its Subsidiaries has
filed all Tax returns (including statements of estimated Taxes owed) and reports
required to be filed within the applicable periods (subject to extensions) for
such filings and has paid all Taxes required to be
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paid, and has established adequate reserves (net of estimated Tax payments
already made) for the payment of all Taxes payable in respect of the period
subsequent to the last periods covered by such returns. Such Tax returns and
reports are true and correct in all material respects. No deficiencies for any
Tax are currently assessed against the Company or any Subsidiary, and, no Tax
returns of the Company or any Subsidiary have ever been audited, and, to the
knowledge of the Company, there is no such audit pending or contemplated.
Neither the Company nor any of its Subsidiaries has received any notice of any
audit of any of the Tax returns by any British Virgin Islands or foreign taxing
authority (including, without limitation, the Argentine DIRECCION GENERAL
IMPOSITIVA ("DGI") and DIRECCION GENERAL DE RENTAS). There is no Tax Lien,
whether imposed by any federal, state or local taxing authority, outstanding
against the assets, properties or business of the Company or any of its
Subsidiaries other than Liens for Taxes which are not yet due. Neither the
Company nor any of its Subsidiaries has executed any waiver of the statute of
limitations on the assessment or collection of any Tax or governmental charge.
The Company and its Subsidiaries have properly charged, collected and paid all
applicable stamp, sales, use and other similar Taxes on or before the Closing
Date.
4.10 REAL PROPERTY. (a) Neither the Company nor any of its
Subsidiaries owns any real property.
(b) SCHEDULE 4.10(B) sets forth a complete list of all real
property and interests in real property leased by the Company or any of its
Subsidiaries (each, a "REAL PROPERTY LEASE", and collectively, the "REAL
PROPERTY LEASES") as lessee or lessor. The Company or the applicable Subsidiary
has good, legal and marketable title to the leasehold estates in all Real
Property Leases in each case free and clear of all Liens. Neither the Company
nor any Subsidiary has any reason to believe that such title would not be
insurable subject to customary exceptions.
(c) Each of the Real Property Leases is valid and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no default under any Real Property
Lease by the Company or the applicable Subsidiary or, to the knowledge of the
Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a default
thereunder. The Company has delivered or otherwise made available to the
Purchasers true, correct and complete copies of the Real Property Leases,
together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder.
(d) No previous or current party to any Real Property Lease
has given notice of or made a claim with respect to any breach or default
thereunder. With respect to those Real Property Leases that were assigned or
subleased to the Company or a Subsidiary by a third party, all necessary
consents to such assignments or subleases have been obtained.
4.11 TANGIBLE PERSONAL PROPERTY; ASSETS. Each of the Company
and its Subsidiaries has good, legal and marketable title to or valid leasehold
interests in, all of its personal property and assets. The personal property
owned by the Company or its Subsidiaries are held in each case free and clear of
all Liens, other than Permitted Liens. With respect to the
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personal property and assets that the Company or any Subsidiary leases, the
lessee thereunder is in compliance with such leases except for such
noncompliance as would not have a Material Adverse Effect and the lessee holds a
valid leasehold interest free and clear of any Liens, other than Permitted
Liens. All material items of personal property and assets owned or leased by the
Company and its Subsidiaries are in good operating condition, normal wear and
tear excepted.
4.12 INTANGIBLE PROPERTY. Each of the Company and its
Subsidiaries owns or possesses adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing processes,
software, formulae, trade secrets and know how (collectively, "INTELLECTUAL
PROPERTY") necessary to the conduct of its business as conducted; if any such
Intellectual Property necessary to the conduct of the business as proposed to be
conducted is not owned or licensed to the Company or to any of its Subsidiaries,
such Intellectual Property is readily available to the Company on commercially
reasonable terms, and no claim is pending or, to the knowledge of the Company,
threatened to the effect that the operations of the Company or any Subsidiary
infringe upon or conflict with the asserted rights of any other Person under any
Intellectual Property, and the Company does not know of any basis for any such
claim (whether or not pending or threatened). No claim is pending or, to the
knowledge of the Company, threatened to the effect that any such Intellectual
Property owned or licensed by the Company or any Subsidiary, or which the
Company or a Subsidiary otherwise has the right to use, is invalid or
unenforceable by the Company or the applicable Subsidiary, and the Company does
not know of any basis for any such claim (whether or not pending or threatened).
Neither the Company nor any Subsidiary has granted or assigned to any other
Person any right to provide the services or proposed services of the Company and
its Subsidiaries.
4.13 TECHNOLOGY. Except as set forth in SCHEDULE 4.13, the
products, processes, proprietary technology and other proprietary know-how owned
or used by the Company and its Subsidiaries were completely developed by the
Company's full-time employees only; the concepts, inventions and original works
of authorship owned or used by the Company or its Subsidiaries were developed or
conceived by employees within the scope of their employment by the Company (or
the applicable Subsidiary) and are connected with the Company's and its
Subsidiaries' underlying products, processes and proprietary technology. Except
as set forth in SCHEDULE 4.13, no independent contractors or consultants were
used or employed by the Company or a Subsidiary in the development of the
products, processes, proprietary technology and other proprietary know-how owned
or used by the Company and its Subsidiaries.
4.14 REAL PROPERTY HOLDING CORPORATION. The Company is not a
"United States real property holding corporation" within the meaning of Section
847(c)(2) of the Code.
4.15 MATERIAL CONTRACTS.
(a) Except as set forth on SCHEDULE 4.15, neither the
Company, any Subsidiary nor any of their respective properties or assets is a
party to or bound by any (i) Contract not made in the ordinary course of
business, or involving a commitment or payment by the Company or any Subsidiary
in excess of $50,000 or, in the Company's belief, otherwise material to the
business of the Company or any Subsidiary, (ii) Contract among members or
granting a right of first refusal or for a partnership or a joint venture or for
the acquisition, sale or lease of any assets
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or share capital of the Company or any other Person or involving a sharing of
profits, (iii) mortgage, pledge, conditional sales contract, security agreement,
factoring agreement or other similar Contract with respect to any real or
tangible personal property of the Company or any Subsidiary, (iv) loan
agreement, credit agreement, promissory note, guarantee, subordination
agreement, letter of credit or any other similar type of Contract, (v) Contract
with any Governmental Body outside the ordinary course of business, (vi)
Contract with respect to the discharge, storage or removal of hazardous
materials or (vii) binding commitment or agreement to enter into any of the
foregoing. The Company has delivered or otherwise made available to the
Purchasers true, correct and complete copies of the Contracts listed on SCHEDULE
4.15, together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder.
(b) (i) Each of the Contracts listed on SCHEDULE 4.15 is
valid and enforceable against the Company or its Subsidiaries in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and there
is no default under any Contract listed on SCHEDULE 4.15 by the Company or any
of its Subsidiaries or, to the knowledge of the Company, by any other party
thereto, which is likely to have a Material Adverse Effect, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default by the Company thereunder which is likely to have a
Material Adverse Effect. (ii) No previous or current party to any Contract has
given written notice to the Company or any Subsidiary of or made a claim with
respect to any breach or default thereunder and the Company has no knowledge of
any notice of or claim with respect to any such breach or default.
(c) With respect to the Contracts listed on SCHEDULE 4.15
that were assigned to the Company or any Subsidiary by a third party, all
necessary consents to such assignment have been obtained.
4.16 EMPLOYEE BENEFITS. Except as set forth on SCHEDULE 4.16,
neither the Company nor any Subsidiary has in effect any employment agreements,
consulting agreements, deferred compensation, pension or retirement agreements
or arrangements, bonus, incentive or profit-sharing plans or arrangements, or
labor or collective bargaining agreements, written or oral. The Company and its
Subsidiaries are in compliance in all material respects with all applicable Laws
relating to labor, employment, fair employment practices, terms and conditions
of employment, and wages and hours.
4.17 EMPLOYEES.
(a) To the knowledge of the Company, no key executive
Employee and no group of Employees or independent contractors of the Company or
any Subsidiary has any plans to terminate his, her or its employment or
relationship as an Employee or independent contractor with the Company or such
Subsidiary.
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(b) SCHEDULE 4.17 sets forth a true and complete list of the
name and amount of annual compensation of (i) each Employee of the Company or
any Subsidiary whose current annual compensation is $50,000 or more, together
with such person's job title and amounts and forms of compensation and fringe
and severance benefits and (ii) each consultant, contractor or subcontractor
equivalent of the Company and its Subsidiaries whose annual compensation by the
Company or its Subsidiary is $50,000 or more.
(c) To the best of the Company's knowledge after reasonable
inquiry, no key executive Employee or any other Employee of the Company or any
Subsidiary is a party to or is otherwise bound by any agreement or arrangement
(including, without limitation, confidentiality agreements, non-competition
agreements, licenses, covenants, or commitments of any nature), or subject to
any judgment, decree, or Order of any court or Governmental Body, (i) that would
conflict with such Employee's obligation diligently to promote and further the
interest of the Company or such Subsidiary or (ii) that would conflict in any
material respect with the Company's (or the applicable Subsidiary's) business as
now conducted or as proposed to be conducted. 4.18 LITIGATION. There are no
Legal Proceedings pending or, to the knowledge of the Company, threatened that
question the validity of this Agreement or any of the Transaction Documents or
any action taken or to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or thereby. Except as set
forth on SCHEDULE 4.18, there are no Legal Proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, any of
its Subsidiaries or any of their respective properties or assets, and there is
no reasonable basis for any such Legal Proceeding. There is no outstanding or,
to the knowledge of the Company, threatened Order of any Governmental Body
against, in respect of or naming the Company or any of its Subsidiaries or in
respect of any of their respective properties or assets or against the Company
or its Subsidiaries.
4.19 COMPLIANCE WITH LAWS; PERMITS.
(a) The Company and each Subsidiary is and at all times has
been in compliance in all material respects with all material Laws and material
Orders promulgated by any Governmental Body applicable to the Company or such
Subsidiary, or to the conduct of the business or operations of the Company or
such Subsidiary, or the use of any of their respective properties (including any
leased properties) and assets. Neither the Company nor any Subsidiary has
received any notices of violation or alleged violation of any such Law or Order
by any Governmental Body.
(b) The Company and each Subsidiary has all Permits
necessary for the conduct of its business where the failure to have such Permits
could have a Material Adverse Effect. The Company and each Subsidiary has
complied in all material respects with all conditions of such Permits applicable
to it; no default or violation, or event that with the lapse of time or giving
of notice or both would become a default or violation which could have a
Material Adverse Effect, has occurred in the due observance of any such Permit;
all such Permits are in full force and effect without further consent or
approval of any Person; and neither the Company nor any Subsidiary has received
any notice from any source to the effect that there is lacking any
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such material Permit required in connection with the current operations of the
Company or such Subsidiary.
4.20 ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor
any Subsidiary is in violation of any applicable Laws relating to the
environment or occupational health and safety where the failure to so comply
could have a Material Adverse Effect and no material expenditures are or will be
required in order to comply with any such existing Laws.
4.21 INVESTMENT COMPANY ACT. The Company is not, nor is it
directly or indirectly controlled by or acting on behalf of, any Person that is
an investment company within the meaning of the Investment Company Act of 1940,
as amended.
4.22 AFFILIATE TRANSACTIONS. SCHEDULE 4.22 sets forth each
Affiliate Transaction of the Company and its Subsidiaries, including the
parties, material terms (including amounts due from the Company (or a
Subsidiary) or owed to the Company (or a Subsidiary)), restrictions and
obligations of the Company and its Subsidiaries in connection with each such
Affiliate Transaction. Each such Affiliate Transaction is on an arm's-length
basis and on terms no less favorable to the Company or a Subsidiary than could
be obtained from non-related parties. The Company has delivered or otherwise
made available to the Purchasers true, correct and complete copies of all
written Contracts relating to such Affiliate Transactions, together with all
amendments, modifications, supplements or side letters affecting the obligations
of any party thereunder.
4.23 DISCLOSURE; SURVIVAL. There is no fact which has not
been disclosed to the Purchasers of which the Company has knowledge and which
has had or could reasonably be anticipated to result in a Material Adverse
Change. All representations and warranties set forth in this Agreement or in any
writing or certificate delivered in connection with this Agreement shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby for a period of sixty (60) days after delivery
of audited financial statements for 1999 (the "SURVIVAL PERIOD") and shall not
be affected by any examination made for or on behalf of the Purchasers, the
knowledge of the Purchasers, or the acceptance by the Purchasers of any
certificate or opinion.
4.24 INSURANCE. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility, insuring
the Company, its Subsidiaries and their respective properties, business and
projects against such losses and risks, and in such amounts, as are customary in
the case of corporations of established reputation engaged in the same or
similar business and similarly situated. Neither the Company nor any Subsidiary
has been refused any insurance coverage sought or applied for, and the Company
has no reason to believe that the Company and its Subsidiaries will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the Company
or the applicable Subsidiary. SCHEDULE 4.24 sets forth a list of each insurance
policy (specifying the insurer, the amount of coverage, the type of insurance,
the policy number, the expiration date, the annual premium (current and for each
of the last three (3) years) and any pending claims thereunder) maintained by
the Company and its Subsidiaries relating to its properties, assets, business or
personnel, and each inspection report or recommendation, if any,
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during the last three (3) years as to the conditions of the properties and
assets owned, leased, occupied or operated by it or the conduct of its business.
Except as disclosed on SCHEDULE 4.24, neither the Company nor any Subsidiary is
in default in any material respect with respect to any provision contained in
any insurance policy maintained by the Company or any of its Subsidiaries, and
neither the Company nor any Subsidiary has failed to give any notice or present
any presently existing claims under any insurance policy in due and timely
fashion.
4.25 CUSTOMERS AND SUPPLIERS. SCHEDULE 4.25 sets forth a list
of the ten (10) largest customers and the ten (10) largest suppliers of the
Company and its Subsidiaries and the dollar amount of purchases or sales which
each such customer or supplier represents. There exists no actual or, to the
knowledge of the Company, threatened termination or cancellation of the business
conducted by the Company or any Subsidiary with any customer, supplier or group
of customers or group of suppliers set forth on SCHEDULE 4.25.
4.26 YEAR 2000. Each item of hardware, software, information
technology, embedded, or processor based system and/or any combination thereof,
used, developed, manufactured, distributed, licensed, transferred or delivered,
by the Company or any of its Subsidiaries (collectively, the "SYSTEM"), shall be
able to correctly function, operate, process data or perform date related
calculations, including, but not limited to, calculating, comparing and
sequencing, from, into and between the years 1999 and 2000, accurately process,
provide and/or receive date data, including leap year calculations, into and
between the years 1999, 2000 and beyond, shall otherwise function as per the
specifications thereof before, during and following January 1, 2000. Neither
performance nor functionality of the System shall be affected by dates prior to,
during and after January 1, 2000. A System containing or calling on a calendar
function including, without limitation, any function indexed to the CPU clock,
and any function providing specific dates or days, or calculating spans of dates
or days shall record, store, process, provide and, where appropriate, insert,
true and accurate dates and calculations for dates and spans, before, during and
following January 1, 2000. The System shall have no lesser functionality or
operability with respect to records containing dates, before, during or after
January 1, 2000 than heretofore with respect to dates prior to January 1, 2000.
The System shall be fully interoperable and interface with any and all other
systems, software and/or hardware used by the Company, its Subsidiaries and
their respective customers before, during or after January 1, 2000, and/or
otherwise exchange data, including date related data therewith.
4.27 FINANCIAL ADVISORS. Except as set forth in SCHEDULE
4.27, no agent, broker, investment banker, finder, financial advisor or other
Person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from the Company, directly or indirectly, in
connection with the transactions contemplated by this Agreement or any
Transaction Document and no Person is entitled to any fee or commission or like
payment from the Company in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Company.
4.28 CONDITION OF PROPERTIES. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company and its Subsidiaries are in good operating condition and repair, are
reasonably fit and usable for the purposes for which they are being used, are
adequate and sufficient for the Company and its Subsidiaries' respective
businesses and conform in all material respects with all applicable Laws.
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4.29 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL
CONTRIBUTIONS. The operations and practices of the Company and its Subsidiaries
have been conducted at all times during the past five (5) years in compliance
with the provisions of the United States Foreign Corrupt Practices Act of 1977,
as amended.
4.30 PENDING CHANGES. To the actual knowledge of the Company,
there is no pending or threatened change in any Law which materially affects or
could materially affect the Company or the business, assets, liabilities,
prospects, properties, results of operations or condition (financial or
otherwise) of the Company or its Subsidiaries.
4.31 SECURITIES LAWS. The Company has complied with all
applicable U.S. federal and state securities laws in connection with the offer,
issuance and sale of the Preferred Shares. Prior to the Closing, neither the
Company nor anyone acting on its behalf has sold, offered to sell or solicited
offers to buy the Preferred Shares or similar securities to, or solicit offers
with respect thereto from, or entered into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Preferred Shares under the registration provisions of the Securities
Act, and applicable state securities laws. Neither the Company nor any Person
acting on its behalf has offered the Preferred Shares to any Person by means of
general or public solicitation or general or public advertising, such as by
newspaper or magazine advertisements, by broadcast media, or at any seminar or
meeting whose attendees were solicited by such means.
4.32 BACKLOG. SCHEDULE 4.32 sets forth a list of Revenue and
Customer "Backlog" by customer as of July 31, 1999. Such list has been
accurately compiled, is true, correct and complete insofar as it purports to
reflect revenues actually generated, and represents the best good faith forecast
of the Company insofar as it purports to forecast revenues for periods after the
date hereof.
4.33 ACCOUNTS RECEIVABLE. The accounts receivable of the
Company and its Subsidiaries were created in the ordinary course of business
and, to the Company's knowledge, are fully collectible, without offset or other
deduction, subject to appropriate reserves in accordance with GAAP applied on a
consistent basis. SCHEDULE 4.33 sets forth a good faith estimate of the accounts
receivable of the Company and its Subsidiaries as of July 31, 1999.
4.34 REGISTRATION RIGHTS. Except for the rights granted under
the Transaction Documents, no Person has demand or other rights to cause the
Company to file any registration statement under the Securities Act relating to
any securities of the Company or any right to participate in any such
registration statement.
4.35 BOOKS AND RECORDS. The books of account, ledgers, order
books, records and documents of the Company and its Subsidiaries accurately and
completely reflect all material information relating to the business of the
Company or the applicable Subsidiary, the location and collection of its assets,
and the nature of all transactions giving rise to the obligations or accounts
receivable of the Company or the applicable Subsidiary.
4.36 PFIC. The Company is not a "passive foreign investment
company" within the meaning of Section 1297 of the Code.
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4.37 SIGNATURE PAGES. Notwithstanding anything in this
Article 4 to the contrary, the representations and warranties made as of the
date hereof (but not as of the Closing Date) in Sections 4.2 and 4.4 are subject
to the receipt by the Company of signature pages to the relevant consents and
authorizations referred to therein.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company that:
5.1 CAPACITY; AUTHORIZATION. Such Purchaser has all legal
capacity to enter into this Agreement and to carry out its obligations
hereunder. Assuming due execution and delivery by the Company of this Agreement,
this Agreement will constitute a legal, valid and binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.2 INVESTMENT PURPOSES. (a) Such Purchaser is acquiring the
Preferred Shares it has agreed to purchase for investment purposes only, for its
own account, and not as nominee or agent for any other Person, and not with a
view to, or for resale in connection with, any distribution thereof within the
meaning of the Securities Act, (b) it understands and acknowledges that the
Preferred Shares have not been registered under the Securities Act or any other
securities laws, (c) it is not an "affiliate" (as defined in Rule 144 under the
Securities Act) of the Company, (d) it has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, (e) it is an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Securities Act, (f) the Company has made
available to it the opportunity to ask questions and to receive answers, and to
obtain information necessary to evaluate the merits and risks of this
investment, (g) such Purchaser understands, acknowledges and agrees that the
Preferred Shares have not been registered under (and that the Company has no
present intention to register the Preferred Shares under) the Securities Act or
applicable state securities laws, and may not be sold or otherwise transferred
by the Purchasers to a United States person unless the Preferred Shares have
been registered under the Securities Act and applicable U.S. state securities
laws or are sold or transferred in a transaction exempt therefrom, and (h) no
broker has acted on behalf of such Purchaser in connection with this Agreement,
and there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection therewith based on any agreement, arrangement
or understanding with such Purchaser or any action taken by such Purchaser.
5.3 PAYMENT OF PURCHASE PRICE. Such Purchaser has available
resources in order to pay to the Company the purchase price for the Preferred
Shares in accordance with the terms and conditions of this Agreement.
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6. FURTHER AGREEMENTS OF THE PARTIES.
6.1 RESERVED SHARES. For so long as the Preferred Shares are
convertible, the Company shall reserve that number of Common Shares issuable
upon conversion of the Preferred Shares, which shares shall not be subject to
any preemptive or other similar rights.
6.2 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Preferred Shares under this Agreement for the following
purposes: advertising, brand positioning and development, production of
proprietary and third-party content, product and technology development,
expansion of local sales operations, general corporate purposes and such other
purposes as are discussed in the Private Placement Memorandum.
6.3 ACCESS TO INFORMATION. The Purchasers and their
Representatives shall be entitled, upon reasonable notice, and at their own
expense, to make such investigation of the properties, business and operations
of the Company and such examination of the books, records and financial
condition of the Company as they reasonably request and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances
without material interference with the Company's normal business operations, and
the Company and its Representatives shall cooperate fully therein. No
investigation by the Purchasers or their Representatives prior to or after the
date of this Agreement shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Company contained in this Agreement
or the Transaction Documents. In order that the Purchasers may have full
opportunity to make such physical, business, accounting and legal review,
examination of the affairs of the Company and investigation as may be reasonably
requested, the Company shall cause its Representatives to cooperate fully with
the Representatives of the Purchasers in connection with such review and
examination.
6.4 CONFIDENTIALITY. Except as may be required by applicable
Law or as otherwise agreed among the parties hereto, neither the Company, the
Purchasers nor any of their respective Affiliates shall at any time divulge,
disclose, disseminate, announce or release any information to any Person
concerning this Agreement, the Transaction Documents, the transactions
contemplated hereby or thereby, any trade secrets or other confidential
information of the Company or the Purchasers, without first obtaining the prior
written consent of the other parties hereto; PROVIDED, HOWEVER, that the parties
shall be entitled to disclose information with respect to the Purchasers'
investment in the Company on any reports the Purchasers furnish to their
investors or as otherwise required by Law. The provisions of this Section 6.4
shall not apply to Intel Atlantic, Inc., whose obligations with respect to the
treatment of such information, including Corporate Information (as defined in
Section 9.9), are set forth in EXHIBIT F hereto.
6.5 OTHER ACTIONS. The Company and the Purchasers agree to
execute and deliver such other documents and take such other actions as the
other parties may reasonably request for the purpose of carrying out the intent
of this Agreement and the Transaction Documents.
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6.6 YEAR 2000 COVENANT. The Company undertakes to promptly
inform the Purchasers of any material deficiency or expected cost in complying
with the "Year 2000" problem.
6.7. INDEMNITY.
(a) The Company agrees to indemnify, defend and hold
harmless the Purchasers (and their partners (and each officer and director
thereof), directors, officers, members, stockholders, Employees, Affiliates,
agents and permitted assigns) from and against any and all losses, claims,
liabilities, damages, deficiencies, costs or expenses (including interest,
penalties, and reasonable attorneys' fees, disbursements and related charges)
(collectively, "LOSSES") based upon, arising out of or otherwise in respect of
any inaccuracy in or breach of any representations, warranties, covenants or
agreements of the Company contained in this Agreement or the Transaction
Documents; provided, however, that the Purchasers shall have no right to
indemnification hereunder unless and until its Losses, when aggregated with any
and all other Losses which the Purchasers may have against the Company, exceed
$250,000. The provisions of this Section 6.7(a) shall survive the termination of
this Agreement for a period equal to the Survival Period.
(b) Each Purchaser agrees, severally and not jointly, to
indemnify, defend and hold harmless the Company (and its directors, officers,
members, Employees, Affiliates, agents and permitted assigns) from and against
any and all Losses based upon, arising out of or otherwise in respect of any
inaccuracy in or breach by it of any representations, warranties, covenants or
agreements of such Purchaser (and no other) contained in this Agreement.
6.8 OTHER AFFIRMATIVE COVENANTS OF THE COMPANY. Without
limiting any other covenants and provisions hereof, the Company covenants and
agrees that until the consummation of a Qualifying IPO, it will perform and
observe the following covenants and provisions, and will cause each Subsidiary,
if and when such Subsidiary exists, to perform and observe such of the following
covenants and provisions as are applicable to such Subsidiary:
(a) The Company shall pay and discharge, and cause each
Subsidiary to pay and discharge, all Taxes, assessments and governmental charges
or levies imposed upon it or upon its income, profits or business, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, might become a Lien or charge upon any
properties of the Company or any Subsidiary, PROVIDED that neither the Company
nor any Subsidiary shall be required to pay any such Tax, assessment, charge,
levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or any Subsidiary shall have set aside on its books
sufficient reserves, if any, with respect thereto. The Company shall pay and
cause each Subsidiary to pay, when due, or in conformity with customary trade
terms, all lease obligations, all trade debt, and all other indebtedness
incident to the operations of the Company or its Subsidiaries, except such as
are being contested in good faith and by proper proceedings if the Company or
Subsidiary concerned shall have set aside on its books sufficient reserves, if
any, with respect thereto.
(b) The Company shall maintain insurance with a reputable
insurance company or association in such amount and covering such risks as is
customary coverage
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covering its properties and businesses customarily carried by companies engaged
in similar businesses and owning similar properties in the same general areas in
which the Company or any Subsidiary operates for the type and scope of its
properties and businesses and the Company shall maintain, and cause each
Subsidiary to maintain, such insurance. The Company will not cause or permit any
assignment of the proceeds of the life insurance policies specified in the first
sentence of this paragraph and will not borrow against such policies. The
Company will add the Purchasers as a notice party to such policies and will
request that the issuer(s) of such policies provide such designee with at least
ten (10) days' notice before either such policy is terminated (for failure to
pay premiums or otherwise) or assigned, or before any change is made in the
designation of a beneficiary thereof.
(c) The Company shall preserve and maintain (except where
noncompliance will not result in a Material Adverse Effect) and, unless the
Company deems it not to be in its best interests, cause each Subsidiary to
preserve and maintain, its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties. The Company shall use commercially reasonable best
efforts to secure, preserve and maintain (except where noncompliance will not
result in a Material Adverse Effect) and cause each Subsidiary to use
commercially reasonable best efforts to secure, preserve and maintain (except
where noncompliance will not result in a Material Adverse Effect), all licenses
and other rights to use patents, processes, licenses, Permits, trademarks, trade
names, inventions, intellectual property rights or copyrights owned or possessed
by it and deemed by the Company to be material to the conduct of its business or
the business of any Subsidiary.
(d) The Company shall comply (except where noncompliance
will not result in a Material Adverse Effect), and cause each Subsidiary to
comply, with the requirements of all applicable Laws and Orders of any
Governmental Body, where noncompliance would have a Material Adverse Effect.
(e) The Company shall keep, and cause each Subsidiary to
keep, adequate records and books of account in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company and any Subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, returns of merchandise,
obsolescence, amortization, Taxes, bad debts and other purposes in connection
with its business shall be made.
(f) The Company shall use commercially reasonable best
efforts to maintain and preserve, and cause each Subsidiary to use commercially
reasonable best efforts to maintain and preserve, all of its properties and
assets, necessary for the proper conduct of its business, in good repair,
working order and condition, ordinary wear and tear excepted, including, without
limitation, the maintenance and preservation of any material patents, licenses,
Permits or agreements being used by the Company in its business as now operated
and as now proposed to be operated.
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(g) The Company shall promptly, fully and in detail, inform
the Board of Directors of any substantive discussions, offers or contracts
relating to possible financings of any nature for the Company, whether initiated
by the Company or any other Person, except for (i) arrangements with trade
creditors, and (ii) utilization by the Company or any Subsidiary of commercial
lending arrangements with financial institutions.
(h) The Company shall at all times maintain provisions in
its Memorandum of Association and Articles of Association indemnifying all
directors against liability to the maximum extent permitted under the laws of
the British Virgin Islands.
6.9 ISSUANCE OF ADDITIONAL PREFERRED SHARES. Without the
consent of the Purchasers, the Company shall not issue any Preferred Shares
(other than the issuance and sale of Preferred Shares pursuant to this
Agreement) to any Person that is not named in the definition of "Strategic Sale"
contained in the Memorandum of Association.
6.10 WAIVER. Each Purchaser hereby irrevocably waives its
right to include any of its Preferred Shares in the Company's proposed
registration statement on Form F-1, which the Company expects to be declared on
or about November 30, 1999.
7. OTHER OBLIGATIONS OF THE PARTIES.
7.1 CERTAIN NOTIFICATIONS. At all times prior to the
Closing, each party hereto shall as promptly as reasonably practicable notify
the others in writing of the occurrence of any event of which it obtains
knowledge which will result, or in the opinion of such party has a reasonable
prospect of resulting, in the failure to satisfy the conditions specified in
Section 8 hereof.
7.2 PUBLIC ANNOUNCEMENTS. The parties hereto agree to
consult promptly with each other prior to issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law.
7.3 FURNISHING INFORMATION. Each of the parties hereto will,
as soon as practicable after reasonable request therefor, furnish all the
information concerning it required for inclusion in any statement or application
made by any of them to any governmental or regulatory body in connection with
the transactions contemplated by this Agreement.
8. CONDITIONS TO CLOSING.
8.1 CONDITIONS OF OBLIGATIONS OF THE PURCHASERS. The
obligation of the Purchasers to purchase and pay for the Preferred Shares which
it has agreed to purchase on the Closing Date is subject to the fulfillment in
all material respects prior to or on the Closing Date of the following
conditions, any of which may be waived in whole or in part by the Purchasers:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company under this Agreement shall be deemed to have been made
again on the Closing Date
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(other than those representations and warranties made expressly as of a date
prior to the Closing Date) and shall then be true and correct.
(b) COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by the Company on or before the
Closing Date.
(c) APPROVALS. The Company shall have obtained any and all
consents, waivers, approvals or authorizations, with or by any Governmental Body
or any other Person required for the valid execution of this Agreement and the
transactions contemplated hereby.
(d) NO INJUNCTION. No Governmental Body or any other Person
shall have issued an Order which shall then be in effect restraining or
prohibiting the completion of the transactions contemplated hereby, nor shall
any such Order be threatened or pending.
(e) NO MATERIAL ADVERSE CHANGE. Since December 31, 1998,
there shall not have been a Material Adverse Change.
(f) CERTIFICATE OF OFFICER. The Company shall have delivered
to the Purchasers a certificate dated the Closing Date, executed by its Chief
Executive Officer, certifying the satisfaction of the conditions specified in
paragraphs (a), (b), (c), (d), (e) and (h) of this Section 8.1.
(g) OPINIONS OF THE COMPANY'S COUNSEL. The Purchasers shall
have received from Paul, Hastings, Janofsky & Walker, LLP, U.S. counsel for the
Company, and from Conyers, Dill & Pearmen, British Virgin Islands counsel for
the Company, favorable opinions dated the Closing Date, in form and substance
satisfactory to the Purchasers and their counsel.
(h) MEMORANDUM AND ARTICLES. The Amended and Restated
Memorandum of Association and the Amended and Restated Articles of Association
providing for the terms, preferences, designations and other rights of the
Preferred Shares set forth in Exhibit C hereto shall have been duly adopted and
executed and filed with the appropriate authorities in the British Virgin
Islands. The Amended and Restated Memorandum of Association and the Amended and
Restated Articles of Association shall be in full force and effect as of the
Closing under the laws of the British Virgin Islands and shall not have been
further amended or modified. The Company shall not have adopted or filed any
other document designating terms, relative rights or preferences of the
Preferred Shares. A certified copy of the Amended and Restated Memorandum of
Association and the Amended and Restated Articles of Association shall have been
delivered to counsel for the Purchasers.
(I) AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AND
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT. The Purchasers shall have received
from each of the parties thereto (other than the Purchasers) executed versions
of the Amended and Restated Shareholders Agreement and the Amended and Restated
Registration Rights Agreement on the Closing Date, in the form attached hereto
as Exhibits D and E.
(J) SUPPORTING DOCUMENTS. The Purchasers shall have received
the following:
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(i) Copies of resolutions of the Board and the members of
the Company, certified by the Secretary of the Company, authorizing and
approving the amendments to the Amended and Restated Memorandum of Association
and the Amended and Restated Articles of Association set forth in Exhibit C and,
as to the Board, the execution, delivery and performance of this Agreement and
the Transaction Documents and the issuance of the Preferred Shares, the forms of
share certificates, and all other documents and instruments to be delivered
pursuant hereto and thereto;
(ii) A copy of the consent executed by holders of a majority
of the shares of the Class A Preferred Stock issued and outstanding as of the
date hereof consenting to the issuance of the Preferred Shares pursuant to this
Agreement; and
(iii) A certificate of incumbency executed by the Secretary of
the Company certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in subparagraph (I) above and
further certifying that the Amended and Restated Memorandum of Association and
the Amended and Restated Articles of Association of the Company, as amended in
accordance with Exhibit C and delivered to the Purchasers at the time of the
execution of this Agreement have been validly adopted and have not been further
amended or modified.
(k) UPDATING OF INFORMATION. The Company shall have promptly
delivered to the Purchasers any information concerning events subsequent to the
date of this Agreement which is necessary to supplement the information
contained in or made a part of the representations and warranties contained
herein, including the schedules provided in connection with this Agreement, or
delivered by the Company pursuant to any of the covenants contained herein, in
order that the information contained herein or so delivered be complete and
accurate in all material respects as of the Closing Date. Notwithstanding the
preceding sentence, for purposes of determining the parties' rights and
obligations under this Agreement, the schedules delivered by the Company shall
be deemed to include only that information contained therein on the date of this
Agreement.
8.2 CONDITIONS OF COMPANY'S OBLIGATIONS. The Company's
obligation to issue and sell the Preferred Shares to the Purchases on the
Closing Date is subject to the fulfillment prior to or on the Closing Date of
the flowing conditions, any of which may be waived in whole or in part by the
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers under this Agreement shall be deemed to have been
made again on the Closing Date and shall then be true and correct in all
material respects.
(b) COMPLIANCE WITH AGREEMENT. Each of the Purchasers shall
have performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by such Purchaser on or before the
Closing.
(c) APPROVALS. Each of the Purchasers shall have obtained
any and all consents, waivers, approvals, Permits or authorizations, with or by
any Governmental Body
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or any other Person required for the valid execution of this Agreement and the
transactions contemplated hereby.
(d) PAYMENT OF PURCHASE PRICE. Each Purchaser shall have
delivered its Purchase Price specified in Section 2.1 hereof.
(e) NO INJUNCTION. No Governmental Body or any other Person
shall have issued an Order which shall then be in effect restraining or
prohibiting the completion of the transactions contemplated hereby, nor shall
any such Order be threatened or pending.
9. MISCELLANEOUS.
9.1 CERTAIN DEFINITIONS.
"AFFILIATE" of any Person means any Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "CONTROL" (including with its correlative
meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through ownership
of securities or partnership or other ownership interests, by contract or
otherwise).
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"COMMON SHARES" means the ordinary shares, par value $0.01 per
share, of the Company.
"CONTRACT" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sales contract, mortgage, license,
franchise, insurance policy, commitment or other arrangement or agreement,
whether written or oral.
"DOLLARS" or "$" means the currency of the United States or
its foreign currency equivalent at the time the determination is made.
"EMPLOYEE" means any current employee, office consultant,
independent contractor, agent, officer or director of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
"GAAP" means generally accepted accounting principles, as in
effect in the United States.
"GOVERNMENTAL BODY" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof, or
any court or arbitrator (public or private).
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"LAW" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement or guideline.
"LEGAL PROCEEDING" means any judicial, administrative or
arbitral actions, suits, proceedings (public or private), claims or governmental
proceedings.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to give any financing statement under the
Uniform Commercial Code (or similar laws) of any jurisdiction and including any
lien or charge arising by statute or other law.
"MATERIAL ADVERSE CHANGE" means any material adverse change in
the business, assets, liabilities, prospects, properties, results of operations
or condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole.
"MATERIAL ADVERSE EFFECT" means any event, circumstance,
condition, fact, effect, or other matter which has had or could reasonably be
expected to have a material adverse effect (i) on the business, assets,
liabilities, prospects, properties, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole or
(ii) on the ability of the Company and such subsidiaries to perform on a timely
basis any material obligation under this Agreement or to consummate the
transactions contemplated hereby.
"ORDER" means any order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award.
"PERMITS" means any approvals, authorizations, consents,
licenses, permits or certificates by or of any Governmental Body.
"PERMITTED LIENS" shall mean (a) Liens for ad valorem real or
personal property taxes or assessments not at the time due and (b) Liens in
respect of pledges or deposits under workers' compensation laws or similar
legislation, carriers', warehousemen's, mechanics', laborers', and materialmen's
and similar liens, if the obligations secured by such Liens are not then
delinquent.
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"QUALIFYING IPO" means an underwritten initial public offering
of Common Shares of the Company pursuant to an effective registration statement
under the Securities Act, as then in effect (or any comparable statement under
any similar federal statute then in force or effect) in which the net proceeds
to the Company are equal to or greater than $35.0 million.
"REGISTER" means to register under the Securities Act and
applicable state securities laws for the purpose of effecting a public sale of
securities.
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"REPRESENTATIVES" of a Person means its officers, Employees,
agents, legal advisors and accountants.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time.
"TAXES" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, share capital, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value-added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
9.2 EXPENSES.
(a) At the Closing, the Company shall reimburse the
Purchasers for the reasonable out-of-pocket fees and expenses incurred by the
Purchasers in connection with the transactions contemplated hereby. The Company
agrees that such fees and expenses incurred through the Closing Date may be
deducted by the Purchasers from the Purchase Price payable at the Closing.
(b) The Company shall pay its own other out-of-pocket
expenses and all stamp and other Taxes which may be payable in respect of the
execution and delivery of this Agreement, the Transaction Documents, or the
issuance, delivery or acquisition of the Preferred Shares.
(c) The Company further agrees to reimburse the Purchasers
on demand for the Purchasers' reasonable out-of-pocket fees and expenses
incurred in connection with any amendment to or waiver or enforcement of this
Agreement.
9.3 SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the breach of this Agreement would cause
irreparable damage to the other parties hereto and that the other parties hereto
will not have an adequate remedy at law. Therefore, the obligations of each of
the parties hereto under this Agreement shall be enforceable by a decree of
specific performance issued by any court of competent jurisdiction, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
9.4 FURTHER ASSURANCES. The Company and the Purchasers agree
to execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
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9.5 SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) The parties hereto hereby irrevocably submit to the
non-exclusive jurisdiction of any federal or state court located within the
Borough of Manhattan, State of New York over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or any suit, action or proceeding related thereto may be heard and determined in
such courts. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or hereafter have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding by
the mailing of a copy thereof in accordance with the provisions of Section 8.10
hereof.
9.6 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
(including the schedules and exhibits hereto) represents the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof and can be amended, supplemented or changed, and any provision
hereof can be waived, only by written instrument making specific reference to
this Agreement signed by the parties hereto. No action taken pursuant to this
Agreement, including without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representation, warranty, covenant or agreement
contained herein. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a further or continuing
waiver of such breach or as a waiver of any other or subsequent breach. No
failure on the part of any party to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of such right, power or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
9.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflict of laws thereunder which would specify the
application of the law of another jurisdiction.
9.8 HEADINGS; INTERPRETIVE MATTERS. The section headings of
this Agreement are for reference purposes only and are to be given no effect in
the construction or interpretation of this Agreement. No provision of this
Agreement will be interpreted in favor of, or against, any of the parties hereto
by reason of the extent to which any such party or its counsel participated in
the drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
9.9 CONFIDENTIALITY. Each party hereto (other than Intel
Atlantic, Inc.) covenants and agrees to treat any non-public information
provided to it by the Company concerning the business and finances of the
Company ("Corporate Information") as confidential and agrees further that it
will not use, exploit, reproduce, disclose or provide Corporate
24
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Information to any third-party (other than any agents of the parties who are
bound by substantially similar obligations of confidentiality) on its own behalf
or otherwise, except with the consent of the Company or as required by law,
legal process or any federal or state regulatory body having jurisdiction over
such party. The provisions of this Section 9.9 shall not apply to any
information which:
(a) was within the public domain prior to the time of
disclosure of Corporate Information to the receiving party or which comes into
the public domain other than as a result of a breach by the party of this
Section 9.9;
(b) was in the possession of the receiving party or any of
its officers, directors, employees, agents, principals, or Affiliates) before
the receiving party received the Corporate Information;
(c) was rightfully acquired by the receiving party from a
third party without, to the knowledge of the receiving party, any restriction or
any obligation of confidentiality; or
(d) was independently developed by the receiving party
without any use or reference to the Corporate Information.
The provisions of this Section 9.9 shall survive the
termination of this Agreement, either in whole or as to any party, for a period
of two (2) years.
9.10 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally, telecopied or mailed by certified mail, return receipt requested, to
the parties at the address or telecopier number indicated in the signature pages
hereof.
All notices are effective upon receipt or upon refusal if
properly delivered.
9.11 SEVERABILITY. If any provision of this Agreement is
invalid or unenforceable, the balance of this Agreement shall remain in effect.
9.12 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. Nothing in this Agreement shall create or be
deemed to create any third-party beneficiary rights in any Person not a party to
this Agreement except as provided below. No assignment of this Agreement or of
any rights or obligations hereunder may be made by the Company or the Purchasers
(by operation of law or otherwise) without the prior written consent of the
other parties hereto and any attempted assignment without the required consents
shall be void; PROVIDED, HOWEVER, that any of the Purchasers may assign this
Agreement and any or all of its rights and obligations hereunder, in whole or in
part, to any of its Affiliates, but any such assignment shall not relieve such
Purchaser of its obligations hereunder. In addition, and whether or not any
express assignment has been made, the provisions of this Agreement which are for
the benefit of the Purchasers as purchasers or holders of Preferred Shares (or
any securities pursuant to which such Preferred Shares may be converted or
exercised into) are also for the benefit of and enforceable by, any subsequent
holder of such Preferred Shares who
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acquires the lesser of (i) $5,000,000 in original purchase price value of the
Preferred Shares other than pursuant to open-market purchases or (ii) fifty
percent (50%) of the number of Preferred Shares purchased by the Purchasers
pursuant hereto. Upon any permitted assignment, the references in this Agreement
to the Purchasers shall also apply to any such assignee unless the context
otherwise requires.
9.13 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
[The rest of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed or have
caused this Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first written above.
EL SITIO, INC.
By: /s/ Horacio Milberg
-------------------------------------
Title: Chief Financial Officer
Notice address:
Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attention: Roberto Cibrian-Campoy
Telephone: (54 11) 4343-6700
Telecopier: (54 11) 4343-2355
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022
Attention: Neil A. Torpey
Telephone: (212) 318-6034
Telecopier: (212) 318-4090
[Signature Page to Share Purchase Agreement - El Sitio, Inc.]
<PAGE>
UTILITIVEST II, L.P.
By: Utilitivest II, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest II, L.L.C.
Notice address:
Globalvest Management Company
6000 Estate Charlotte Amalie
Suite 4
St. Thomas, VI 00802
Telephone - 340-775-8009
[email protected]
UTILITIVEST III, L.P.
By Utilitivest III, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest III, L.L.C.
Notice address:
Globalvest Management Company
6000 Estate Charlotte Amalie
Suite 4
St. Thomas, VI 00802
Telephone - 340-775-8009
[email protected]
[Signature Page to Share Purchase Agreement - El Sitio, Inc.]
<PAGE>
INTEL ATLANTIC, INC.
By: /s/ Arvind Sodhani
-------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
Notice address:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M&A Portfolio Manager-M/S RN6-46
Fax Number: (408) 765-6038
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
Fax Number: (408) 765-1859
[Signature Page to Share Purchase Agreement - El Sitio, Inc.]
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Class B Percentage of Class B
NAME PREFERRED SHARES PREFERRED SHARES PURCHASE PRICE
<S> <C> <C> <C>
Utilitivest II, L.P. 333,333 30% $3,000,000
Utilitivest III, L.P. 222,222 20% $2,000,000
Intel Atlantic, Inc. 555,556 50% $5,000,000
</TABLE>
<PAGE>
EXHIBIT F
November 9, 1999
Intel Atlantic, Inc.
2200 Mission College Blvd.
Santa Clara, CA 95052
In consideration of the purchase by Intel Atlantic, Inc. ("Intel") of
555,555.55 shares of Class B Preferred Stock of El Sitio, Inc. ("Company"),
pursuant to a Share Purchase Agreement dated November 9, 1999 (the "Purchase
Agreement"), Company and Intel agree to the terms and obligations of this letter
agreement ("Agreement").
1. CONFIDENTIALITY
(a) DISCLOSURE OF TERMS. The terms and conditions of this Agreement,
the Purchase Agreement, the Amended and Restated Shareholders Agreement, dated
November 9, 1999 and the Amended and Restated Registration Rights Agreement,
dated November 9, 1999 (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by the Company to any third party except in accordance with the
provisions set forth below.
(b) PRESS RELEASES, ETC. Within sixty (60) days after the closing of
the transactions contemplated by the Purchase Agreement, the Company may issue a
press release disclosing that the Investors, including Intel, have invested in
the Company; provided that the release does not disclose any of the Financing
Terms and the final form of the press release is approved in advance in writing
by Intel. Intel's name and the fact that Intel is an investor in the Company can
be included in a reusable press release boilerplate statement, so long as Intel
has given the Company its initial approval of such boilerplate statement and the
boilerplate statement is reproduced in exactly the form in which it was
approved. No other announcements regarding Intel in a press release, conference,
advertisement, announcement, professional or trade publication, mass marketing
materials or otherwise to the general public may be made without Intel's prior
written consent.
(c) PERMITTED DISCLOSURES. Notwithstanding the foregoing, (i) the
Company may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) the Company may disclose (other than
in a press release or other public announcement described in subsection (b))
solely the fact that Intel is an investor in the Company to any third parties
without the requirement for the consent of any other party or nondisclosure
obligations; and (iii) Intel may disclose its investment in the Company and the
Financing Terms to third parties or to the public at its sole discretion and, if
it does so, the Company shall have the right to disclose to third parties any
such information disclosed in a press release or other public announcement by
Intel.
[Signature Page to Share Purchase Agreement]
<PAGE>
(d) LEGALLY COMPELLED DISCLOSURE. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of the agreements
referenced in paragraph (a) above or any of the Financing Terms hereof in
contravention of the provisions of this letter, the Company shall provide Intel
with prompt written notice of that fact so that the appropriate party may seek
(with the cooperation and reasonable efforts of the other) a protective order,
confidential treatment or other appropriate remedy. In such event, the Company
shall furnish only that portion of the information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such information to the extent reasonably requested
by Intel.
(e) OTHER INFORMATION. The provisions of this Letter Agreement shall be
in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel Corporation or Intel
Atlantic, Inc. shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 7626010, dated October 18, 1999, executed by the Company and Intel
Corporation, and any Confidential Information Transmittal Records (CITR)
provided in connection therewith.
(f) All notices required under this section shall be made pursuant to
Section 8.10 of the Purchase Agreement.
2. MISCELLANEOUS.
2.1 DEFINITIONS. All capitalized terms used but not otherwise defined
in this Agreement have the meaning defined for such terms in the Purchase
Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
2.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
2.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
modified without the written consent of Intel and the Company, nor shall any
waiver be effective against any party unless in a writing executed on behalf of
such party.
2.5 SEVERABILITY. If any provision of this Agreement shall be declared
void or unenforceable by any judicial or administrative authority, the validity
of any other provision and of the entire Agreement shall not be affected
thereby.
<PAGE>
The parties hereto have executed this Agreement on the day and year first
written above.
EL SITIO, INC. INTEL ATLANTIC, INC.
By: By:
------------------------ ------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
------------------------ ------------------------
<PAGE>
Exhibit 10.23
================================================================================
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and among
EL SITIO, INC.,
THE HOLDERS OF ITS CLASS A CONVERTIBLE PREFERRED SHARES,
and
THE HOLDERS OF ITS CLASS B CONVERTIBLE PREFERRED SHARES
November 9, 1999
================================================================================
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated
as of November 9, 1999, is entered into by and among El Sitio, Inc., an
international business company organized under the laws of the British Virgin
Islands (the "Company"), the holders of the Company's Class A Convertible
Preferred Shares, par value $0.01 per share (the "Class A Preferred Shares"),
and the holders of the Company's Class B Convertible Preferred Shares, $0.01 par
value per share (the "Class B Preferred Shares" and, together with the Class A
Preferred Shares, the "Preferred Shares") (such holders, collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, certain holders of the Company's Class A Preferred
Shares (the "Class A Shareholders") and the Company entered into a Registration
Rights Agreement dated July 2, 1999, as amended by Amendment No. 1 to the
Registration Rights Agreement dated October 6, 1999 (the "Original Registration
Rights Agreement");
WHEREAS, on the date hereof (the "Closing"), the purchasers of
the Class B Preferred Shares (the "Class B Shareholders") are purchasing the
Class B Preferred Shares;
WHEREAS, concurrently herewith, the Shareholders have executed
an Amended and Restated Shareholders' Agreement relating to board
representation, transfers and other matters in relation to their holding of the
Preferred Shares (the "Shareholders' Agreement"); and
WHEREAS, in order to induce the Class B Shareholders to make
the purchases described above, and in connection with such purchases to protect
the rights of all of the Shareholders, the Shareholders and the Company wish to
establish certain agreements relating to the grant by the Company to the
Shareholders of registration and other related rights pursuant to this Amended
and Restated Registration Rights Agreement and to amend certain provisions of
the Original Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises, mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the following terms shall
have the respective meanings set forth below:
"Affiliate" means, with respect to any person, (i) any other
person of which securities or other ownership interests representing more than
fifty percent (50%) of the voting interests are, at the time such determination
is being made, owned, Controlled or held, directly or indirectly, by such
person, or (ii) any other person which, at the time such determination is being
made, is Controlling, Controlled by or under common Control with, such person.
As used herein, "Control," whether used as a noun or verb, refers to the
possession, directly or indirectly,
1
<PAGE>
of the power to direct, or cause the direction of, the management or policies of
a person, whether through the ownership of voting securities or otherwise.
"Agreement" means this Amended and Restated Registration
Rights Agreement, as from time to time assigned, supplemented, amended or
modified in accordance with the terms hereof.
"Board" means the Board of Directors of the Company.
"Commission" means the United States Securities and Exchange
Commission.
"Dollars" or "$" means the currency of the United States or
its foreign currency equivalent at the time the determination is made.
"Initial Shareholders" means, collectively, Militello Limited,
Futurit S.A., SLI.com Inc., Tower Plus International Corp., Roberto
Cibrian-Campoy, Hector A Sierra, Hector R. Bandoni, Sergio S. Monti, Damian
Said, and Alberto E. Tapia.
"Restricted Shares" means any shares of Stock which have not
been registered under the Securities Act and which are owned by any Shareholder.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Shareholder" means any person who is a party to this
Agreement (other than the Company) and any permitted transferee of such person
who agrees to be bound by the terms hereof.
"Stock" means the Company's common shares, par value $0.01 per
share.
ARTICLE 2. Registration Rights
2.1 DEMAND REGISTRATION.
(a) Upon notice to the Company (x) from Shareholder(s) holding
in the aggregate $15.0 million or more of the Restricted Shares (or Preferred
Shares which are convertible into Restricted Shares) or (y) Class B
Shareholder(s) holding in the aggregate $5.0 million or more of the Restricted
Shares (or Preferred Shares which are convertible into Restricted Shares), such
Shareholders (the "Requesting Shareholders") shall have the right to request in
writing a registration of such shares that are (or which would be upon
conversion) Restricted Shares. Such request (a "Demand Request") by the
Requesting Shareholders shall (i) specify the number of Restricted Shares which
each Requesting Shareholder intends to sell or dispose of, and (ii) state the
intended method or methods by which the Requesting Shareholder intends to sell
or dispose of such Restricted Shares. Upon receipt of a Demand Request pursuant
to this Section 2.1, the Company shall (as requested) (i) cause to be filed,
within the later of (x) ninety (90) days of the date of delivery to the Company
of the Demand Request, or (y) one hundred eighty (180) days after the
effectiveness of the most recently filed registration statement by the Company,
a registration statement covering such Restricted Shares which the Company has
been so requested
2
<PAGE>
to register, providing for the registration under the Securities Act of such
Restricted Shares to the extent necessary to permit the disposition of such
Restricted Shares so to be registered in accordance with the intended method of
distribution specified in such Demand Request, provided, that the Company may
delay making such filing or taking such action by not more than one hundred
twenty (120) days if the Company, prior to the time it would otherwise have been
required to file such registration statement or take such action, determines in
good faith that the filing of such registration statement or the taking of such
action would require the disclosure of material, non-public information that, in
the reasonable judgment of the Company, would be detrimental to the Company if
so disclosed (and a delay would be likely to reduce the detrimental effect of
such disclosure or obviate the need for such disclosure to be made, or would
otherwise adversely affect a financing, acquisition, disposition, merger or
other material transaction), (ii) shall use its best efforts to have such
registration statement declared effective by the Commission as soon as
practicable thereafter, and (iii) refrain from filing any other registration
statements with respect to any other securities of the Company until such date
which is one hundred eighty (180) days following effectiveness of the
registration statement filed in response to the Demand Request. Subject to any
existing written agreement between the Company and Bear, Stearns & Co. Inc., the
underwriter shall be selected by the Requesting Shareholders and shall be
reasonably acceptable to the Company for any registration pursuant to this
Section 2.1.
(b) In the event that the Company is required to file a
registration statement covering any Restricted Shares of any Requesting
Shareholder(s) pursuant to Section 2.1(a) above, the Company shall be permitted
to include newly-issued securities ("Piggyback Securities") in such
registration. Notwithstanding the foregoing, if the managing underwriter of such
proposed registration determines and advises in writing that the inclusion of
all Piggyback Securities proposed to be included in the underwritten public
offering would interfere with the successful marketing of the Requesting
Shareholders' Restricted Shares, then the Company shall not be permitted to
include any Piggyback Securities in excess of the amount, if any, of Piggyback
Securities which the managing underwriter of such underwritten offering shall
reasonably and in good faith agree in writing to include in such offering in
excess of any amount to be registered for the Requesting Shareholder(s). The
Piggyback Securities that are excluded from the underwritten public offering
pursuant to the preceding sentence shall be withheld from the market by the
Company for a period, not to exceed 90 days from the closing of such
underwritten public offering, that the managing underwriter determines is
necessary in order to effect such underwritten public offering.
(c) The Company shall not be required to comply with more than
four (4) Demand Requests, one (1) of which shall be reserved for IAMP (El Sitio)
Investments Ltd. (and its affiliates), one (1) of which shall be reserved for
IMPSAT Corporation, one (1) of which shall be reserved for the Initial
Shareholders, and one (1) of which shall be reserved for the Class B
Shareholders holding a majority of the Class B Preferred Shares or Restricted
Shares issued upon conversion of Class B Preferred Shares; provided, that the
Class B Shareholders and the Class A Shareholders shall each have two (2) Demand
Rights per annum commencing at such time as the Company becomes eligible to
register its Common Shares on Form F-3, for so long as the Company remains, or
at any time the Company is, so eligible.
3
<PAGE>
2.2 PIGGYBACK REGISTRATION.
(a) Each time that the Company proposes for any reason to
register any of its Stock under the Securities Act (a "Proposed Registration"),
other than pursuant to a registration statement on Form F-4 or Form F-8 or
similar or successor forms, the Company shall promptly give written notice of
such Proposed Registration to the holders of the Restricted Shares (which notice
shall be given not less than thirty (30) days prior to the expected effective
date of the Company's registration statement) and shall offer such holders the
right to request inclusion of any of such holder's Restricted Shares in the
Proposed Registration. No registration pursuant to this Section 2.2 shall
relieve the Company of its obligation to register Restricted Shares pursuant to
Section 2.1.
(b) Each Shareholder shall have twenty (20) days from the
receipt of such notice to deliver to the Company a written request specifying
the number of Restricted Shares such Shareholder intends to sell and such
Shareholder's intended method of disposition. Any Shareholder shall have the
right to withdraw such Shareholder's request for inclusion of such Shareholder's
Restricted Shares in any registration statement pursuant to this Section 2.2 by
giving written notice to the Company of such withdrawal. Subject to Section 2.3
below, the Company shall include in such registration statement all such
Restricted Shares so requested to be included therein; provided, however, that
the Company may at any time withdraw or cease proceeding with any such Proposed
Registration if it shall at the same time withdraw or cease proceeding with the
registration of all other equity securities originally proposed to be
registered.
(c) In the event that the Proposed Registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, any request under Section 2.2(b) hereof must specify that the
Restricted Shares be included in the underwriting on the same terms and
conditions as the shares of Stock, if any, otherwise being sold through
underwriters under such registration.
2.3 PRIORITY ON REGISTRATIONS.
(a) If the managing underwriter advises the Company that the
inclusion of such Restricted Shares would cause a Material Adverse Effect, the
Company will be obligated to include in such registration statement, as to each
Shareholder, only a portion of the Restricted Shares such Shareholder has
requested be registered equal to the ratio which such Shareholder's requested
Restricted Shares bears to the total number of Restricted Shares requested to be
included in such registration statement by all Shareholders who have requested
that their Restricted Shares be included in such registration statement, in the
case of Shareholders exercising rights under Section 2.2 hereof. It is
acknowledged by the Shareholders, that pursuant to the foregoing provision, the
securities to be included in such registration shall be allocated (x) if such
registration has been initiated by the Company for securities to be offered by
the Company, first to the Company, second to Shareholders exercising their
piggyback right and third to all others requesting securities to be included
therein and (y) if such registration has been initiated by a Requesting
Shareholder requesting a Demand Registration, first to such Requesting
Shareholder, second to the Company if it exercises its piggyback right and third
to all others requesting securities to be included therein. If as a result of
the provisions of this Section 2.3(a) any Shareholder shall not be entitled to
include all of its Restricted Shares in a registration that
4
<PAGE>
such Shareholder has requested to be so included, such Shareholder may withdraw
such Shareholder's request to include Restricted Shares in such registration
statement. The Restricted Shares that are excluded from the underwritten public
offering pursuant to the preceding sentence shall be withheld from the market by
the Shareholders for the applicable period set forth in Section 2.7, if the
managing underwriter determines it necessary in order to effect such
underwritten public offering.
(b) No Shareholder may participate in any registration
statement hereunder unless such Shareholder completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements, including an opinion of its counsel; provided, however, that no
such Shareholder shall be required to make any representations or warranties in
connection with any such registration other than representations and warranties
as to (i) such Shareholder's ownership of its Restricted Shares to be sold or
transferred free and clear of all liens, claims, and encumbrances, (ii) such
Shareholder's power and authority to effect such transfer, and (iii) such
matters pertaining to compliance with securities laws as may be reasonably
requested.
2.4 REGISTRATION PROCEDURES. Whenever any Shareholder has
requested that any Restricted Shares be registered pursuant to the provisions of
this Article 2, the Company will use its commercially reasonable efforts to
effect the registration and the sale of such Restricted Shares in accordance
with the intended method of disposition thereof as set forth in the written
request, and pursuant thereto the Company shall:
(a) prepare and file with the Commission registration
statement(s) with respect to such securities on the appropriate forms, and use
its best efforts to cause such registration statement(s) to become and remain
effective in accordance with Section 2.4(b) hereof and in accordance with all
laws, rules and regulations applicable thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement(s) and the prospectus(es) used in
connection therewith as may be necessary to keep such registration statement(s)
effective until the earlier of (i) the sale of all Restricted Shares covered
thereby or (ii) the date required therefor by the underwriters in the
underwriting agreement, and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Restricted Shares covered
by such registration statement(s);
(c) furnish to each Shareholder participating in such
registration pursuant to Section 2.1 or Section 2.2 (each, a "Participating
Shareholder") such number of copies of any summary prospectus or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the Shareholder
may reasonably request in order to facilitate the public sale or other
disposition of such Restricted Shares;
(d) use its best efforts to register or qualify the Restricted
Shares covered by such registration statement(s) under the securities or blue
sky laws of such jurisdictions as the Participating Shareholder shall reasonably
request and do any and all other acts or things which may be necessary or
advisable to enable the Participating Shareholders to consummate the public sale
or other disposition in such jurisdictions of such Restricted Shares; provided,
however, that
5
<PAGE>
the Company shall not be required to consent to general service of process for
all purposes in any jurisdiction where it is not then subject to process,
qualify to do business as a foreign Company where it would not be otherwise
required to qualify or submit to liability for state or local taxes where it is
not otherwise liable for such taxes;
(e) at any time when a prospectus relating thereto covered by
such registration statement(s) is required to be delivered under the Securities
Act within the appropriate period mentioned in Section 2.4(b) hereof, promptly
notify each Shareholder and each underwriter and (if requested by any such
Shareholder) confirm such notice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of the issuance by any state securities or other
regulatory authority of any order suspending the qualification or exemption from
qualification of any of the Restricted Shares under state securities or blue sky
laws or the initiation of any proceedings for that purpose, and (iii) of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of any Participating
Shareholder, prepare, file and furnish to such Participating Shareholder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(f) if the Company has delivered preliminary or final
prospectuses to any Participating Shareholder and after having done so the
prospectus is amended to comply with the requirements of the Securities Act, the
Company shall promptly notify such Participating Shareholder and, if requested,
the Participating Shareholder shall immediately cease making offers of
Restricted Shares and return all prospectuses to the Company. The Company shall
promptly provide the Participating Shareholder with revised prospectuses and,
following receipt of the revised prospectuses, the Participating Shareholder
shall be free to resume making offers of the Restricted Shares;
(g) furnish, at the request of the Participating Shareholder
on the date such Restricted Shares are delivered to the underwriters for sale in
connection with a registration pursuant to this Article 2, if such Restricted
Shares are being sold through underwriters, or, if such Restricted Shares are
not being sold through underwriters, on the date that the registration statement
with respect to such Restricted Shares becomes effective, (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Participating Shareholders and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Participating Shareholders;
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<PAGE>
(h) if any proposed registration effected pursuant to Section
2.1 or Section 2.2 involves an underwritten public offering, (i) subject to
Section 2.1, select a reputable managing underwriter to underwrite such public
offering, (ii) cause all Restricted Shares to be listed for trading on the
principal national securities exchange (including, without limitation, the
NASDAQ National Market System) (as defined in the Securities and Exchange Act of
1934, as amended) where the Company's Stock is listed for trading, and (iii)
enter into (x) an underwriting agreement with the underwriter providing for such
representations, warranties, covenants, conditions and indemnities as may be
requested by the underwriter and (y) a deposit agreement with a depositary, if
applicable, providing for such representations, warranties, covenants,
conditions and indemnities as may be requested by the depositary;
(i) before filing a registration statement or amendment
thereto, furnish to each Participating Shareholder and its counsel and other
representatives and the underwriters, if any, copies of each such registration
statement or amendment proposed to be filed, which documents shall be made
available on a timely basis for review and comment by the Participating
Shareholders, the underwriters (if any) and their respective representatives;
(j) make generally available to the Company's security holders
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act, as promptly as practicable, but in any event no later than
forty-five (45) days after the end of the 12-month period beginning with the
first day of the Company's first fiscal quarter commencing after the effective
date of a registration statement, which earnings statement shall cover said
12-month period, and which requirement will be deemed to be satisfied if the
Company timely files complete and accurate information on Forms 20-F and 6-K
under the Exchange Act and otherwise complies with Rule 158 under the Securities
Act;
(k) if requested by the managing underwriter or any
Participating Shareholder, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or any
Participating Shareholder reasonably requests to be included therein, including,
without limitation, with respect to the Restricted Shares being sold by such
Participating Shareholder, the purchase price being paid therefor by the
underwriters and with respect to any other terms of the underwritten offering of
the Restricted Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
(l) as promptly as practicable after filing with the SEC of
any document which is incorporated by reference into a registration statement
(in the form in which it was incorporated), deliver a copy of each such document
to each Participating Shareholder;
(m) cooperate with the Participating Shareholders and the
managing underwriter to facilitate the timely preparation and delivery of
certificates (which shall not bear any restrictive legends unless required under
applicable law) representing securities sold under any registration statement
(if any), and enable such securities to be in such denominations and registered
in such names as the managing underwriter or such sellers may request and keep
available and make available to the Company's transfer agent prior to the
effectiveness of such registration statement a supply of such certificates;
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<PAGE>
(n) promptly make available for inspection by any
Participating Shareholder, any underwriter participating in any disposition
pursuant to any registration statement, and any attorney, accountant or other
agent or representative retained by any such Participating Shareholder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information requested by any such Inspector in
connection with such registration statement; provided, that, unless the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in the registration statement or the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction,
the Company shall not be required to provide any information under this
subparagraph (n) if (A) the Company believes, after consultation with counsel
for the Company, that to do so would cause the Company to forfeit an
attorney-client privilege that was applicable to such information or (B) if
either (i) the Company has requested and been granted from the SEC confidential
treatment of such information contained in any filing with the SEC of documents
provided supplementally or otherwise or (ii) the Company reasonably determines
in good faith that such Records are confidential and so notifies the Inspectors
in writing unless prior to furnishing any such information with respect to (A)
or (B) such Participating Shareholder requesting such information agrees to
enter into a confidentiality agreement in customary form and subject to
customary exceptions; and provided, further, that each Participating Shareholder
agrees that it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to the Company and allow the
Company at its expense, to undertake appropriate action and to prevent
disclosure of the Records deemed confidential;
(o) provide a CUSIP number for the Restricted Shares included
in any registration statement not later than the effective date of such
registration statement;
(p) cooperate with each Participating Shareholder and each
underwriter participating in the disposition of such Restricted Shares and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. ("NASD");
(q) during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act;
(r) notify each Participating Shareholder promptly of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
(s) prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Company or the managing underwriter, is required in
connection with the distribution of the Restricted Shares;
8
<PAGE>
(t) advise each Participating Shareholder, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued;
and
(u) if the Participating Shareholders so request, to request
acceleration of effectiveness of the registration statement from the Commission,
provided at the time of such request the Company does not, in good faith,
believe it is necessary to amend further the registration statement in order to
comply with the provisions of this Section 2.4. If the Company wishes to further
amend the registration statement prior to requesting acceleration, it shall have
five (5) business days to so amend prior to requesting acceleration.
2.5 SUSPENSION OF DISPOSITIONS. Each Participating Shareholder
agrees that upon receipt of any notice (a "Suspension Notice") from the Company
of the happening of any event of the kind described in Section 2.4(e)(iii), such
Participating Shareholder will forthwith discontinue disposition of Restricted
Shares until such Participating Shareholder's receipt of the copies of the
supplemented or amended prospectus, or until it is advised in writing (the
"Advice") by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the prospectus, and, if so directed by the Company, such
Participating Shareholder will deliver to the Company all copies, other than
permanent file copies then in such Participating Shareholder's possession, of
the prospectus covering such Restricted Shares current at the time of receipt of
such notice. In the event the Company shall give any such notice, the time
period regarding the effectiveness of registration statements set forth in
Section 2.4(b) hereof shall be extended by the number of days during the period
from and including the date of the giving of the Suspension Notice to and
including the date when each seller of Restricted Shares covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus or the Advice. The Company shall use its commercially
reasonable efforts and take such actions as are reasonably necessary to render
the Advice as promptly as practicable.
2.6 COOPERATION UPON A REGISTRATION. The Shareholders and the
Company agree that, in connection with any exercise of registration rights
pursuant to this Article 2, the Shareholders will authorize, and will authorize
and direct the Board to take, such actions as are necessary and appropriate to
effectuate such registration. In addition, each Participating Shareholder agrees
to cooperate fully with the Company and the underwriters of any underwritten
public offering in the preparation of all documentation necessary or desirable
to effectuate any registration of any Restricted Shares under the Securities Act
pursuant to this Article 2, or registration or qualification of any Restricted
Shares pursuant to Section 2.4(d) hereof. In addition, the Company agrees to
cooperate fully with the Participating Shareholders in connection with any such
registration or qualification.
2.7 LIMITATIONS. Notwithstanding anything in this Agreement to
the contrary, if requested in writing by the managing underwriter, if any, of
any underwritten public offering of the Company's capital stock pursuant to this
Article 2, each Shareholder agrees not to offer, sell, contract to sell or
otherwise dispose of any shares of capital stock of the Company except as part
of such underwritten public offering within thirty (30) days before or (i)
ninety (90) days after
9
<PAGE>
the effective date of the registration statement filed with respect to said
offering, and (ii) one hundred eighty (180) days in the case of the Company's
initial public offering, unless in each case expressly authorized to do so by
the managing underwriter; provided, however, that if any officer, director or
shareholder holding 5% or more of the share capital of the Company is not
obligated under this Section 2.7 or a similar provision in another agreement, or
if any such person is released from its obligations under this Section 2.7 or
such other agreement, and accordingly is entitled to sell its shares within the
periods set forth above, then each Class A Shareholder and each Class B
Shareholder shall also be entitled to sell a pro rata amount of its shares in
proportion to the ratio that the number of shares held by such persons that are
not obligated under this Section 2.7 or a similar provision in another agreement
or is otherwise released from such obligation bears to the total number of
shares subject to such obligation.
2.8 EXPENSES. The Company shall pay all expenses incurred by
the Company in complying with Sections 2.1, 2.2 and 2.4 hereof, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the NASD), fees and expenses of complying with the
securities or blue sky laws of all such jurisdictions in which the Restricted
Shares are proposed to be offered and sold (including reasonable fees and
disbursements of counsel in connection with blue sky qualification of Restricted
Shares), rating agency fees, printing expenses, messenger and delivery expenses,
the Company's internal expenses (including without limitation all salaries and
expenses of its officers and employees performing legal or accounting duties),
fees and expenses incurred in connection with any listing of the Restricted
Shares, fees and expenses of counsel for the Company and its independent
certified public accountants (including the expenses of any special audit or
cold comfort letters required by or incident to such performance), securities
act liability insurance (if the Company elects to obtain such insurance) and
fees and disbursements of underwriters (to the extent the Company is liable
therefor under the terms of any underwriting agreement), whether or not any
registration statement becomes effective; provided, however, that all
underwriting discounts and selling commissions applicable to the Restricted
Shares covered by registrations effected pursuant to Section 2.1 or Section 2.2
hereof shall be borne by the Participating Shareholders, in proportion to the
number of Restricted Shares sold by each such Participating Shareholder, and
except as expressly provided in this Section 2.8, in no event shall the Company
pay any fees or expenses attributable to any counsel, accountants or other
persons retained or employed by the Participating Shareholders. Further to the
foregoing, the Company shall pay all reasonable and customary expenses incurred
by any Participating Shareholder, including, without limitation, all reasonable
expenses and fees of one (1) firm of counsel for all Participating Shareholders
(which shall be selected by a majority (based on the number of Restricted
Securities to be sold) of the Participating Shareholders), plus, to the extent
reasonably necessary, one (1) firm of local counsel for all of the Participating
Shareholders in each state or country where reasonably necessary (the
"Expenses").
2.9 INDEMNIFICATION.
(a) In the event of any registration of any Restricted Shares
under the Securities Act pursuant to this Article 2 or registration or
qualification of any Restricted Shares pursuant to Section 2.4(d) hereof, the
Company shall indemnify and hold harmless each Participating Shareholder, each
underwriter of such shares, if any, each broker or any other person acting on
behalf of the Participating Shareholders, each director, officer, employee and
10
<PAGE>
partner of any of the foregoing and each other person, if any, who controls any
of the foregoing persons, within the meaning of the Securities Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities or
expenses, joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, are related
to, result from or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any document incident to registration or qualification of any
Restricted Shares pursuant to Section 2.4(d) hereof, or arise out of, are
related to, result from or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or any violation by the Company of the
state securities or blue sky laws applicable to the Company and relating to
action or inaction required of the Company in connection with such registration
or qualification under such state securities or blue sky laws and the Company
shall reimburse on demand each Indemnified Person for any legal or any other
costs and expenses reasonably incurred by any of them in connection with
investigating, preparing for, defending or settling any such loss, claim,
damage, liability or action by any governmental agency or body; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, preliminary or final
prospectus or amendment or supplement thereto or any document incident to
registration or qualification of any Restricted Shares pursuant to Section
2.4(d) hereof, in reliance upon and in conformity with written information
furnished to the Company by any Participating Shareholder, underwriter, broker,
other person or controlling person specifically for use in the preparation
thereof or arises out of or is based upon the Indemnified Person's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such Indemnified Person with
a sufficient number of copies of the same; provided further, that the Company
shall not be liable for any settlement made without its prior written consent,
such consent not to be unreasonably withheld.
(b) Before Restricted Shares shall be included in any
registration pursuant to this Article 2, each Participating Shareholder will
furnish to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any registration statement and
prospectus, and each such Participating Shareholder and any underwriter acting
on its behalf shall have agreed to indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) above) the Company,
each director of the Company, each officer of the Company who signs such
registration statement, every other Participating Shareholder and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Participating Shareholder or such underwriter specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement; provided, however, that
11
<PAGE>
the maximum amount of liability in respect of such indemnification shall be
limited to an amount equal to the net proceeds actually received by such
Participating Shareholder from the sale of Restricted Shares effected pursuant
to such registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in Section
2.9(a) or (b) hereof, such indemnified party will, if a claim in respect thereof
is to be made against the indemnifying party under this Section 2.9, give prompt
written notice to the latter of the commencement of such action (provided that
the failure to give such notice shall not limit the rights of such indemnified
party unless and to the extent such failure is prejudicial to its ability to
defend such action). In case any such action is brought against an indemnified
party, the indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and, after notice to such indemnified party from the
indemnifying party of its election to assume the defense thereof; provided,
however, that, if any indemnified party shall have reasonably concluded that
there may be one or more legal defenses available to such indemnified party
which are different from, in conflict with or additional to those available to
the indemnifying party, or that such claim or litigation involves or could
reasonably be expected to have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 2.9, or if the indemnifying party
fails to take diligent action to defend such claim within twenty (20) days
following notice thereof from the indemnified party, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party, or that such claim or litigation involves or could have an
effect upon matters beyond the scope of the indemnity agreement provided in this
Section 2.9, or if the indemnifying party fails to take diligent action to
defend such claim within twenty (20) days following notice thereof from the
indemnified party, and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for the fees and
expenses of counsel retained by the indemnified party which are reasonably
related to the matters covered by the indemnity agreement provided in this
Section 2.9. If the indemnifying party does assume its own defense, from such
time the indemnified party shall bear the expenses of its own separate counsel.
If such defense is not assumed by the indemnifying party as permitted hereunder,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its written consent, which consent shall
not be unreasonably withheld. If such defense is assumed by the indemnifying
party pursuant to the provisions hereof, such indemnifying party shall not make
any settlement of the applicable claim indemnified against hereunder without the
written consent of the indemnified party or parties, which consent shall not be
unreasonably withheld. An indemnifying party that is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party and any other such indemnified party with respect to such
claim, unless in the reasonable judgment of any indemnified party, a conflict of
interest may exist between such indemnified party with respect to such claim, in
which event the indemnifying party shall be obligated to pay the reasonable fees
and disbursements of such additional counsel or counsels.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which an Indemnified
Person makes a claim for indemnification pursuant to this Section 2.9, but it is
judicially determined (by the entry of a final
12
<PAGE>
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced notwithstanding the fact that this Section
2.9 provides for indemnification in such case, then the Company and the
Participating Shareholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject as is appropriate to
reflect, as between the indemnifying party, on the one hand, and the indemnified
party on the other hand, the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, it being understood that the parties acknowledge that the
overriding equitable consideration to be given effect in connection with this
provision is the ability of one party or the other to correct the statement or
omission which resulted in such losses, claims, damages or liabilities, and that
it would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into consideration the foregoing equitable considerations.
Notwithstanding the foregoing, (i) the Participating Shareholder will not be
required to contribute any amount in excess of the proceeds to it of all
Restricted Shares sold by it pursuant to such registration statement, (ii) no
underwriter shall be required to contribute any amount in excess of the proceeds
to it from the offering pursuant to such registration statement, and (iii) no
person or entity guilty of fraudulent misrepresentation, within the meaning of
Section 11(f) of the Securities Act, shall be entitled to contribution from any
person or entity who is not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 2.9, the indemnifying parties
shall indemnify each indemnified party to the full extent provided in Section
2.9(a) and 2.9(b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 2.9(d).
(e) Notwithstanding any of the foregoing, if in connection
with an underwritten public offering of any Restricted Shares, the Company, the
Participating Shareholder and the underwriters enter into an underwriting or
purchase agreement relating to such offering which contains provisions covering
indemnification among the parties, the indemnification provided thereunder shall
be in addition to (and not in lieu of) the indemnification provided to the
Shareholders hereunder.
(f) The indemnification and contribution required by this
Section 2.9 shall be made by periodic payment of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred; provided, that if a court of
competent jurisdiction finally determines that any Indemnified Person which has
received payments hereunder does not have an indemnification right under Section
2.9 for any reason, then such Indemnified Person shall within five (5) days of
such final determination, refund all amounts received hereunder to the Company.
(g) The indemnification and contribution provided for
hereunder will remain in full force and effect regardless of any investigation
made by or on behalf of any Indemnified Person and will survive the transfer of
securities.
ARTICLE 3. MISCELLANEOUS
13
<PAGE>
3.1 NOTICES. Any and all notices, designations, consents,
offers, acceptances, or any other communication required or permitted to be
given by any provision of this Agreement shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by registered
mail or telecopied with acknowledgment of receipt sent by telecopier, registered
mail or delivered in person, as the case may be, to such party at the address or
telecopier number, as the case may be, set forth on the signature pages hereto
or to such other address or telecopier number, as the case may be, as such party
may from time to time designate in writing to the other parties. All such
notices, requests, consents and other communications shall be deemed to have
been received: (a) in the case of personal delivery or registered mail, on the
date of receipt; or (b) in the case of telecopying, on the date of
acknowledgment thereof.
3.2 AMENDMENT AND WAIVER. No change or modification of, or
waiver of compliance with, this Agreement shall be valid unless the same shall
be in writing and signed by all of the parties hereto which hold at least 50,000
shares of the Stock, on an as-converted basis.
3.3 TERMINATION. This Agreement may be terminated at any time
by an instrument in writing signed by all of the parties hereto. This Agreement
shall terminate automatically as to any Shareholder which transfers all of its
Restricted Shares. Unless sooner terminated, this Agreement shall terminate
eight (8) years from the date hereof, unless, at any time within one (1) year
prior to such date, all of the parties extend its duration for as many
additional periods, each not to exceed eight (8) years, as they may desire.
3.4 NO WAIVER. No failure or delay on the part of the
Shareholders or any of them in exercising any right, between the Company and the
Shareholders or any of them shall operate as a waiver thereof nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the simultaneous or later exercise of any other right, power or privilege. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Shareholders or any of them would otherwise
have. No notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Shareholders or any of
them to take any other or further action in any circumstances without notice or
demand.
3.5 SPECIFIC PERFORMANCE. Each party to this Agreement
acknowledges that the other parties will suffer irreparable injury in the event
of any breach of any provision of this Agreement and that therefore the remedy
at law for any breach or threatened breach of any such provision of this
Agreement will be inadequate. Accordingly, upon a breach or threatened breach of
any such provision of this Agreement by any party hereto, the other parties
shall, in addition and without prejudice to any of the rights and remedies they
may have, be entitled as a matter of right, without proof of actual damages, to
seek specific performance of such provisions of this Agreement and to such other
injunctive or equitable relief to enforce, or prevent any violations (whether
anticipatory, continuing or future) of, such provisions of this Agreement.
3.6 COUNTERPARTS AND HEADINGS. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument. All
headings and any cover page or table of
14
<PAGE>
contents are inserted for convenience or reference only and shall not affect its
meaning or interpretation.
3.7 NOUNS AND PRONOUNS. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice-versa.
3.8 EXPENSES. Except as provided in Section 2.8 hereto, each
of the parties to this Agreement shall bear its own expenses, including, without
limitation, the fees and disbursements of its respective counsel, in connection
with the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
3.9 GOVERNING LAW. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
U.S.A., without regard to its conflict of law rules.
3.10 SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF
PROCESS.
(a) The parties hereto hereby irrevocably submit to the
non-exclusive jurisdiction of any federal or state court located within the
Borough of Manhattan, State of New York over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or any suit, action or proceeding related thereto may be heard and determined in
such courts. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or hereafter have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding by
the mailing of a copy thereof in accordance with the provisions of Section 3.1
hereof.
3.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Company and its successors, and each
of the Shareholders and their respective executors, administrators and personal
representatives and heirs and their successors and assigns.
3.12 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid or unenforceable, the remaining provisions hereof shall
nevertheless continue in full force and effect as though the illegal, invalid or
unenforceable provisions were not a part hereof, and the parties shall exert
their best efforts to amend this Agreement to include a provision which is
legal, valid and enforceable and which carries out the original intent of the
parties.
3.13 COMPLETE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior and
15
<PAGE>
contemporaneous arrangements or understandings, whether written or oral, between
or among any of the parties hereto, with respect to the subject matter hereof.
3.14 FURTHER ASSURANCES. Each of the parties to this Agreement
agrees to execute such other documents and take such other action as may be
reasonably necessary to implement and carry out the intent of this agreement.
3.15 CONFIDENTIALITY. Each Shareholder (other than Intel
Atlantic, Inc.) covenants and agrees to treat any non-public information
provided to it by the Company concerning the business and finances of the
Company ("Corporate Information") as confidential and agrees further that it
will not use, exploit, reproduce, disclose or provide Corporate Information to
any third party (other than any agents of the Shareholder who are bound by
substantially similar obligations of confidentiality) on its own behalf or
otherwise, except with the consent of the Company or as required by law, legal
process or any federal or state regulatory body having jurisdiction over such
Shareholder. The provisions of this Section 3.15 shall not apply to any
information which:
(a) was within the public domain prior to the time of
disclosure of Corporate Information to the Shareholder or which comes into the
public domain other than as a result of a breach by the Shareholder of this
Section 3.15;
(b) was in the possession of the Shareholder (or any of its
officers, directors, employees, agents, principals, or affiliates) before the
Shareholder received the Corporate Information;
(c) was rightfully acquired by the Shareholder from a third
party without, to the knowledge of the Shareholder, any restriction or any
obligation of confidentiality; or
(d) was independently developed by the Shareholder without any
use or reference to the Corporate Information.
The provisions of this Section 3.15 shall survive the
termination of this Agreement, either in whole or as to any Shareholder, for a
period of two (2) years.
The obligations of Intel Atlantic, Inc., with respect to the
treatment of Corporate Information are set forth in Exhibit A hereto.
[Rest of Page Intentionally Left Blank]
16
<PAGE>
WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
EL SITIO, INC.
By: /s/ Horacio Milberg
-------------------
Title: Chief Financial Officer
Notice Address:
Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attention: Roberto Cibrian-Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022
Attention: Neil A. Torpey
Telephone: (212) 318-6034
Telecopier: (212) 318-4090
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
IAMP (EL SITIO) INVESTMENTS LTD.
By: /s/ Jose Santos For Westlaw Limited
----------------------------------------
Title: Director
Notice Address:
c/o 404 Washington Avenue, 9th Floor
Miami Beach, Florida 33139
Attn: Benjamin S.A. Moody
Telephone: (305) 894-3578
Telecopier: (305) 894-3599
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: L. Kevin O'Mara, Jr.
Telephone: (212) 872-1021
Telecopier: (212) 872-1002
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
WASHBURN ENTERPRISES INC.
By: /s/ Benjamin S. A. Moody
--------------------------------------
Title: Attorney-in-Fact/Authorized Representative
Notice Address:
c/o 404 Washington Avenue, 9th Floor
Miami Beach, Florida 33139
Attn: Benjamin S.A. Moody
Telephone: (305) 894-3578
Telecopier: (305) 894-3599
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: L. Kevin O'Mara, Jr.
Telephone: (212) 872-1021
Telecopier: (212) 872-1002
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
CHESTNUT HILL (EL SITIO), LLC
By: /s/ Michael Greeley
------------------------------------------
Title: SVP
Notice Address:
c/o GCC Investments, Inc.
1300 Boylston Street
Chestnut Hill, MA 02647
Attn: Michael A. Greeley
Telephone: (617) 975-3222
Telecopier: (617) 975-3201
with a copy to:
Phillip J. Szabla
Vice President and General Counsel
GC Companies, Inc.
1300 Boylston Street
Chestnut Hill, MA 02467
Telephone: (617) 264-8098
Telecopier: (617) 264-8206
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
TOWER PLUS INTERNATIONAL CORP.
By: /s/ Ricardo Verdaguer
----------------------------------------
Title:
Notice Address:
c/o Ricardo Verdaguer, Director
Plaza Independencia 811 PB
11100 Montevideo, Uruguay
Telephone: (5892) 902-1515
Telecopier: (5892) 902-5454
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
ROBERTO CIBRIAN-CAMPOY
By: /s/ Roberto Cibrian-Campoy
---------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
HECTOR A. SIERRA
By: /s/ Hector A. Sierra
------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
HECTOR R. BANDONI
By: /s/ Hector R. Bandoni
----------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
SERGIO S. MONTI
By: /s/ Sergio S. Monti
-----------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
DAMIAN SAID
By: /s/ Damian Said
--------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
ALBERTO E. TAPIA
By: /s/ Alberto E. Tapia
-------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
JULIEN SEVAUX
By: /s/ Julien Sevaux
--------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
GILES DARD
By: /s/ Giles Dard
--------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
GUSTAVO BLUFSTEIN
By: /s/ Gustavo Blufstein
-------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
MADELAINE CORP. S.A.
By: /s/ Emilio Tuneu
-------------------------------------
Emilio Tuneu
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
with a copy to:
Hordenana & Neociados
Juncaf 1305, P. 13
Montevideo, Uruguay 11000
tel: 917-0045
fax: 916-6907
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
ROBERTO J. GARAT
By: /s/ Roberto J. Garat
---------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
COMPANIA DE INVERSIONES MONTEVIDEO BVI
By: /s/ Marial Ramos
----------------------------------
Title:
Notice Address:
Plaza Independencia 831/508
Montevideo, Uruguay
Tel: (05982) 901-44-29
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
THE HENRY B. WILSON TRUST OF 1996
By: /s/ Henry B. Wilson
--------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, FBO SCOTT WILSON
By: /s/ Henry B. Wilson
----------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, FBO HENRY BIRKS WILSON, JR.
By: /s/ Henry B. Wilson
---------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, FBO ERINN PALMER BERKSON
By: /s/ Henry B. Wilson
------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, FBO TYLER HEARTT WILSON
By: /s/ Henry B. Wilson
---------------------------------
Title: Trustee
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
BARBARA HUYETT
By: /s/ Barbara Huyett
-------------------------------
Notice Address:
100 Wilshire Boulevard
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
VAMAGRA S.A.
By: /s/ Emilio Alfredo Gravier
---------------------------------------
Title:
Notice Address:
Piedras 172, 4th Floor
1030 Buenos Aires, Argentina
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
T.V. AZTECA, S.A. DE C.V.
By: /s/ Adrian Steckel
---------------------------------------
Title:
Notice Address:
TV Azteca, S.A. de C.V.
Periferico Sur, No. 4121
Col. Fuentes de Pedregal
14141 Mexico, D.F.
Attn:
Adrian Steckel
Telephone: 011-525420-1302
Telecopier: 011-525420-1409
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attn: Leslie N. Silverman
Telephone: (212) 225-2584
Telecopier: (212) 225-3999
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
SUMMIT INVESTMENT MANAGEMENT LTD.
By: Horacio Milberg
------------------------------------
Title: Director
Notice Address:
Mr. James Kidd
----------------------------------
President
----------------------------------
Summit Investment Management Ltd.
----------------------------------
65 Front Street
----------------------------------
Hamilton, HMGX
----------------------------------
Bermuda
----------------------------------
with a copy to:
Horacio Milberg
------------------------------
Chief Financial Officer
------------------------------
El Sitio, Inc.
------------------------------
Av. Belgrano 845
------------------------------
1092 Buenos Aires
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
MILITELLO LIMITED
By: Roberto Vivo-Chaneton
---------------------------------------
Title:
Notice Address:
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
FUTURIT S.A.
By: /s/ Felipe Ostrolencki
------------------------------------
Title:
Notice Address:
c/o Posadas 1A29-10A
------------------------------
(1011) Buenos Aires-Argentina
------------------------------
Attn: Felipe Ostrolencki
------------------------------
Tel: 54-1-4447-0312
------------------------------
Fax: 54-1-4749-3315
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
QUANTUM DOLPHIN PLC
By: /s/ Marcelo Mindlin
------------------------------------
Title: Director
Notice Address:
Marcelo Mindlin
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
SLI.COM INC.
By: /s/ Guillermo Liberman
------------------------------------
Title: Guillermo Liberman
Notice Address: President
Bouchard 547 Piso 14
Buenos Aires, Argentina
Attn: Guillermo Liberman
Telephone: (54 11) 4316-9952
Telecopier: (54 11) 4313
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
DUNAS OVERSEAS LTD.
By: /s/ Nicolas Juan-President
------------------------------------
Title:
Notice Address: Plaza Independencia 811 F8
Montevideo-Uruguay
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
RENEE SAENZ ARMAS
By: /s/ Renee Saenz Armas
-----------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campay
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
ELINSTAR INTERNATIONAL CORPORATION
By: /s/ Carlos Korn
------------------------------------
Title:
Notice Address:
Carlos Korn
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
DANIEL ROTSZTAIN
By: /s/ Daniel Rotsztain
-------------------------------------
Title:
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campay
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
ALFREDO JIMINEZ DE ARECHEGA
By: /s/ Alfredo Jiminez de Arechega
-------------------------------------
Title:
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campay
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 9122, ext. 104
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
RAFAEL BUSTAMENTE
By: /s/ Rafael Bustamente
-----------------------------------------
Title:
Notice Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
IMPSAT CORPORATION
By: /s/ Hector Alonso
----------------------------------
Title:
Notice Address:
ImpSat Corporation
Alferez Pareja 256
1107 Buenos Aires, Argentina
Attn: Hector Alonso
Telephone:
Telecopier: (541) 11-328-0140
with a copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004-1202
Attn: Neil M. Goodman
Telephone: (202) 942-5191
Telecopier: (202) 942-5999
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
INTEL ATLANTIC, INC.
By: /s/ Arvind Sodhani
---------------------------------------
Title: Vice President and Treasurer
Notice Address:
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M&A Portfolio Manager - M/S RN6-46
Fax Number: (408) 765-6038
With copies to:
Intel Atlantic, Inc.
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
Fax Number: (408) 765-1859
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
UTILITIVEST II, L.P.
By: Utilitivest II, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest II, L.L.C.
Notice address:
Paget-Brown and Company
--------------------------------------
West Wind Building
--------------------------------------
P.O. Box 1111
--------------------------------------
George Town, Grand Cayman
--------------------------------------
Cayman Islands, BWI
--------------------------------------
UTILITIVEST III, L.P.
By: Utilitivest III, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest III, L.L.C.
Notice address:
Paget-Brown and Company
--------------------------------------
West Wind Building
--------------------------------------
P.O. Box 1111
--------------------------------------
George Town, Grand Cayman
--------------------------------------
Cayman Islands, BWI
--------------------------------------
[Signature Page to Amended and Restated Registration Rights Agreement - El
Sitio, Inc.]
<PAGE>
SCHEDULE A
<PAGE>
EXHIBIT A
November 9, 1999
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
In consideration of the purchase by Intel Atlantic, Inc. ("Intel") of
555,555.55 shares of Class B Preferred Stock of El Sitio, Inc. ("Company"),
pursuant to a Share Purchase Agreement dated November 9, 1999 (the "Purchase
Agreement"), Company and Intel agree to the terms and obligations of this letter
agreement ("Agreement").
1. CONFIDENTIALITY
(a) DISCLOSURE OF TERMS. The terms and conditions of this Agreement,
the Purchase Agreement, the Amended and Restated Shareholders Agreement, dated
November 9, 1999 and the Amended and Restated Registration Rights Agreement,
dated November 9, 1999 (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by the Company to any third party except in accordance with the
provisions set forth below.
(b) PRESS RELEASES, ETC. Within sixty (60) days after the closing of
the transactions contemplated by the Purchase Agreement, the Company may issue a
press release disclosing that the Investors, including Intel, have invested in
the Company; provided that the release does not disclose any of the Financing
Terms and the final form of the press release is approved in advance in writing
by the Intel. Intel's name and the fact that Intel is an investor in the Company
can be included in a reusable press release boilerplate statement, so long as
Intel has given the Company its initial approval of such boilerplate statement
and the boilerplate statement is reproduced in exactly the form in which it was
approved. No other announcements regarding Intel in a press release, conference,
advertisement, announcement, professional or trade publication, mass marketing
materials or otherwise to the general public may be made without Intel's prior
written consent.
(c) PERMITTED DISCLOSURES. Notwithstanding the foregoing, (i) the
Company may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) the Company may disclose (other than
in a press release or other public announcement described in subsection (b))
solely the fact that Intel is an investor in the Company to any third parties
without the requirement for the consent of any other party or nondisclosure
obligations; and (iii) Intel may disclose its investment in the Company and the
Financing Terms to third parties or to the public at its sole
<PAGE>
discretion and, if it does so, the Company shall have the right to disclose to
third parties any such information disclosed in a press release or other public
announcement by Intel.
(d) LEGALLY COMPELLED DISCLOSURE. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of the agreements
referenced in paragraph (a) above or any of the Financing Terms hereof in
contravention of the provisions of this letter, the Company shall provide Intel
with prompt written notice of that fact so that the appropriate party may seek
(with the cooperation and reasonable efforts of the other) a protective order,
confidential treatment or other appropriate remedy. In such event, the Company
shall furnish only that portion of the information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such information to the extent reasonably requested
by Intel.
(e) OTHER INFORMATION. The provisions of this Letter Agreement shall be
in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel Corporation shall be
governed by the terms of the Corporate Non-Disclosure Agreement No. 7626010,
dated October 18, 1999, executed by the Company and Intel, and any Confidential
Information Transmittal Records (CITR) provided in connection therewith.
(f) All notices required under this section shall be made pursuant to
Section 9.10 of the Purchase Agreement.
2. MISCELLANEOUS.
2.1 DEFINITIONS. All capitalized terms used but not otherwise defined
in this Agreement have the meaning defined for such terms in the Purchase
Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
2.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
2.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
modified without the written consent of Intel and the Company, nor shall any
waiver be effective against any party unless in a writing executed on behalf of
such party.
2.5 SEVERABILITY. If any provision of this Agreement shall be declared
void or unenforceable by any judicial or administrative authority, the validity
of any other provision and of the entire Agreement shall not be affected
thereby.
<PAGE>
The parties hereto have executed this Agreement on the day and year first
written above.
EL SITIO, INC. INTEL ATLANTIC, INC.
By: By:
-------------------------------- ---------------------------------
Name: Name:
-------------------------------- ---------------------------------
Title: Title:
------------------------------- --------------------------------
<PAGE>
Exhibit 10.24
================================================================================
AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT
by and among
THE SHAREHOLDERS OF
EL SITIO, INC.
November 9, 1999
================================================================================
<PAGE>
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT, dated as of
November 9, 1999, entered into by and among and El Sitio, Inc., an international
business company organized and existing under the laws of the British Virgin
Islands (the "Company"), IAMP (El Sitio) Investments Ltd., a British Virgin
Islands international business company ("IAMP"), Washburn Enterprises Inc., a
British Virgin Islands corporation ("Washburn"), Chestnut Hill (El Sitio), LLC,
a Delaware limited liability company ("Chestnut"), and the other shareholders
set forth on the signature page hereto (collectively with IAMP, Washburn,
Chestnut and the Initial Shareholders, the "Shareholders").
W I T N E S S E T H:
WHEREAS, the holders of the Company's Class A Convertible
Preferred Shares (the "Class A Shareholders") entered into a Stockholders
Agreement dated July 2, 1999, as amended October 6, 1999 (as so amended, the
"Original Shareholders' Agreement"), and the Class A Shareholders desire to
include the holders of the Company's Class B Convertible Preferred Shares (the
"Class B Shareholders") as parties to such agreement;
WHEREAS, immediately prior to the Closing (as defined below),
the Shareholders owned, beneficially and of record, such number of shares of
each class of the capital stock of the Company as are set forth on Exhibit 1(a)
hereto;
WHEREAS, on the date hereof (the "Closing"), the Class B
Shareholders are purchasing certain of the Company's Class B Convertible
Preferred Shares, in the amounts set forth on Exhibit 1(b) hereto;
WHEREAS, immediately following the Closing, each Shareholder
will own, beneficially and of record, the number of shares of each class of the
Company's capital stock set forth on Exhibit 1(c) hereto; and
WHEREAS, the Shareholders wish to establish certain agreements
relating to voting, transfers and other matters as provided herein and to amend
and restate the Original Shareholders' Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises, mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1. CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall
have the respective meanings set forth below:
"Affiliate" means, with respect to any person, any other
person which, at the time such determination is being made, is Controlling,
Controlled by or under common Control with, such person. As used herein,
"Control," whether used as a noun or verb, refers to the possession,
<PAGE>
directly or indirectly, of the power to direct, or cause the direction of, the
management or policies of a person, whether through the ownership of voting
securities or otherwise.
"Agreement" means this Amended and Restated Shareholders'
Agreement, as from time to time assigned, supplemented, amended or modified in
accordance with the terms hereof.
"Amended and Restated Registration Rights Agreement" means the
Amended and Restated Registration Rights Agreement dated as of November 9, 1999,
among the Company, certain Class A Shareholders and the Class B Shareholders,
attached hereto as Exhibit 3A.
"Board" means the Board of Directors of the Company.
"Class A Preferred Shares" means the Class A Convertible
Preferred Shares of the Company.
"Class B Preferred Shares" means the Class B Convertible
Preferred Shares of the Company.
"Cause" means, with respect to any director, such individual's
(i) commission of an act involving the reckless disregard of his duties to the
Company or any of its subsidiaries, (ii) conviction in a criminal proceeding
(other than a misdemeanor), or (iii) suffering under a mental or physical
condition which has rendered such individual for a period of 180 consecutive
days during the term of this Agreement totally incapacitated and incompetent to
carry out the responsibilities of a director of the Company.
"El Sitio Shares" means, collectively, the common shares, par
value $0.01 per share, of the Company, the Class A Preferred Shares, the Class B
Preferred Shares, and any other class of capital stock of the Company issued at
any time hereafter which has the right to vote in all matters, each as described
in the Memorandum of the Company.
"Ibero Group" means Shareholders which are Affiliates of
Ibero-American Media Partners II Ltd.
"Initial Interest" means the Interest on the date hereof of
each Shareholder.
"Initial Shareholders" means, collectively, Militello Limited,
Futurit S.A., Tower Plus International Corp., SLI. com Inc., Roberto
Cibrian-Campoy, Hector A. Sierra, Hector R. Bandoni, Sergio S. Monti, Damian
Said, Compania de Inversiones Montevideo BVI, Henry B. Wilson Trust, Vamagra
S.A., Julien Sevaux, Elinstar International Corp., Renee Saenz Giles Dard,
Summit Investment Management Ltd., Gustavo Blufstein, Helaine Steden, Jorge Ami,
Roberto J. Garat and Alberto E. Tapia, and the term "Initial Shareholder" means
one of them.
"Interest" of a Shareholder means the aggregate voting
interest represented by the El Sitio Shares directly or indirectly held, as of
the date of determination, by such Shareholder,
2
<PAGE>
expressed as a percentage of the total aggregate voting interest represented by
the El Sitio Shares directly or indirectly held by all of the Shareholders.
"Memorandum" means the Amended and Restated Memorandum of
Association and Amended and Restated Articles of Association of the Company in
the form attached hereto as Exhibit 2.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar U.S. federal law then in force.
"Shareholder" means any person who is a party to this
Agreement and any permitted transferee of such person who agrees to be bound by
the terms hereof in accordance with the terms of Section 5.11.
ARTICLE 2. CORPORATE GOVERNANCE
2.1. BOARD OF DIRECTORS. It is agreed that there shall nine
(9) members and nine (9) alternate members of the Board, all to be elected at
the same time and serving for a term of one fiscal year, and the Memorandum
shall so provide. Each director shall be entitled to vote on all matters
presented to the Board, except as expressly provided herein.
2.2 ELECTION AND REMOVAL OF DIRECTORS.
(a) The Initial Shareholders shall have the right in any
election of directors to the Board to select four (4) directors. Each
Shareholder agrees that the Class A Shareholders shall have the right to
nominate five (5) directors (each a "Class A Preferred Director") to the Board.
The Ibero Group shall have the right to nominate two (2) Class A Preferred
Directors for so long as the Ibero Group shall own ten percent (10%) or more of
its current holdings of El Sitio Shares on an as-converted basis or one (1)
Class A Preferred Director for so long as the Ibero Group shall own one percent
(1%) or more of El Sitio Shares on an as-converted basis. If the Ibero Group
owns less than one percent (1%) of El Sitio Shares on an as-converted basis, the
Ibero Group shall have the right to appoint an observer to the Board, who shall
be entitled to participate in the meetings of the Board, but shall not have any
vote. Chestnut shall have the right to nominate one (1) Class A Preferred
Director to the Board for so long as Chestnut shall own (i) two and one-half
percent (2.5%) or more of its current holdings of El Sitio Shares on an
as-converted basis or (ii) one percent (1%) or more of El Sitio Shares on an
as-converted basis. If Chestnut owns less than one percent (1%) of El Sitio
Shares on an as-converted basis, Chestnut shall have the right to appoint an
observer to the Board, who shall be entitled to participate in the meetings of
the Board, but shall not have any vote. IMPSAT shall have the right to nominate
one (1) Class A Preferred Director to the Board for so long as IMPSAT shall own
(i) two and one-half percent (2.5%) of its current holdings of El Sitio Shares
on an as-converted basis or (ii) one percent (1%) or more of El Sitio Shares on
an as-converted basis. If IMPSAT owns less than one percent (1%) of El Sitio
Shares on an as-converted basis, IMPSAT shall have the right to appoint an
observer to the Board who shall be entitled to participate in the meetings of
the Board, but shall not have any vote. One (1) Class A Preferred Director will
be nominated by the unanimous vote of all of the directors of El Sitio and shall
be independent to
3
<PAGE>
any other holder of common shares or Class A Preferred Shares. The Class B
Shareholders shall have the right to appoint one (1) observer to the Board, who
shall be entitled to participate in the meetings of the Board, but shall not
have any vote.
(b) If, prior to his election to the Board, any
director-nominee shall be unwilling or unable to serve as a director of the
Company, the Shareholder which nominated such director shall be entitled to
nominate a replacement who shall then be the director-nominee for such
Shareholder for purposes of this Article 2. Except as set forth in Section
2.2(c) and to the extent the Shareholders shall otherwise agree in writing, each
Shareholder agrees not to take any action or to cause the Company to take any
action to remove or replace any director (or any alternate therefor) nominated
by another Shareholder.
(c) Each Shareholder agrees to vote in favor of each other's
nominees upon initial election and upon replacement. In particular, upon the
written request of any other Shareholder, each Shareholder agrees to take all
actions available to it, including, without limitation, voting or acting by
written consent, with respect to all of the El Sitio Shares that it is entitled
to vote or so act, to (i) remove from the Board any member who had been
nominated by such other Shareholder and (ii) appoint any new member designated
by such other Shareholder to fill any vacancy on the Board caused by removal,
resignation or death of a member originally nominated by such other Shareholder.
A Shareholder shall have the right to cause the removal of any director
(including those nominated by another Shareholder) for Cause, and upon notice
from a Shareholder of its desire to remove a director for Cause, setting forth a
description of the facts and circumstances which constitute "Cause," each
Shareholder agrees to take any action necessary to remove such member of the
Board for Cause, if Cause exists.
(d) The Shareholders agree that the Memorandum shall provide
for certain notice, quorum and voting requirements for action of the Board and
agree not to take any action inconsistent with such provisions. The Memorandum
shall provide for quarterly meetings of the Board unless a majority in Interest
of the Shareholders otherwise agree. Special meetings of the Board may be held
by conference telephone or any other means consistent with British Virgin
Islands law.
2.3. BOARD ACTION.
(a) Except as provided in Section 2.3(b) below or in the
Memorandum or under applicable law, all actions of the Board shall require the
affirmative vote of five (5) directors. Unless prohibited by law, the directors
shall be permitted to vote on any matter brought before the Board. The
Shareholders and the Company agree to take any action necessary or desirable to
effect the foregoing
(b) The Shareholders agree that the matters set forth below
will require the affirmative vote of three of the five Class A Preferred
Directors:
(i) any guarantees, loans or contractual obligations
to make loans, in either case made by the Company or any Subsidiary to third
parties, in an amount which, jointly or severally, exceeds $50,000;
4
<PAGE>
(ii) execution by the Company or any Subsidiary of
contracts with suppliers or service companies in any amount which requires
annual or single payments which exceed $75,000 above and beyond any budgeted
item in the long term and annual business plans;
(iii) approval of the Company's long term business
plan and any material modifications thereto;
(iv) approval of the Company's Annual Budget (as
defined below) and any material modifications thereto;
(v) incurrence of debt by the Company or any
Subsidiary in amounts not contemplated by the Company's long term business plan
and annual business plan;
(vi) granting of Liens (other than purchase money
security interests) on assets (including shares of any Subsidiary) of the
Company or any Subsidiary not contemplated by the Company's long term business
plan and annual business plan;
(vii) any disposition outside the ordinary course of
business of assets (including shares of any Subsidiary) of the Company or any
Subsidiary having a value of more than $100,000 which constitute less than all
or substantially all of the assets of the Company;
(viii) any transactions between the Company or any of
its Subsidiaries, on the one hand, and any Shareholder or any of its Affiliates,
on the other hand;
(ix) reductions in capital for any reason;
(x) public listing of securities of the Company on a
securities exchange (except in connection with the exercise of demand
registration rights pursuant to the Registration Rights Agreement), other than
in connection with a public offering which raises at least $35.0 million net
proceeds for the Company;
(xi) issuance of equity securities or securities
convertible into or exchangeable for equity securities of the Company; and
(xii) distribution of dividends by the Company.
(c) If in any year the Board shall fail to approve a
business plan for the next fiscal year, the Company's existing long term
business plan in effect for the immediately preceding Fiscal Year (adjusted for
the growth rate and inflation adjustments set forth therein) shall continue in
effect.
2.4. SPECIAL SHAREHOLDER VOTING REQUIREMENTS.
(a) Each Shareholder agrees not to vote in favor of any of
the matters described in this Section 2.4(a) unless Shareholders holding more
than fifty percent (50%) of the Class A Preferred Shares voting as a class and
fifty percent (50%) of the Class B Preferred Shares voting as a class have
approved such matters (except with respect to subsection (ii) below,
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as to which each Shareholder agrees not to vote in favor of unless Shareholders
holding more than fifty percent (50%) of the Class A Preferred Shares have voted
in favor thereof). These matters are as follows:
(i) changes in legal structure of the Company such
as the conversion to a partnership (other than the creation of a subsidiary);
(ii) merger, consolidation or spin-off involving the
Company or sales of all or substantially all of the assets of the Company;
(iii) redemption of capital stock of the Company and
any other share repurchases, as well as a subsequent resale of such repurchased
shares, in excess of $50,000, except that, with respect to employment related
buy-backs, the Company may redeem or repurchase such capital stock without
approval of the Class A Preferred Shares; provided, however, that any such
employment related buy-back is carried out in accordance with a severance
arrangement;
(iv) insolvency, protection measures against
creditors, bankruptcies or any other voluntary or judicial financial
restructuring procedures;
(v) entry by the Company into any business other
than the Internet business or any other service;
(vi) dissolution, winding up or voluntary liquidation
of the Company;
(vii) modification of the benefits, advantages and
conditions of redemption or amortization of one or more classes of preferred
shares, or the creation of a new class of Shares which has rights which are
senior to the Class A Preferred Shares or Class B Preferred Shares;
(viii) creation by the Company of beneficial interests
in the capital stock of the Company; and
(ix) any amendments to the Memorandum relating to the
foregoing items.
(b) Each of the Shareholders will receive at least ten (10)
calendar days prior written notice of any meeting of Shareholders. In case a
quorum is not present at a meeting, the Shareholders attending such meeting
shall take any measures necessary to make such meeting ineffective, and hereby
agree that any action taken at such meeting (other than such measure) shall be
void ab initio. Except as provided in Section 2.4(a) above, actions requiring
approval of the Shareholders will be approved by a vote of a majority of the
Shareholders entitled to vote thereon and present in person or represented by
proxy (or any greater percentage which may be required under applicable law), at
any duly convened meeting of Shareholders at which a quorum is present.
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2.5. RIGHT TO INSPECT RECORDS. Each Shareholder shall have
the right to inspect and examine the books, records, files, long term business
plans and other business plans, and other documents of the Company upon
reasonable notice to the Company and at reasonable times and in a manner so as
not to disrupt business operations. In addition, the Shareholders agree to cause
the Company to provide any and all information reasonably required by any
Shareholder in order to comply with any legal, tax or regulatory requirements
applicable to such Shareholder.
2.6. FINANCIAL REPORTING. The Company shall furnish to the
Shareholders (or, in the case of clause (d) hereof, the Class A Shareholders):
(a) as soon as available, and within ninety (90) days after
the end of each fiscal year thereafter, (i) an audited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such fiscal year,
together with the related consolidated statements of income, shareholders'
equity and cash flows for the fiscal year then ended, prepared in accordance
with United States GAAP, and certified by a "Big 5" firm of independent public
accountants selected by the Board and approved by the Shareholders, such
approval not to be unreasonably withheld (the "ANNUAL FINANCIAL STATEMENT"); and
(ii) any related management letters from such accounting firm. The Annual
Financial Statement shall also include comparative statements from the prior
fiscal year and the most recent Annual Budget (as defined below) delivered by
the Company pursuant to Section 2.6(d) hereof;
(b) as soon as available, and in any event within thirty
(30) days after the end of each quarter in each fiscal year (other than the last
quarter in each fiscal year) a consolidated balance sheet of the Company and its
Subsidiaries and the related statements of income, shareholders' equity and cash
flows, unaudited but prepared in accordance with United States GAAP (except that
such unaudited financial statement need not contain all of the required
footnotes and is subject to normal, recurring non-material year end
adjustments), and certified by the chief financial officer of the Company (the
"QUARTERLY BALANCE SHEET"). The Quarterly Balance Sheet shall be accompanied by
a quarterly management report describing the current status of the Company and
its Subsidiaries and their operations and prospects. The Quarterly Balance Sheet
should be prepared as of the end of such quarter with statements of income,
shareholders' equity and cash flows for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, in each case with
comparative statements for the prior fiscal year and the most recent Annual
Budget delivered by the Company pursuant to 2.6(d) hereof, and which shall
specifically note and describe all expenditures (in any single transaction or
series of related transactions) in excess of $50,000 not included in the most
recent Annual Budget delivered by the Company pursuant to Section 2.6(d) hereof;
(c) as soon as available, and in any event no later than
twenty (20) days after the end of each month, statements of income and cash
flow, unaudited but prepared in accordance with United States GAAP (except that
such unaudited financial statement need not contain all of the required
footnotes and is subject to normal, recurring non-material year-end adjustments)
and certified by the chief financial officer of the Company, and any other
reports that are prepared by the management of the Company for the Board.
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(d) as soon as available, and in any event no later than
sixty (60) days prior to the start of each fiscal year, capital and operating
expense budget, cash flow projections and income and loss projections for the
Company and its Subsidiaries in respect of such fiscal year and an annual
business plan (the "ANNUAL BUDGET"), all itemized in reasonable detail and
prepared on a monthly basis, and, promptly after preparation, any revisions to
any of the foregoing;
(e) promptly, any document relating to the affairs of the
Company and its Subsidiaries delivered to all of the Shareholders and such other
information as the Shareholders shall reasonably request from time to time; and
(f) promptly, notice, and in any event within ten (10) days
after notice has been received by the Company or its Subsidiaries, of any
material litigation or an adverse event, claim, dispute or any other development
which may be deemed material to the operations, assets or properties of the
Company or its Subsidiaries.
2.7. ETHICAL BUSINESS PRACTICES. Each Shareholder agrees,
severally and not jointly, not to offer or give on behalf of the Company or any
of its Subsidiaries, and the Company agrees not to offer or give, either
directly or through a Third Party (as defined below), anything of value to: (a)
any government official, any political party or official thereof, or any
candidate for political office; (b) any customer or member of the government; or
(c) any other Person, in any such case while knowing or having reason to know
that all or a portion of such money or thing of value may be offered, given or
promised, directly or indirectly, to any customer or member of the government or
candidate for political office for the purpose of the following: (i) influencing
any action or decision of such Person, in his or its official capacity,
including a decision to fail to perform his or its official function; (ii)
inducing such Person to use his or its influence with any government or
instrumentality thereof to effect or influence any act or decision of such
government or instrumentality in order to assist the Company in obtaining or
retaining business for, or with, or directing business to, any Person; or (iii)
where such payment would constitute a bribe, kickback or illegal or improper
payment.
2.8. LIABILITY INSURANCE. The Company will maintain in full
force and effect directors' and officers' liability insurance with a reputable,
financially stable insurance company in such amounts and on such usual and
customary terms (including, without limitation, as to coverage for claims
against directors following the termination of their Board service) as the Board
shall authorize from time to time.
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2.9. COMPENSATION COMMITTEE AND AUDIT COMMITTEE. The Board of
the Company shall have two permanently sitting committees, the Compensation
Committee and the Audit Committee, which committees shall be comprised of three
members each. The Shareholders agree that two (2) representatives shall be
appointed to each committee by the Class A Shareholders, of which one (1)
representative shall be appointed by Ibero Group to each of the committees as
long as the Ibero Group retains its Board seat, and one (1) representative shall
be appointed by Chestnut to each of the committees as long as Chestnut retains
its Board seat. One (1) representative shall be appointed by the Initial
Shareholders to each of the committees.
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ARTICLE 3. TRANSFERS OF SHARES; PREEMPTIVE RIGHTS
3.1. RESTRICTION ON TRANSFER. The El Sitio Shares held by any
Shareholder and comprising its Interest ("Covered Shares") shall not be
transferable, directly or indirectly, except upon the conditions specified in
this Article 3, which conditions are intended, in part, to ensure compliance
with the provisions of the Securities Act in respect of any disposition of any
Covered Shares or any interest therein which would constitute a sale thereof
within the meaning of the Securities Act (a "Transfer"). As used in this Article
3, the term "Transferor" refers to the transferor (whether by voluntary or
involuntary means) of any Covered Shares, the term "Other Shareholder" means the
Shareholder which is not the Transferor, and the term "Subject Shares" means the
shares of Covered Shares that have been or are to be Transferred.
3.2. INVOLUNTARY TRANSFERS. In the event that an Involuntary
Transfer (as hereinafter defined) by any Shareholder of any Covered Shares may
occur, the following procedures shall apply:
(a) The Shareholder to be deprived or divested of Covered
Shares by the Involuntary Transfer shall promptly give written notice of such
Involuntary Transfer in reasonable detail to the Company and to the Other
Shareholders, and the person or persons who take or propose to take any interest
in the Subject Shares as a result of such Involuntary Transfer (the
"Transferee") shall hold such interest subject to the rights of the Other
Shareholder as set forth below.
(b) Upon receipt of the notice referred to in Section 3.2(a)
above or upon discovery of such Involuntary Transfer, the Company shall cause
the appraisal referred to in Section 3.2(c) to be made and each of the Other
Shareholders shall have the irrevocable option, but not the obligation, for a
period of sixty (60) days following receipt by all Other Shareholders of the
results of such appraisal, to purchase the Subject Shares, subject to the terms
set forth herein. Each Other Shareholder may exercise the option for the number
of Subject Shares which bears the same relation to the total number of Subject
Shares as (x) such Other Shareholder's Interest bears to (y) the aggregate
Interest then held by all of the Other Shareholders exercising such option (and
purchasing Subject Shares under Section 3.2(c) below), or for such other number
of Subject Shares as all of the Other Shareholders exercising such option may
agree in writing. In the event that the Other Shareholders elect to purchase, in
the aggregate, less than all of the Subject Shares, then the Other Shareholders
shall have no right to purchase any of the Subject Shares.
(c) The closing for any such sale of Subject Shares to one
or more Other Shareholders shall be at the offices of the Company on a mutually
satisfactory business day within fifteen (15) days after the expiration of such
sixty (60) day period. The purchase price per share of any Subject Shares
purchased pursuant to this Section 3.2 shall be the amount which is equal to the
fair value, as of the Valuation Date (as hereinafter defined), of a Subject
Share, as such fair value is determined by an independent appraiser selected by
the Company and reasonably acceptable to the Shareholders holding, in the
aggregate, the majority of the aggregate Interests, and all costs of any such
appraisal shall be paid by the Company. The "Valuation
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Date" shall be the last day of the calendar quarter immediately preceding the
Involuntary Transfer.
(d) For purposes of this Agreement, the term "Involuntary
Transfer" shall mean any involuntary sale, transfer, encumbrance or other
disposition by or in which any Shareholder shall be deprived or divested of any
right, title or interest in or to any Covered Shares, including, without
limitation, any levy of execution, transfer in connection with bankruptcy,
judicial reorganization, insolvency or similar proceedings or any transfer to a
public officer or agency pursuant to any abandoned property or escheat law;
provided that any Transfer complying with Section 3.3, Section 3.4, Section 3.5
or Section 3.6 hereof shall not be deemed to be an "Involuntary Transfer."
3.3. RIGHTS OF FIRST OFFER. Except as otherwise expressly
provided in Sections 3.4 and 3.5 hereof, each Shareholder (other than any Class
B Shareholder) hereby agrees that it shall not effect a Transfer of any Covered
Shares and to the extent that any offers made pursuant to this Section 3.3(a)
will not violate the Securities Act, except in accordance with the following
procedures:
(a) In the event that a Shareholder (other than a Class B
Shareholder) wishes to make a Transfer of any Covered Shares, the Transferor
shall first deliver to the Other Shareholders a written notice (the "Offer
Notice"), which Offer Notice shall (i) specify the terms, including the number
of shares of Covered Shares to be sold, and the price per share at which the
Transferor proposes to Transfer such Covered Shares, and (ii) be irrevocable for
a period of fifteen (15) days after delivery thereof, offering (the "Offer") to
the Other Shareholders all of the Subject Shares proposed to be sold by the
Transferor at the purchase price and on the terms specified therein. Each of the
Other Shareholders shall have the right and option, at its sole discretion, for
a period of fifteen (15) days after delivery of the Offer Notice (the
"Acceptance Period"), to accept all, but not less than all, of the Subject
Shares (pro rata among such Other Shareholders so electing on the basis of the
number of El Sitio Shares owned by such Other Shareholders) offered at a price
equal to the purchase price and upon the other terms stated in the Offer Notice.
Such acceptance may be made by delivery of a written notice to the Transferor
within said fifteen (15) day period, which notice shall specify whether such
Shareholder wishes to purchase more than its pro rata share, if Other
Shareholders decline to purchase, and if so, the maximum purchase such
Shareholder elects to make. In the event that any Shareholder elects not to
exercise its pro rata right to purchase, the Other Shareholder(s) shall have the
right to purchase the Subject Shares otherwise allocable to the
non-participating Shareholder pro rata to their participation in the Offer,
subject to the limits set forth in the applicable Offer Notice. In the event
that the Other Shareholders elect not to purchase all of the Subject Shares,
then the Other Shareholders shall have no right to purchase all or any portion
of such Subject Shares and the Transferor shall be free to Transfer the Subject
Shares in accordance with Section 3.3(c). A Shareholder electing to purchase
Subject Shares pursuant to this Section 3.3 is referred to herein as a
"Purchasing Shareholder"). For purposes of this Section 3.3, if the Transferor
is transferring the Company's common shares, then the Class B Shareholders shall
be included as Other Shareholders; in all other cases, the Class B Shareholders
shall not be included as Other Shareholders
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(b) Notwithstanding anything to the contrary contained in
Section 3.3 hereof, in the event the Transferor is one of the (i) Initial
Shareholders, the other Initial Shareholders will have a priority right of first
offer with respect to any Subject Shares offered by an Initial Shareholder, in
accordance with the terms and conditions of the Syndication Agreement among the
Initial Shareholders and dated as of June 10, 1999, before any such right may be
exercised by the Shareholders of any other class or (ii) Class A Shareholders,
the other Class A Shareholders will have a priority right of first offer with
respect to any Class A Preferred Shares offered by a Class A Shareholder, before
any such right may be exercised by the Other Shareholders.
(c) Transfers, if any, of Subject Shares to the Purchasing
Shareholder under the terms of this Section 3.3 shall be made at the offices of
the Company or any other address acceptable to the Company on a mutually
satisfactory business day within fifteen (15) days after the expiration of the
Acceptance Period. The Transferor shall deliver the Subject Shares by delivering
share certificates representing such Subject Shares, duly endorsed for transfer,
against payment of the purchase price thereof, in accordance with the terms of
the Offer.
(d) If effective acceptance shall not be received pursuant
to Section 3.3(a) above, with respect to all Covered Shares offered for sale
pursuant to the Offer Notice, then the Transferor may Transfer all or any part
of the El Sitio Shares so offered for sale at a price not less than the price,
and on terms not more advantageous to the purchaser than the terms stated in the
Offer Notice at any time within one hundred eighty (180) days after the
expiration of the Acceptance Period.
(e) In the event that any Shareholder exercises a purchase
right under Section 3.3(a) and then fails to consummate such purchase in
accordance with the terms of the Offer Notice (each such Shareholder, a
"Defaulting Shareholder"), then, in addition to any remedies at law or in equity
that the Transferor may have in respect of such failure, the Defaulting
Shareholder shall thereafter cease to have any right to receive offers or
purchase shares pursuant to Section 3.3(a).
3.4. EXEMPT TRANSFERS. Anything contained herein to the
contrary notwithstanding, the provisions of Sections 3.3, 3.5 and 3.6 shall not
be applicable to a Transfer (i) to an Affiliate of a Shareholder or for the
benefit of an Affiliate or family member of a Shareholder, if made solely for
personal tax or estate planning purposes of the Transferor, or (ii) in an
offering pursuant to the exercise of registration rights under the Registration
Rights Agreement, provided such Affiliate executes all documents (including the
representation that such Transfer may be effected without registration under the
applicable provisions of the Securities Act and state securities or blue sky
laws) deemed reasonably necessary by the Other Shareholder to cause the
Affiliate to become a party to, and be bound by, the terms of this Agreement.
3.5. TAG-ALONG RIGHTS.
(a) RIGHT TO PARTICIPATE IN SALE. Notwithstanding any other
provision hereof, if any Shareholder party hereto, other than any Class B
Shareholder (such Shareholders, together with their Affiliates, the "Selling
Shareholder(s)") proposes to enter into an agreement with a
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third party to sell or otherwise dispose of for value (such sale or other
disposition for value being referred to as a "Tag-Along Sale") El Sitio Shares
held by it to a third party who is not an Affiliate (any such party, a "Third
Party") pursuant to a bona fide transaction (or series of related transactions)
in which securities representing an aggregate Interest of fifty percent (50%) or
more will be sold to a Third Party, then the Selling Shareholder(s) shall afford
the Other Shareholder(s), (the "Tag-Along Shareholders") the opportunity to
require that the sale by the Selling Shareholder(s) be conditioned upon such
Third Party purchasing that number of El Sitio Shares owned by such Tag-Along
Shareholder which delivers a Tag-Along Notice in accordance with Section 3.5(c)
equal to the product (rounded up to the nearest whole number) of (i) the
quotient determined by dividing (A) the number of El Sitio Shares owned by such
Tag-Along Shareholder, by (B) the number of El Sitio Shares owned by the Selling
Shareholders and all Tag-Along Shareholders which are selling El Sitio Shares in
the contemplated Tag-Along Sale, and (ii) the number of El Sitio Shares proposed
to be sold by all Shareholders in the contemplated Tag-Along Sale. In
negotiating a Tag-Along Sale, the Selling Shareholder(s) shall provide (i) that
the only representations, warranties or covenants which any Tag-Along
Shareholder shall be required to make in connection with any Transfer are
representations and warranties with respect to its own ownership of the shares
to be sold by it and its ability to convey title thereto free and clear of
liens, encumbrances or adverse claims, its due organization, its due
authorization, execution and delivery of the definitive purchase agreement (if
applicable), enforceability of such purchase agreement against it and no
conflict of it with such purchase agreement, and (ii) that the liability of the
Tag-Along Shareholder with respect to any representation and warranty made in
connection with any Transfer is the several liability of such Tag-Along
Shareholder (and not joint with any other person) and that such liability is
limited to the amount of proceeds actually received by such Tag-Along
Shareholder; provided, however, that the foregoing shall not limit the
obligations of such Tag-Along Shareholder, and such Tag-Along Shareholder hereby
expressly agrees to be bound by and be subject to, any escrow or other holdback
arrangement (on a pro rata basis based on the number of shares sold by such
Tag-Along Shareholder in proportion to all shares of the Company sold in such
Tag-Along Sale) provided for in the agreement relating to the Tag-Along Sale.
For purposes of this Section 3.5, if the Selling Shareholder is transferring the
Company's common shares, then the Class B Shareholders shall be included as
Tag-Along Shareholders; in all other cases, the Class B Shareholders shall not
be included as Other Shareholders.
(b) SALE NOTICE. The Selling Shareholder(s) shall provide
each Tag-Along Shareholder and the Company with written notice (the "Tag-Along
Sale Notice") not less than thirty (30) days prior to the proposed date of the
Tag-Along Sale (the "Tag-Along Sale Date"). Each Tag-Along Sale Notice shall be
accompanied by a copy of any agreement relating to the Tag-Along Sale (if
available) and shall set forth: (i) the name and address of the Third Party in
the Tag-Along Sale; (ii) the number of shares proposed to be Transferred by the
Selling Shareholder(s); (iii) the proposed amount and form of consideration to
be paid for such shares expressed on a per share basis and the terms and
conditions of payment offered by the Third Party; (iv) the aggregate number of
shares of the Company held of record by the Selling Shareholder(s) as of the
close of business on the day immediately preceding the date of the Tag-Along
Notice (the "Tag-Along Notice Date"); (v) confirmation that the Third Party has
been informed of the "Tag-Along Rights" provided for herein and has agreed to
purchase shares from
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any Tag-Along Shareholder in accordance with the terms hereof; and (vi) the
Tag-Along Sale Date.
(c) TAG-ALONG NOTICE. Any Tag-Along Shareholder wishing to
participate in the Tag-Along Sale shall provide written notice (the "Tag-Along
Notice") to the Selling Shareholder(s) no less than fifteen (15) days prior to
the Tag-Along Sale Date. The Tag-Along Notice shall set forth the number of El
Sitio Shares that such Tag-Along Shareholder elects to include in the Tag-Along
Sale. The Tag-Along Notice given by any Tag-Along Shareholder shall constitute
such Tag-Along Shareholder's binding agreement to sell the shares specified in
the Tag-Along Notice on the terms and conditions applicable to the Tag-Along
Sale; provided, however, that in the event that there is any material change in
the material terms and conditions of such Tag-Along Sale applicable to the
Tag-Along Shareholder (including, but not limited to, any decrease in the
purchase price that occurs other than pursuant to an adjustment mechanism set
forth in the agreement relating to the Tag-Along Sale) after such Tag-Along
Shareholder gives its Tag-Along Notice, then, notwithstanding anything herein to
the contrary, the Tag-Along Shareholder shall have the right to withdraw from
participation in the Tag-Along Sale with respect to all of its El Sitio Shares
affected thereby. If the Third Party does not consummate the purchase of all the
El Sitio Shares requested to be included in the Tag-Along Sale by any Tag-Along
Shareholder on terms and conditions which are no more favorable in any material
respect to the Selling Shareholder (except as otherwise provided herein), then
the Selling Shareholder(s) shall not consummate the Tag-Along Sale of any of its
shares to the Third Party. If a Tag-Along Notice from any Tag-Along Shareholder
is not received by the Selling Shareholder(s) prior to the fifteen (15) day
period specified above, the Selling Shareholder(s) shall have the right to
consummate the Tag-Along Sale without the participation of such Tag-Along
Shareholder, but only on terms and conditions which are no more favorable in any
material respect to the Selling Shareholder (and in any event, at no greater a
purchase price, except as the purchase price may be adjusted pursuant to the
agreement regarding the relevant sale or other disposition) than as stated in
the Tag-Along Sale Notice and only if such Tag-Along Sale occurs on a date
within one hundred eighty (180) days of the Tag-Along Sale Date. If such
Tag-Along Sale does not occur within such one hundred eighty (180) day period,
the El Sitio Shares that were to be subject to such Tag-Along Sale thereafter
shall continue to be subject to all of the restrictions contained in this
Agreement.
(d) DELIVERY OF SHARES. On the Tag-Along Sale Date, each
Tag-Along Shareholder shall deliver the shares to be sold in connection with the
Tag-Along Sale to the Third Party by delivering share certificates representing
such shares, duly endorsed for transfer, against delivery of immediately
available funds in the amount of the purchase price for such shares.
(e) NO WAIVER. Any election in any instance by a Shareholder
not to exercise its rights to participate in a Tag-Along Sale under this Section
3.5 shall not constitute a waiver of such rights with respect to any other
proposed Transfer of shares of the Company which would trigger such rights.
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3.6. DRAG-ALONG RIGHTS.
(a) GRANT OF DRAG-ALONG RIGHTS. If any Shareholder(s) party
hereto, other than any Class B Shareholder (such Shareholders, together with
their Affiliates, the "Selling Shareholder(s)") proposes to enter into an
agreement with a Third Party to sell or otherwise dispose of for value (such
sale or other disposition for value being referred to as a "Drag-Along Sale") El
Sitio Shares held by it to a Third Party pursuant to a bona fide transaction (or
series of related transactions) in which securities representing an aggregate
Interest of fifty percent (50%) or more will be sold to a Third Party, then the
remaining Shareholder(s), other than the Class B Shareholders (the "Drag-Along
Shareholder") shall, upon the written request of the Selling Shareholder(s),
sell to such Third Party (i) El Sitio Shares owned by such Drag-Along
Shareholder equal to (A) the number of El Sitio Shares owned by such Drag-Along
Shareholder multiplied by (B) a fraction ("Drag-Along Fraction"), the numerator
of which is the number of El Sitio Shares the Selling Shareholder(s) intend to
sell pursuant to this Section 3.6 and the denominator of which is the aggregate
number of El Sitio Shares owned by the Selling Shareholder(s), and (ii) warrants
owned by such Drag-Along Shareholder representing the right to acquire a number
of shares equal to (A) the number of shares underlying such Drag-Along
Shareholders warrants multiplied by (B) the Drag-Along Fraction,
contemporaneously with the sale of such El Sitio Shares by the Selling
Shareholder(s), for, with respect to the El Sitio Shares, the same consideration
and on the same terms as those provided by such Third Party to the Selling
Shareholder(s) and, with respect to the warrants, for the same consideration and
on the same terms as those provided by such Third Party to the Selling
Shareholder(s) less the aggregate exercise price for the warrants so
transferred.
(b) EXERCISE OF DRAG-ALONG RIGHT. The Drag-Along Right shall
be exercisable by written notice given by the Selling Shareholder(s) to each
Drag-Along Shareholder containing the price and other material terms of the
proposed sale and the date of the closing of the proposed sale (the "Drag-Along
Sale Date"), which date shall not be less than twenty (20) nor more than sixty
(60) calendar days after the date of such notice.
(c) DELIVERY OF SHARES. On the Drag-Along Sale Date, each
Drag-Along Shareholder shall deliver the shares to be sold in connection with
the Drag-Along Sale to the Third Party by delivering share certificates
representing such shares, duly endorsed for transfer, against delivery of
immediately available funds in the amount of the purchase price for such shares.
3.7. TRANSFERS IN VIOLATION OF AGREEMENT. If any voluntary
Transfer of El Sitio Shares is made or attempted contrary to the provisions of
this Agreement (such Transfer, an "Unauthorized Transfer"), the Other
Shareholders shall have the right to purchase all or part of such El Sitio
Shares from the owner thereof or the owner's transferee at any time before or
after the Transfer at a purchase price per share equal to (i) if any El Sitio
Shares are listed for trading on NASDAQ or the Bolsa de Comercios de Buenos
Aires, the lesser of (x) eighty percent (80%) of the thirty (30) day average
closing price over the thirty-day period immediately preceding the date of the
initial Transfer contrary to this Agreement, or (y) eighty percent (80%) of the
thirty (30) day average closing price for the thirty days immediately preceding
the date of exercise of
15
<PAGE>
the right granted to the Other Shareholders herein, or (ii) if no El Sitio
Shares are listed for trading on NASDAQ or the Bolsa de Comercios de Buenos
Aires, the lesser of (x) eighty percent (80%) of the Fair Value at the time of
the initial transfer that was contrary to this Agreement, or (y) eighty percent
(80%) of the Fair Value at the time of the Other Shareholders' purchase of such
El Sitio Shares. The term "Fair Value" shall mean the amount at which the El
Sitio Shares would change hands between an independent, willing buyer and an
independent, willing seller, each having reasonable knowledge of all relevant
facts and neither being under any compulsion to act (considering, where
applicable, the relative rights of all outstanding classes or series of capital
stock but not discounting the value of such securities for illiquidity or
because they represent a minority ownership position in the Company), which
amount shall be determined by the Board in its reasonable discretion and in good
faith.
3.8. PREEMPTIVE RIGHTS.
(a) Except for the issuance of the Company's capital stock
or other securities (i) pursuant to a Qualifying IPO (as defined in the
Memorandum), (ii) comprising additional shares or option issuances to Employees
of the Company pursuant to share option plans existing on the date hereof
including the number of shares issuable thereunder as of the date hereof (or
amendments to such plans or new plans if agreed to by the Shareholders), (iii)
comprising Class B Preferred Shares, up to an aggregate of 1,888,889 Class B
Preferred Shares, or (iv) in connection with acquisitions of businesses by the
Company approved by the Shareholders, if the Company at any time after the date
hereof authorizes the issuance or sale of any capital stock of the Company or
any securities of the Company containing options or rights to acquire any shares
of capital stock (other than as a dividend on the outstanding capital stock),
the Company shall first offer to sell to the Shareholders on a pro rata basis,
all of such capital stock or other securities (the "Offered Shares").
(b) In order to exercise its purchase rights under this
Section 3.8, each Shareholder must within twenty (20) business days after
receipt of written notice from the Company describing in reasonable detail the
capital stock or securities being offered, the purchase price thereof and the
payment terms, deliver a written notice to the Company describing its election
hereunder. Such election shall indicate the number of Offered Shares that the
Shareholder in its sole discretion elects to purchase, which may be all or any
portion of the Offered Shares. The Company shall give the Shareholders no less
than fifteen (15) business days notice of the closing of the sale and purchase
of such shares.
(c) Upon the expiration of the 20-day period described
above, the Company shall be entitled to sell such capital stock or securities
which the Shareholder has not elected to purchase during the ninety (90) days
following such expiration on terms and conditions, including price, no more
favorable to the purchasers thereof than those offered to the Shareholders. Any
capital stock or securities offered or sold by the Company to any person after
such 90-day period must be re-offered to the Shareholders pursuant to the terms
of this Section 3.8.
16
<PAGE>
ARTICLE 4. OTHER AGREEMENTS
Ibero-American Media Partners II Ltd., Washburn and the
Company agree to use reasonable efforts to exploit jointly strategic business
opportunities in the future, including, but not limited to: (i) the Ibero Group
advertising on the Internet site of the Company and the Company advertising on
media networks of the Ibero Group and its Affiliates (including agreements
whereby the Company will utilize media networks of the Ibero Group and its
Affiliates as the preferred choice for its advertising expenditures); (ii) the
Company and the Ibero Group developing Internet sites for Ibero Group's media
networks as a preferred provider; (iii) the Company and the Ibero Group sharing
production and advertising sales assets; and (iv) the Company and the Ibero
Group sharing offices and other administrative overhead; provided, however, that
such opportunities are mutually beneficial for both Ibero Group and the Company.
The Ibero Group and the Company agree that these strategic business
opportunities are intended to be a part of a long-term strategic initiative.
ARTICLE 5. MISCELLANEOUS
5.1. NOTICES. Any and all notices, designations, consents,
offers, acceptances, or any other communication required or permitted to be
given by any provision of this Agreement shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by telecopier
with acknowledgment of receipt sent by telecopier or delivered in person, as the
case may be, to such party at the address or telecopier number, as the case may
be, set forth on the signature pages hereto. All such notices, requests,
consents and other communications shall be deemed to have been received: (a) in
the case of personal delivery, on the date of receipt; or (b) in the case of
telecopying, on the date of acknowledgment thereof.
5.2. AMENDMENT AND WAIVER. No change or modification of, or
waiver of compliance with, this Agreement shall be valid unless the same shall
be in writing and signed by each of the Shareholders party hereto which holds an
Interest of one percent (1%) or more.
5.3. TERMINATION. This Agreement may be terminated at any
time by an instrument in writing signed by all of the Shareholders party hereto.
This Agreement shall terminate automatically as to any Shareholder which
transfers all of its El Sitio Shares, or upon the occurrence of a Qualifying IPO
(as defined in the Memorandum). Unless sooner terminated, this Agreement shall
terminate ten (10) years from the date hereof, unless, at any time within one
(1) year prior to such date, all of the parties extend its duration for as many
additional periods, each not to exceed ten (10) years, as they may desire.
5.4. NO WAIVER. No failure or delay on the part of the
Shareholders or any of them in exercising any right, between the Company and the
Shareholders or any of them shall operate as a waiver thereof nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the simultaneous or later exercise of any other right, power or privilege. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Shareholders or any of them would otherwise
have. No notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand
17
<PAGE>
in similar or other circumstances or constitute a waiver of the rights of the
Shareholders or any of them to take any other or further action in any
circumstances without notice or demand.
5.5. SPECIFIC PERFORMANCE. Each party to this Agreement
acknowledges that the other parties will suffer irreparable injury in the event
of any breach of any provision of this Agreement and that therefore the remedy
at law for any breach or threatened breach of any such provision of this
Agreement will be inadequate. Accordingly, upon a breach or threatened breach of
any such provision of this Agreement by any party hereto, the other parties
shall, in addition and without prejudice to any of the rights and remedies they
may have, be entitled as a matter of right, without proof of actual damages, to
seek specific performance of such provisions of this Agreement and to such other
injunctive or equitable relief to enforce, or prevent any violations (whether
anticipatory, continuing or future) of, such provisions of this Agreement.
5.6. COUNTERPARTS AND HEADINGS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument. All headings and any cover page or table of contents are inserted
for convenience or reference only and shall not affect its meaning or
interpretation.
5.7. NOUNS AND PRONOUNS. Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice-versa. Dollars or $ means the currency of the United States or
its foreign currency equivalent at the time the determination is made.
5.8. EXPENSES. Each of the parties to this Agreement shall
bear its own expenses, including, without limitation, the fees and disbursements
of its respective counsel, in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby.
5.9. GOVERNING LAW. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the British Virgin
Islands, without regard to its conflict of law rules.
5.10. DISPUTE RESOLUTION.
(a) Any and all disputes between or among the parties not
involving any Class B Shareholder arising in connection with or relating in any
way to the validity, construction, meaning, enforceability or performance of
this Agreement shall be settled by binding arbitration in accordance with the
rules of arbitration then in effect (the "ICC Rules") of the International
Chamber of Commerce (the "ICC"). Any party or parties electing to refer a matter
to arbitration pursuant hereto (the "Petitioner") shall promptly deliver written
notice (the "Arbitration Notice") to the other parties that it wishes to
commence an arbitration proceeding under this Section 5.10. The Arbitration
Notice shall set forth the matter being referred to arbitration and the name of
the individual selected by the Petitioner as one of the arbitrators.
18
<PAGE>
(b) There shall be three (3) arbitrators, and each party to
the arbitration shall select one (1) arbitrator. Within twenty (20) days of
receipt of the Arbitration Notice, the other party to such arbitration (the
"Respondent") shall appoint an arbitrator (who shall have appropriate
qualifications in relation to the matter in dispute) and notify the Petitioner
of such appointment and submit its counter statement, if any, of the matter
being referred to arbitration. If the Respondent fails to appoint an arbitrator
within such twenty (20) day period, the Petitioner shall request the ICC
President to appoint a second arbitrator who shall have appropriate
qualifications in relation to the matter in dispute. Within twenty (20) days
after appointment of the second arbitrator, the two arbitrators shall appoint
the third arbitrator. If the two arbitrators fail to appoint the third
arbitrator within such twenty (20) day period, either party to the arbitration
may request that the ICC President appoint the third arbitrator, who shall have
appropriate qualifications in relation to the matter in dispute. All three (3)
arbitrators shall be bilingual (Spanish/English). In the event that there are
more than two (2) parties to such arbitration, all three (3) arbitrators shall
be appointed by the ICC President.
(c) The arbitration proceedings shall be conducted in the
English and Spanish languages in London, England, in accordance with the ICC
Rules, and all documents in connection with any such proceedings shall be
submitted in the English or Spanish languages or with a complete and accurate
English or Spanish (as applicable) language translation. In any arbitration, the
decision of the arbitrators shall be final and binding on the parties to the
arbitration and judgment on the decision may be entered in and enforced in any
court of competent jurisdiction in accordance with the New York Convention on
the Recognition and Enforcement of Arbitral Awards. The substantially prevailing
party in such arbitration, in addition to all other relief provided, shall be
entitled to an award of all its reasonable costs and expenses including attorney
fees and expenses and deposits and payments to the ICC.
(d) Each party hereto hereby agrees that each of the parties
hereto shall have the right to seek appropriate emergency or equitable relief to
preserve the arbitral matter or to otherwise protect its rights pending
resolution of the arbitral matter, whether in New York, New York, Argentina or
in any other jurisdiction.
(e) The parties agree to negotiate in good faith to resolve
any dispute involving the Class B Shareholders regarding arising in connection
with or relating in any way to the validity, construction, meaning,
enforceability or performance of this Agreement. If the negotiations do not
resolve the dispute to the reasonable satisfaction of both parties to the
dispute, then each party shall nominate one senior officer of the rank of Vice
President or higher as its representative. These representatives shall, within
thirty (30) days of a written request by either party to call such a meeting,
meet in person and alone (except for one assistant for each party) and shall
attempt in good faith to resolve the dispute. If the disputes cannot be resolved
by such senior managers in such meeting, the parties agree that they shall, if
requested in writing by either party, meet within thirty (30) days after such
written notification for one day with an impartial mediator and consider dispute
resolution alternatives other than litigation. If an alternative method of
dispute resolution is not agreed upon within thirty (30) days after the one-day
mediation, either party may begin litigation proceedings. This procedure shall
be a prerequisite before taking any additional action hereunder.
19
<PAGE>
5.11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of each of the Shareholders and their
respective executors, administrators and personal representatives and heirs and
their successors and assigns. The rights and obligations of any Shareholder
hereunder shall inure to the benefit of and be binding upon any transferee of
such Shareholder, if (i) such transferee agrees in writing to be bound by the
provisions of this Agreement and (ii) the Interest of such transferee would,
immediately upon becoming a party to this Agreement, equal or exceed five
percent (5%).
5.12. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid or unenforceable, the remaining provisions hereof shall
nevertheless continue in full force and effect as though the illegal, invalid or
unenforceable provisions were not a part hereof, and the parties shall exert
their best efforts to amend this Agreement to include a provision which is
legal, valid and enforceable and which carries out the original intent of the
parties.
5.13. COMPLETE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings, whether
written or oral, between or among any of the parties hereto, with respect to the
subject matter hereof, other than the Registration Rights Agreement and the
Syndication Agreement among the Initial Shareholders, dated as of June 10, 1999.
5.14. FURTHER ASSURANCES. Each of the parties to this
Agreement agrees to execute such other documents and take such other action as
may be reasonably necessary to implement and carry out the intent of this
agreement.
5.15. CONFLICT WITH MEMORANDUM. In the event that any of the
terms or provisions contained herein conflict with any of the provisions
contained in the Memorandum, the provisions of this Agreement shall govern to
the extent consistent with applicable British Virgin Islands law, as in effect
from time to time.
5.16. CONFIDENTIALITY. Each Shareholder (other than Intel
Atlantic, Inc.) covenants and agrees to treat any non-public information
provided to it by the Company concerning the business and finances of the
Company ("Corporate Information") as confidential and agrees further that it
will not use, exploit, reproduce, disclose or provide Corporate Information to
any third party (other than any agents of the Shareholder who are bound by
substantially similar obligations of confidentiality) on its own behalf or
otherwise, except with the consent of the Company or as required by law, legal
process or any federal or state regulatory body having jurisdiction over such
Shareholder. The provisions of this Section 5.16 shall not apply to any
information which:
(a) was within the public domain prior to the time of
disclosure of Corporate Information to the Shareholder or which comes into the
public domain other than as a result of a breach by the Shareholder of this
Section 5.16;
20
<PAGE>
(b) was in the possession of the Shareholder (or any of its
officers, directors, employees, agents, principals, or Affiliates) before the
Shareholder received the Corporate Information;
(c) was rightfully acquired by the Shareholder from a third
party without, to the knowledge of the Shareholder, any restriction or any
obligation of confidentiality; or
(d) was independently developed by the Shareholder without
any use or reference to the Corporate Information.
The provisions of this Section 5.16 shall survive the
termination of this Agreement, either in whole or as to any Shareholder, for a
period of two (2) years.
The obligations of Intel Atlantic, Inc. with respect to the
treatment of Corporate Information are set forth in Exhibit 4 hereto.
[The rest of this page has been intentionally left blank]
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
EL SITIO, INC.
By: /s/Horacio Milberg
------------------------------------------
Title: Chief Financial Officer
Notice Address:
Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
with a copy to:
Paul, Hastings, Janofsky & Walker, LLP
399 Park Avenue, 31st Floor
New York, New York 10022
Attn: Neil A. Torpey
Telephone: (212) 318-6034
Telecopier: (212) 318-4090
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
UTILITIVEST II, L.P.
By: Utilitivest II, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest II, L.L.C.
Notice address:
Paget - Brown and Company
West Wind Building
P.O. Box 1111
George Town, Grand Cayman
Cayman Islands, BWI
UTILITIVEST III, L.P.
By: Utilitivest III, L.L.C., its General Partner
By: /s/ Hurdle H. Lea III
-------------------------------------
Name: Hurdle H. Lea III
Title: Vice President and Director of
Utilitivest III, L.L.C.
Notice address:
Paget - Brown and Company
West Wind Building
P.O. Box 1111
George Town, Grand Cayman
Cayman Islands, BWI
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
IAMP (EL SITIO) INVESTMENTS LTD.
By: Jose Santos for Westlaw Limited
------------------------------------------
Title: Director
Notice Address:
c/o 404 Washington Avenue, 8th Floor
Miami Beach, Florida 33139
Attn: Benjamin S.A. Moody
Telephone: (305) 894-3578
Telecopier: (305) 894-3599
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: L. Kevin O'Mara, Jr.
Telephone: (212) 872-1021
Telecopier: (212) 872-1002
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
WASHBURN ENTERPRISES INC.
By: /s/Benjamin Moody
------------------------------------------
Title: Ben Moody - Authorized Representative
Notice Address:
c/o 404 Washington Avenue, 8th Floor
Miami Beach, Florida 33139
Attn: Benjamin S.A. Moody
Telephone: (305) 894-3578
Telecopier: (305) 894-3599
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: L. Kevin O'Mara, Jr.
Telephone: (212) 872-1021
Telecopier: (212) 872-1002
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
CHESTNUT HILL (EL SITIO), LLC
By: /s/Michael A. Greeley
------------------------------------------
Title: SVP
Notice Address:
c/o GCC Investments, Inc.
1300 Boylston Street
Chestnut Hill, MA 02647
Attn: Michael A. Greeley
Telephone: (617) 975-3222
Telecopier: (617) 975-320
with a copy to:
Phillip J. Szabla
Vice President and General Counsel
GC Companies, Inc.
1300 Boylston Street
Chestnut Hill, MA 02467
Telephone: (617) 264-8098
Telecopier: (617) 264-8206
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
TOWER PLUS INTERNATIONAL CORP.
By: /s/Ricardo Verdaguer - Director
------------------------------------------
Notice Address:
c/o Ricardo Verdaguer - Director
Plaza Independencia 811 PB
11100 Montevideo Uruguay
Telephone: (58 92) 902-1515
Telecopier: (58 92) 902-5454
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
ROBERTO CIBRIAN-CAMPOY
By: /s/Roberto Cibrian Campoy
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
HECTOR A. SIERRA
By: /s/Hector A. Sierra
-----------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
HECTOR R. BANDONI
By: /s/Hector R. Bandoni
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
SERGIO S. MONTI
By: /s/ Sergio S. Monti
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
DAMIAN SAID
By: /s/Damian Said
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
ALBERTO E. TAPIA
By: /s/Alberto E. Tapia
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
JULIEN SEVAUX
By: /s/Julien Sevaux
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
GILES DARD
By: /s/Giles Dard 10/11/99
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
GUSTAVO BLUFSTEIN
By: /s/Gustavo Blufstein
------------------------------------------
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibrian Campoy
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
THE HENRY B. WILSON TRUST OF 1996
By: /s/Henry B. Wilson
------------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, F.B.O. SCOTT WILSON
By: /s/Henry Wilson
------------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, F.B.O HENRY BIRKS WILSON, JR.
By: /s/Henry Wilson
------------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, F.B.O. ERINN PALMER BERKSON
By: /s/Henry Wilson
------------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
THE HENRY WILSON IRREVOCABLE TRUST
OF 1997, F.B.O. TYLER HEARTT WILSON
By: /s/Henry Wilson
------------------------------------------
Title: Trustee
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
BARBARA HUYETT
By: /s/Barbara Huyett
------------------------------------------
Notice Address:
100 Wilshire Blvd.
Suite 600
Santa Monica, CA 90401
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
VAMAGRA S.A.
By: /s/Emilio Alfredo Gravier
------------------------------------------
Title:
Notice Address:
Pedras 172, 4th Floor
1030 Buenos Aires, Argentina
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
SUMMIT INVESTMENT MANAGEMENT LTD.
By: /s/Horacio Milberg
------------------------------------------
Title: Director
Notice Address:
Mr. James Kidd
President
Summit Investement Management Ltd.
65 Front Street
Hamilton, HMGX
Bermuda
with a copy to:
Horacio Milberg
Chief Financial Officer
El Sitio, Inc.
Av. Belgrano 845
1092 Buenos Aires
<PAGE>
ELINSTAR INTERNATIONAL CORP.
By: /s/ Carlos Korn
------------------------------------------
Title:
Notice Address:
Carlos Korn
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with a copy to:
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<PAGE>
MILITELLO LIMITED
By: /s/ Roberto Vivo-Chaneton
------------------------------------------
Title:
Notice Address:
------------------------------------
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with a copy to:
------------------------------------
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<PAGE>
FUTURIT S.A.
By: /s/ Felipe Ostrolencki
------------------------------------------
Title: Attorney-In-Fact
Notice Address:
c/o Posadas 1429, Piso 10A
1011, Buenos Aires, Argentina
Attn: Felipe Ostrolencki
Telephone: (54 11) 4447-0312
Telecopier: (54 11) 4749-3315
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
QUANTUM DOLPHIN PLC
By: /s/Marcelo Mindlin
------------------------------------------
Title: Director
Notice Address:
Marcelo Mindlin
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
SLI.COM INC.
By: /s/Guillermo Liberman
------------------------------------------
Title:
Notice Address:
c/o Sociedad Latinoamericana de
Inversiones S.A.
Bouchard 547 Piso 14
1106 Buenos Aires, Argentina
Attention: Guillermo Liberman
Telephone: (54 11) 4316-9952
Telecopier: (54 11) 4313
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
IMPSAT CORPORATION
By: /s/ Hector Alonso
------------------------------------------
Title:
Notice Address:
ImpSat Corporation
Alferez Pareja 256
1107 Buenos Aires, Argentina
Attn: Hector Alonso
Telephone:
Telecopier: (541) 11-328-0140
with a copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004-1202
Attn: Neil M. Goodman
Telephone: (202) 942-5191
Telecopier: (201) 942-5999
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
RENEE SAENZ ARMAS
By: /s/Renee Saenz Armas
------------------------------------------
Title:
Notice Address:
c/o Avenida Belgrano 845, 4th Floor
1092 Buenos Aires, Argentina
Attn: Roberto Cibria Company
Telephone: (54 11) 4343-9122
Telecopier: (54 11) 4343-9122, ext. 104
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
RAFAEL BUSTAMENTE
By: /s/Rafael Bustamente
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Title:
Notice Address:
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[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
INTEL ATLANTIC, INC.
By: Arvind Sodhani
------------------------------------------
Title: Arvind Sodhani
Notice Address: Vice President and Treasurer
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M&A Portfolio Manager - M/S RN6-46
Fax Number: (408) 765-6038
with a copy to:
Intel Atlantic, Inc.
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
Fax Number: (408) 765-1859
[Signature Page to Amended and Restated Shareholders' Agreement -
El Sitio, Inc.]
<PAGE>
EXHIBIT 4
November 9, 1999
Intel Atlantic, Inc.
2200 Mission College Blvd.
Santa Clara, CA 95052
In consideration of the purchase by Intel Atlantic, Inc. ("Intel") of
555,555.55 shares of Class B Preferred Stock of El Sitio, Inc. ("Company"),
pursuant to a Share Purchase Agreement dated November 9, 1999 (the "Purchase
Agreement"), Company and Intel agree to the terms and obligations of this letter
agreement ("Agreement").
1. CONFIDENTIALITY
(a) DISCLOSURE OF TERMS. The terms and conditions of this Agreement,
the Purchase Agreement, the Amended and Restated Shareholders Agreement, dated
November 9, 1999 and the Amended and Restated Registration Rights Agreement,
dated November 9, 1999 (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by the Company to any third party except in accordance with the
provisions set forth below.
(b) PRESS RELEASES, ETC. Within sixty (60) days after the closing of
the transactions contemplated by the Purchase Agreement, the Company may issue a
press release disclosing that the Investors, including Intel, have invested in
the Company; provided that the release does not disclose any of the Financing
Terms and the final form of the press release is approved in advance in writing
by Intel. Intel's name and the fact that Intel is an investor in the Company can
be included in a reusable press release boilerplate statement, so long as Intel
has given the Company its initial approval of such boilerplate statement and the
boilerplate statement is reproduced in exactly the form in which it was
approved. No other announcements regarding Intel in a press release, conference,
advertisement, announcement, professional or trade publication, mass marketing
materials or otherwise to the general public may be made without Intel's prior
written consent.
(c) PERMITTED DISCLOSURES. Notwithstanding the foregoing, (i) the
Company may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) the Company may disclose (other than
in a press release or other public announcement described in subsection (b))
solely the fact that Intel is an investor in the Company to any third parties
without the requirement for the consent of any other party or nondisclosure
obligations; and (iii) Intel may disclose its
<PAGE>
investment in the Company and the Financing Terms to third parties or to the
public at its sole discretion and, if it does so, the Company shall have the
right to disclose to third parties any such information disclosed in a press
release or other public announcement by Intel.
(d) LEGALLY COMPELLED DISCLOSURE. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of the agreements
referenced in paragraph (a) above or any of the Financing Terms hereof in
contravention of the provisions of this letter, the Company shall provide Intel
with prompt written notice of that fact so that the appropriate party may seek
(with the cooperation and reasonable efforts of the other) a protective order,
confidential treatment or other appropriate remedy. In such event, the Company
shall furnish only that portion of the information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such information to the extent reasonably requested
by Intel.
(e) OTHER INFORMATION. The provisions of this letter agreement shall be
in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel Corporation or Intel
Atlantic, Inc. shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 7626010, dated October 18, 1999, executed by the Company and Intel
Corporation, and any Confidential Information Transmittal Records (CITR)
provided in connection therewith.
(f) All notices required under this section shall be made pursuant to
Section 9.10 of the Purchase Agreement.
2. MISCELLANEOUS.
2.1 DEFINITIONS. All capitalized terms used but not otherwise defined
in this Agreement have the meaning defined for such terms in the Purchase
Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
2.3 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
2.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
modified without the written consent of Intel and the Company, nor shall any
waiver be effective against any party unless in a writing executed on behalf of
such party.
2.5 SEVERABILITY. If any provision of this Agreement shall be declared
void or unenforceable by any judicial or administrative authority, the validity
of any other provision and of the entire Agreement shall not be affected
thereby.
2
<PAGE>
The parties hereto have executed this Agreement on the day and year first
written above.
EL SITIO, INC. INTEL ATLANTIC, INC.
By: By:
-------------------------- --------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
3
<PAGE>
EXHIBIT 10.25
WARRANT ACQUISITION AGREEMENT
WARRANT ACQUISITION AGREEMENT, dated as of June 25, 1999
(this "Agreement"), by and between Bear, Stearns & Co. Inc. ("Purchaser"), with
an address of 245 Park Avenue, New York, New York and El Sitio International
Corporation (the "Company"), with an address of Avenida Belgrano 845, (1092)
Buenos Aires, Argentina.
W I T N E S S E T H:
WHEREAS, Purchaser and the Company have entered into that
certain letter agreement dated February 4, 1999, pursuant to which Purchaser has
agreed to assist the Company as exclusive financial advisor and placement agent
in connection with a first round of privately placed equity securities of the
Company (the "Financing") in return for a fee that includes, INTER ALIA,
warrants to purchase ordinary shares of the Company ("Common Stock") upon the
first closing of any part of the Financing; and
WHEREAS, the Company has entered into a Stock Purchase
Agreement dated as of June 21, 1999 (as amended, the "Stock Purchase
Agreement"), among the Company, Ibero-American Media Partners II Ltd., Washburn
Enterprises Inc. and Chestnut Hill (El Sitio), LLC pursuant to which, among
other things, Ibero-American Media Partners II Ltd., Washburn Enterprises Inc.
and Chestnut Hill (El Sitio), LLC are scheduled to purchase preferred shares in
the Company (the "Preferred Shares") on July 2, 1999 as part of the closing of
the Financing;
NOW, THEREFORE, in consideration of the premises and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. ISSUANCE OF THE WARRANTS
In consideration for the services provided by Purchaser
and subject to the terms and conditions herein contained, at the Closing (as
hereinafter defined), the Company shall issue and deliver to Purchaser warrants
to purchase 119,968.21 shares of Common Stock (the "Warrants"), which shall be
evidenced by one or more of the warrant certificates substantially in the form
attached hereto as Exhibit A (the "Warrant Certificate").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the
Purchaser as follows:
(a) The Company has full power, authority and legal right
to execute and deliver this Agreement, to grant the Warrants on the terms and
conditions described herein and to perform and observe the terms and provisions
of this Agreement.
<PAGE>
(b) This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
(c) When issued, sold and delivered in accordance with the
terms of the Agreement, the Warrants will be validly issued and outstanding,
fully paid and non-assessable, with no personal liability attaching to the
ownership thereof.
(d) Except as specifically provided in this Section 2 the
Warrants are being sold without any representations, warranties or covenants,
express or implied, being made by the Company with respect to the Securities (as
hereinafter defined) or with respect to the Company, its business, prospects,
financial condition or results of operations.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as
follows:
(a) Purchaser understands and agrees that the Warrants and
the shares of Common Stock that may be purchased by the holder thereof
(collectively, the "Securities") have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or any applicable state
securities laws and that accordingly will not be fully transferable except as
permitted under various exemptions contained in the Securities Act and any
applicable state securities laws, or upon satisfaction of the registration and
prospectus delivery requirements of the Securities Act and any applicable state
securities laws.
(b) Purchaser hereby represents and warrants to the
Company that it is acquiring the Warrants, for its own account, and not as
nominee or agent for any other person, and not with a view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act. Purchaser further represents and warrants to the Company that it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
(c) Purchaser hereby acknowledges that any certificate
representing the Securities may have imposed on it by the Company a legend
indicating that resale of the Warrant or Warrant Shares must be in compliance
with the Securities Act and state securities law or an exemption therefrom, all
as set forth on the Warrant Certificate.
4. GENERAL
(a) This Agreement may be amended only by a writing signed
by the parties hereto.
(b) This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to the conflict
of law principles thereof.
2
<PAGE>
(c) The descriptive headings of the several sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
(d) This Agreement constitutes the entire agreement of the
Company and Purchaser and supersedes any and all prior written or oral
agreements or understandings between the Company and Purchaser pertaining to the
matters contemplated under this Agreement. This Agreement is not intended to
confer upon any other person any rights or remedies.
(e) In case any provision of this Agreement shall be
declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall in no way be
affected or impaired thereby.
(f) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be considered one and the same Agreement and shall become effective when one or
more counterparts have been signed by both the Company and Purchaser.
[Rest of page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, the Company and Purchaser each have
caused this Agreement to be executed as of the date set forth above.
BEAR, STEARNS & CO. INC.
By: /s/ Victor Cohn
-------------------------------
Name: Victor Cohn
Title: Senior Managing Director
EL SITIO INTERNATIONAL CORPORATION:
By: /s/ Roberto Cibrian Campoy
-------------------------------
Name: Roberto Cibrian Campoy
Title:
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of
July 1, 1999, by and between El Sitio International Corporation ("El Sitio"), a
British Virgin Islands company, and Horacio Milberg ("Executive").
WHEREAS, El Sitio wishes to assure itself of the services
of Executive for the period provided in this Agreement, and Executive is willing
to provide such services to El Sitio for said period, and upon the other terms
and conditions hereinafter provided; and
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. SERVICES PROVIDED. El Sitio agrees to utilize
the services of Executive, and Executive agrees to provide such services, for
the period stated in Paragraph 2 hereof and upon the other terms and conditions
herein provided.
2. TERM AND DUTIES.
(a) TERM OF AGREEMENT. The term of this
Agreement will commence as of the date hereof (the "Commencement Date") and will
continue through the date three (3) years after the Commencement Date (the
"Termination Date"). On the Termination Date, this Agreement will be renewed for
a new three-year term commencing on such Termination Date and thereafter for
successive three-year periods unless either El Sitio or Executive notifies the
other in writing, no later than ninety (90) days prior to the Termination Date
(or the end of such renewal period, as applicable), that it does not intend to
renew this Agreement. If El Sitio notifies Executive that it does not intend to
renew this Agreement, such notice will be considered an Event of Termination as
defined in Paragraph 5 herein, and benefits will be payable to Executive as
specified in Paragraph 5.
(b) TERMINATION PRIOR TO EXPIRATION OF THE
TERM. This Agreement may also be terminated prior to the end of the initial term
or any renewal term hereof.
(c) DUTIES. During the period of
Executive's employment hereunder, Executive shall serve, as long as El Sitio's
business is conducted through El Sitio (or another legal entity), as Chief
Financial Officer of El Sitio (or as principal financial officer of such other
legal entity), or (ii) if the business of El Sitio ceases to be conducted
through a separate legal entity (I.E., El Sitio's business is conducted as a
"division" of a legal entity), as the principal financial executive of the
division through which El Sitio's business is conducted. Except for illness,
vacation periods, and reasonable leaves of absence, Executive shall devote all
of his business time, attention, skill and efforts
<PAGE>
to the faithful performance of his duties in said office, and will use his best
efforts to further El Sitio's business interests.
3. COMPENSATION AND REIMBURSEMENT OF EXPENSES.
(a) COMPENSATION. For all services rendered
by Executive to El Sitio during the term of this Agreement, El Sitio shall pay
Executive a base salary of ten thousand dollars ($10,000) per month, based on a
year of thirteen (13) months (with 1.5 months' salary being paid Executive in
June and December) (the "Base Salary") and a bonus per annum payable on or about
year-end at the discretion of the Compensation Committee of the Board of
Directors. The Base Salary shall be paid in accordance with El Sitio's normal
payroll practices. The Base Salary shall increase on each anniversary of the
date hereof pursuant to a resolution adopted by the Compensation Committee.
(b) REIMBURSEMENT OF EXPENSES AND
ADMINISTRATIVE SUPPORT. El Sitio shall pay or reimburse Executive for all
reasonable travel, relocation (if applicable) and other expenses incurred by
Executive in performing his obligations under this Agreement. El Sitio further
agrees to furnish Executive with office space and administrative support, and
any other assistance and accommodations as shall be reasonably required by
Executive in the performance of his duties under this Agreement.
(c) STOCK OPTIONS. Pursuant to a separate
agreement to be entered into between Executive and the Company, Executive shall
be entitled to be issued options to purchase (i) 15,000 shares of the Company's
common stock at a price of $7.00186 per share, which options, on each of the
first, second and third anniversaries of the Commencement Date, shall vest as to
twenty percent, thirty percent and fifty percent, respectively, of the covered
shares, and (ii) an additional options to purchase 15,000 shares of the Company
at a price per share of $7.00186, in anticipation of the completion of an
initial public offering ("IPO") of the Company, which options shall vest in the
same manner as the options refered to in (i) above.The parties acknowledge that
Executive may in the future be granted options to purchase stock of El Sitio
pursuant to certain of El Sitio's incentive stock option plans (the "Plans") and
pursuant to certain other such options which may be granted at the discretion of
the Board of Directors of El Sitio. The parties agree that upon a change of
control of the Company, all options granted automatically vest.
(d) VACATION. Executive shall be entitled
to four (4) weeks paid vacation in each calendar year.
(e) DEDUCTIONS. All payments made under
this Agreement shall be subject to such deductions at the source as from time to
time may be required to be made pursuant to any law, regulation or order.
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<PAGE>
4. PARTICIPATION IN BENEFIT PLANS.
(a) PARTICIPATION. In addition to the
payments provided in Paragraphs 3 and 5 hereof, Executive will participate, for
the term of this Agreement and during the Severance Period (as defined in
Paragraph 5(b)), in all El Sitio benefit programs for which key executives are
or shall become eligible, on the same terms as other key executives of El Sitio.
(b) INCAPACITY. In the event that Executive
shall, by reasons of illness or mental or physical disability or incapacity, be
unable to perform the duties and responsibilities required to be performed by
him on behalf of El Sitio, the Base Salary payments as specified in Paragraph
3(a) herein shall continue for a period of one hundred eighty (180) days, then
such payments shall be suspended. Such payments shall be resumed upon the
assumption by Executive of his activities on behalf of El Sitio as called for
herein.
5. PAYMENTS TO EXECUTIVE UPON TERMINATION OF
AGREEMENT.
(a) TERMINATION. Upon the occurrence of an
Event of Termination during the term of this Agreement, the provisions of this
Paragraph 5 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:
(i) The termination by El Sitio of
this Agreement for any reason (including, but not limited to, El
Sitio's election not to renew this Agreement pursuant to Paragraph
2(a) hereof) other than "cause" (as defined in Paragraph 6
herein); or
(ii) Executive's termination of this
Agreement, pursuant to:
A. a material change by
El Sitio of the Executive's responsibilities or
assignments, which change would cause Executive's
responsibilities or assignments to become of less
responsibility or importance from the assignments and
responsibilities described in Paragraph 2 above, and any
such material change shall be deemed a continuing breach
of this Agreement; or
B. any other breach of
this Agreement by El Sitio.
Upon the occurrence of any event described in clauses A or
B above, Executive shall have the right to elect to terminate this Agreement,
upon not less than thirty (30) days
-3-
<PAGE>
prior written notice given within a reasonable period of time not to exceed,
except in case of a continuing breach, three (3) calendar months after the event
giving rise to said right to elect.
(b) CONTINUATION OF BENEFITS. Upon the
occurrence of an Event of Termination, in addition to any amounts payable
pursuant to Section 3 hereof, El Sitio shall pay monthly to Executive the
compensation described in Paragraph 3 herein, including the Base Salary. Such
payments shall commence on the first day of the month following the date of
termination hereof and shall continue until the Termination Date (or the end of
the renewal period, as applicable) or twenty-four (24) months, whichever is
greater (the "Severance Period"). During the Severance Period, Executive shall
continue to receive all other benefits to which Executive was entitled under
Paragraphs 3 and 4 hereof.
(c) OFFSET. If Executive becomes employed,
other than with El Sitio, after an Event of Termination, but prior to the date
at which the continued Base Salary, Bonus and other payments would have expired,
any salary received by Executive as a result of such employment will be
subtracted from any payments due Executive from El Sitio under Paragraph 5(b)
hereunder.
6. TERMINATION FOR BREACH BY EXECUTIVE.
(a) CONDITIONS FOR TERMINATION. Executive
shall be considered in breach of this Agreement, and the Agreement subject to
termination by El Sitio, in the following events (each, a "cause"):
(i) Willful disobedience of lawful
instructions of the Board of Directors of El Sitio by Executive
which continues after being afforded a reasonable opportunity to
cure such disobedience; or
(ii) The commission of a felony by
Executive; or
(iii) Gross negligence by Executive in
carrying out his duties on behalf of El Sitio.
(b) NOTICE. In the event El Sitio elects to
terminate this Agreement pursuant to Paragraph 6(a), El Sitio shall give a
thirty (30) day written notice of termination to Executive setting out, in
detail, the reasons for termination. Upon the expiration of such thirty (30) day
notice period this Agreement shall be wholly terminated subject to the payment
to Executive of any remuneration or other amounts owing pursuant hereto.
7. EFFECT OF PRIOR AGREEMENTS. This Agreement
contains the full and complete understanding between the parties hereto with
respect to the subject matter hereof and supersedes any prior agreement between
El Sitio or any predecessor of El Sitio and
-4-
<PAGE>
Executive, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to Executive of a kind elsewhere provided and
not expressly provided in this Agreement.
8. BINDING AGREEMENT. This Agreement shall be
binding upon, and inure to the benefit of Executive and El Sitio and their
respective permitted successors and assigns. Notwithstanding any provision
herein to the contrary, in the event of a sale (whether by an asset acquisition,
merger, consolidation, stock acquisition or similar transaction), this Agreement
may be assigned by El Sitio or assumed by a purchaser of El Sitio or El Sitio's
assets.
9. MODIFICATION AND WAIVER.
(a) AMENDMENT OF AGREEMENT. This Agreement
may not be modified or amended except by an instrument in writing signed by the
parties hereto.
(b) WAIVER. No term or condition of this
Agreement shall be deemed to have been waived, nor shall there be any estoppel
against the enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
10. GOVERNING LAW. This Agreement shall be governed
by the laws of the State of New York, without regard to the conflict of laws
principles thereof.
11. OWNERSHIP.
(a) TREATMENT OF IMPROVEMENTS. Executive
hereby covenants and agrees that, during the continuance of his employment
hereunder, all rights, title and interest in and to any intellectual or
industrial property, including without limitation, all works, ideas, processes,
systems, and improvements to El Sitio's operations (hereinafter, collectively,
the "Improvements"), that are created or suggested by Executive in connection
with his duties at El Sitio, and each of them, together with all patents and
trademarks therein, if any, shall be and remain the exclusive property of El
Sitio and of El Sitio's assignees and successors.
(b) FULL DISCLOSURE. Executive hereby
covenants and agrees to fully disclose all such Improvements, as and when such
are created and shall promptly upon El Sitio's request, and without further
consideration other than that provided for herein, but at no expense to
Executive, to make all such applications, execute all such papers, and do all
such things as may be necessary or desirable so that the ownership of such
Improvements shall vest
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<PAGE>
in El Sitio and so that El Sitio may obtain, own and exploit, for its own
benefit and in all respects, such Improvements.
12. MUTUAL RELEASE. At the end of the Severance
Period, upon receipt by Executive of all payments required by Paragraph 5(b)
herein, the parties hereto will be deemed to have mutually irrevocably and
unconditionally released all claims, promises, debts, causes of action or
similar rights of any type or nature that either party has or had which in any
way relate to or arise from this Agreement. The parties hereto further agree,
upon and after the effectiveness of such releases, not to criticize, denigrate
or otherwise disparage any other person or entity described in this Agreement.
[Rest of page intentionally left blank]
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<PAGE>
IN WITNESS THEREOF, El Sitio has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer,
and Executive has signed this Agreement, all as of the day and year first above
written.
EL SITIO INTERNATIONAL CORPORATION
By:_______________________________
__________________________________
Horacio Milberg
<PAGE>
Exhibit 23.1
DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-91263 of El Sitio, Inc. of our report dated October 22, 1999 (October 28,
1999 as to the effects of the share split described in Note 3 and November 5,
1999 as to the last sentence in the second paragraph in Note 14) appearing in
the Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 2, 1999
<PAGE>
Exhibit 23.2
[LETTERHEAD OF DELOITTE & TOUCHE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-91263 of El Sitio, Inc. of our report dated November 5, 1999
(relating to the statements of net revenues and direct costs and expenses of
IMPSAT S.A., Argentina's retail dail-up access business presented separately
herein) appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Buenos Aires, Argentina
December 2, 1999
<PAGE>
Exhibit 23.3
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-91263 of El Sitio, Inc. of our report dated November 5, 1999 (relating to
the statements of net revenues and direct costs and expenses of MANDIC
INTERNET LTDA.'s retail dial-up access business presented separately herein)
appearing in the Prospectus, which is part of such Registration Statement and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Sao Paulo, Brazil
December 2, 1999
<PAGE>
Exhibit 23.4
[LETTERHEAD OF DELOITTE & TOUCHE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-91263 of El Sitio, Inc. of our report dated November 4, 1999 (relating to
the statements of net revenues and direct costs and expenses of IMPSAT S.A.,
Colombia's retail dail-up access business presented separately herein)
appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche
Santafe de Bogota, Colombia
December 2, 1999
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-91263 of El Sitio, Inc. of our report dated October 28, 1999 (November 5,
1999 as to the second sentence in Note 3) relating to the statement of
historical net assets to be sold by IMPSAT corporation presented separately
herein, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 2, 1999
