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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM
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Commission file number 34-28367
EL SITIO, INC.
(Exact name of Registrant as specified in its charter)
THE SITE, INC.
(Translation of Registrant's name into English)
BRITISH VIRGIN ISLANDS
(Jurisdiction of incorporation or organization)
EL SITIO, INC.
AVENIDA INGENIERO HUERGO 1167
C1107AOL BUENOS AIRES, ARGENTINA
(011) 5411-4339-3700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Shares Nasdaq National Market
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Securities registered or to be registered pursuant to Section 12(g) of the
Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
40,157,338 Common Shares
1,111,111 Series B Convertible
Preferred Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has
elected to follow.
[ ] Item 17 [X] Item 18
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TABLE OF CONTENTS
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PAGE
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INTRODUCTION................................................ 1
PART I
Item 1. Identity of Directors, Senior Management and
Advisors............................................... 2
Item 2. Offer Statistics and Expected Timetable.......... 2
Item 3. Key Information.................................. 3
Item 4. Information on the Company....................... 16
Item 5. Operating and Financial Review and Prospects..... 30
Item 6. Directors, Senior Management and Employees....... 41
Item 7. Major Shareholders and Related Party
Transactions........................................... 48
Item 8. Financial Information............................ 52
Item 9. The Offer and Listing............................ 52
Item 10. Additional Information........................... 52
Item 11. Quantitative and Qualitative Disclosures about
Market Risk............................................ 59
Item 12. Description of Securities Other than Equity
Securities............................................. 59
PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies.......................................... 60
Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds............................ 60
Item 15. [Reserved]....................................... 60
Item 16. [Reserved]....................................... 60
Item 17. Financial Statements............................. 60
PART III
Item 18. Financial Statements............................. 61
Item 19. Exhibits......................................... 61
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INTRODUCTION
This annual report on Form 20-F for the year ended December 31, 1999
constitutes our initial annual report on Form 20-F as filed with the U.S.
Securities and Exchange Commission. This annual report on Form 20-F also
comprises part of our annual report to shareholders and includes our audited
consolidated financial statements as at December 31, 1998 and 1999 and for the
years ended December 31, 1997 (from inception), 1998 and 1999.
We completed the initial public offering of our common shares in December
1999. We also listed our common shares on the Nasdaq National Market under the
symbol "LCTO" in that month.
We were incorporated as a British Virgin Islands international business
company in July 1997. Our principal executive offices are located at Avenida
Ingeniero Huergo 1167, C1107AOL, Buenos Aires, Argentina, and our telephone
number is 011-5411-4339-3700.
El Sitio, O Site and the medallion design are trademarks and service marks
of our company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements appear throughout this
annual report, including, without limitation, under Item 3. "Key
Information -- Risk Factors", Item 4. "Information on the Company" and Item 5.
"Operating and Financial Review and Prospects". 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, proposed
acquisitions, plans for entering into strategic relationships and joint
ventures, and other expectations, intentions and plans contained in this annual
report that are not historical fact.
When used in this annual report, 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 our marketplace, you should understand that we cannot assure you
that the forward-looking statements contained in this annual report will be
realized.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with the
consolidated financial statements and Item 5. "Operating and Financial Review
and Prospects". The selected balance sheet data at December 31, 1997, 1998 and
1999 and the selected statement of operations data for the period from July 16,
1997 (date of inception) through December 31, 1997 and the years ended December
31, 1998 and December 31, 1999 have been derived from our audited consolidated
financial statements included elsewhere in this annual report. We prepare our
financial statements in U.S. dollars in accordance with generally accepted
accounting principles in the United States, which is commonly called "U.S.
GAAP".
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YEAR ENDED DECEMBER 31,
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1997 1998 1999
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net revenues........................................... $ 267 $ 780 $ 6,861
Costs and expenses:
Product, content and technology...................... 221 1,556 8,074
Marketing and sales.................................. 142 674 20,554
Corporate, general and administrative................ 727 1,940 8,439
Depreciation and amortization........................ 81 107 2,100
Share-based compensation............................. -- -- 2,042
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Total costs and expenses..................... 1,171 4,277 41,209
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Operating loss......................................... (904) (3,497) (34,348)
Total other income (expense)........................... (110) (20) 765
Net loss attributable to common shareholders........... (1,014) (3,517) (2,744)
Basic and diluted net loss per common share............ (10.14) (1.15) (2.66)
Shares used in computing basic and diluted loss per
common share......................................... 100,000 3,050,000 13,681,306
PRO FORMA STATEMENT OF OPERATIONS DATA*:
Net revenues........................................... 15,156 15,863
Operating loss......................................... (7,689) (38,108)
Net loss attributable to common shareholders........... (7,709) (40,087)
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AT DECEMBER 31,
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1997 1998 1999
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 89 $ 246 $160,029
Working capital (deficit)................................... (1,146) (42) 154,357
Total assets................................................ 396 1,481 201,920
Total liabilities........................................... 1,360 712 19,281
Class B convertible shares.................................. -- -- 8,967
Total shareholders' equity (deficit)........................ (964) 769 173,672
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* To reflect acquisitions on October 7, 1999 and November 5, 1999, respectively,
of retail dial-up subscribers in Brazil and Argentina from IMPSAT Fiber
Networks, Inc. (as if such acquisitions had occurred at beginning of periods)
and to include the effect of amortization of acquired subscribers based on a
three-year period. See Item 4. "Information on the Company -- Our Network".
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RISK FACTORS
An investment in our common shares involves a high degree of risk.
Investors in our common shares should carefully consider the following risk
factors and the other information in this annual report.
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 have a limited operating and financial history upon which investors can
base 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;
- any failure to integrate newly-acquired assets or businesses into our
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 to
compete effectively and achieve market acceptance or otherwise address the risk
factors disclosed in this annual report.
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. Our business plan
contemplates that we will first become profitable in 2003 -- at the earliest.
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, development of our e-commerce
platform, 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. Our strategy assumes that
users will be attracted to the content and community features on our Websites,
which will, in turn, allow us to sell advertising, connectivity services and
e-commerce products and services directed to those users. Our strategy remains
unproven and 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.
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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. If other
Internet companies 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.
WE MUST DEVELOP OUR BRAND AND GENERATE INCREASED ADVERTISING AND OTHER 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 online and in traditional media, to promote our
brand. 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, or if users or advertisers 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 strain 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 the countries in
which we now operate or into which we may expand. 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 Fiber
Networks, Inc. in Brazil and Argentina and, in April 2000, in Colombia. Prior to
these acquisitions, our company had no experience in operating a connectivity
services business. Any failure to integrate these acquisitions or to preserve
and develop the acquired connectivity customer base could have an adverse effect
on our company. See Item 5. "Operating and Financial Review and
Prospects -- Introduction to Results of Operations".
In early March 2000, we entered into a definitive agreement to acquire
DeCompras.com, Inc., an e-commerce company that targets Mexico and
Mexican-Americans located in the United States. See Item 4. "Information on the
Company -- E-Commerce". We expect to complete the DeCompras.com acquisition in
the second quarter of 2000. We cannot assure you, however, that we will
consummate this acquisition during this time period -- if at all. Our company
has had limited experience in operating an e-commerce business. In addition, any
failure to integrate the DeCompras.com acquisition could have an adverse effect
on our company.
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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;
- expanding our network infrastructure to service a growing user base; and
- integrating acquired assets or businesses into our company.
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, in part, upon
our ability to increase significantly our advertising revenues from
multinational and local advertisers. Although we will derive subscriber-based
revenues from our acquisitions of the retail dial-up access customers of IMPSAT
Fiber Networks, Inc. in Brazil, Argentina and Colombia, our branded connectivity
services are complementary to the development of communities of users. 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.
We are not dependent on any single major advertiser. However, the loss of major
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 1999, we derived
advertising revenues valued at approximately $1.3 million, or 20% of our total
net revenues for that year, from these non-cash reciprocal services
arrangements. In 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,
though decreasing, portion of our revenues in the foreseeable future.
Our business model is also predicated upon a substantial growth in
revenues, particularly in the form of cash, from e-commerce. We believe our
pending acquisition of DeCompras.com will represent an important initial step in
the implementation of our e-commerce strategy. Although we believe that this
acquisition and other e-commerce initiatives on our part will, in the long term,
represent an important source of revenues for our company, we cannot assure you
that we will achieve any significant growth in e-commerce revenues or that
e-commerce activities will enhance the overall financial performance of our
company.
WE MUST MAINTAIN ACCESS TO QUALITY CONTENT PROVIDED BY THIRD PARTIES IN ORDER TO
DEVELOP OUR USER AND 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 The Weather Channel, to
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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 a substantial number of these content-related arrangements 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. In addition, 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 Fiber Networks, Inc., we did not acquire the telecommunications
infrastructure to provide these services and will instead outsource that
infrastructure from third-party providers -- initially, under one-year services
agreements, which are renewable on an annual basis, with subsidiaries of IMPSAT
Fiber Networks, Inc. These agreements provide us with the telecommunications
infrastructure for our dial-up access customers but do not restrict IMPSAT Fiber
Networks, Inc. from competing directly with us or providing better rates to
other dial-up access providers. These agreements, however, permit us to
terminate the agreements for any reason, and without any penalty, by giving 30
days' notice. If IMPSAT Fiber Networks, Inc. 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.
As we enter the e-commerce business at a meaningful level, we will need to
maintain and develop relationships with suppliers and establish satisfactory
product and service procurement and order fulfillment systems. We will also need
to manage inventory levels on an effective basis. Among other things, if
customer demand for products held in inventory falls short of expectations, we
could be required to take significant inventory markdowns. Any failure to
address these and other requirements could prevent us from creating a successful
e-commerce business and could have a material adverse effect on our company.
WE MUST FURTHER DEVELOP STRATEGIC RELATIONSHIPS TO STRENGTHEN OUR COMPETITIVE
POSITION.
We continue to seek to establish strategic relationships with leading
content providers, dial-up access providers, e-commerce partners, and technology
and infrastructure providers. To date, many of our key strategic relationships
have been with our shareholders and their affiliates. See Item 4. "Introduction
on the Company -- Business and Strategic Relationships". We will depend, in
part, upon strategic relationships to help to further 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.
We continue to seek to increase substantially the number of pages of
information transmitted over our network, commonly referred to as "page views".
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. However, we cannot
assure you that our network will not suffer from interruptions. Any break in the
continuous operations of our network could have a material adverse effect on our
company.
We make our Websites available using servers located at the server farm
facilities of Exodus Communications in New Jersey, IMPSAT Brazil in Sao Paulo
and IMPSAT Fiber Networks, Inc. in Miami, Florida. See Item 4. "Information on
the Company -- Technology". Any failure by Exodus
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Communications, IMPSAT Brazil or IMPSAT Fiber Networks, Inc. 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 level of traffic on our Websites and positive user
experiences with our network, we will be adversely affected if we experience
frequent or long system delays or interruptions. 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 in future periods. Our ability to obtain required
additional financing on satisfactory terms 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.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our then current shareholders will be reduced, and
the holders of new equity securities may have rights, 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, including, in particular, Roberto Vivo-Chaneton,
co-founder and chairman of our company, and Roberto Cibrian-Campoy, co-founder,
president and chief executive officer of our company. The loss, for any reason,
of the services of these individuals could have a material adverse effect on our
company.
The growth and development of our business also requires the hiring and
retention of highly qualified personnel in each market. We cannot assure you
that we will be able to retain our key personnel or to attract and retain such
additional highly qualified 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 ARE CONTROLLED BY A SMALL GROUP OF EXISTING SHAREHOLDERS, WHOSE INTERESTS MAY
DIFFER FROM THOSE OF OTHER SHAREHOLDERS.
Our directors and officers and their respective affiliates beneficially
own, in the aggregate, a significant majority of our issued and outstanding
share capital. See Item 7. "Major Shareholders and Related Party Transactions".
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.
There may be circumstances in which interests of these shareholders may conflict
with the interests of the other shareholders in our company.
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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.
These relationships may give rise to conflicts of interest from time to time
relating to contracts, corporate opportunities and use of directors' time and
expertise. See Item 7. "Major Shareholders and 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.
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 core marks in the United States and in key countries of Latin America, as
well as in Spain and Portugal. 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 and common law rights apply, but the rights would not be as
strong as if they were registered.
Any usage of trademarks or service marks by other parties that are similar
to our core marks 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. Any 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.
If 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 creation, search and auction capabilities and related Web services. Any
dispute with the licensor of a particular technology may result in our inability
to continue to use that technology. In addition, 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. If 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 those 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. Internet usage
in Latin America may be 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 tend to spend less in the first and second
calendar quarters.
We also anticipate that our e-commerce operations will experience
seasonality, reflecting a combination of traditional retail seasonality patterns
(in which sales in the fourth quarter of each year are higher because of the
holiday season) as well as the above-mentioned seasonal fluctuations in Internet
usage.
We believe that seasonality will affect our financial performance on an
ongoing basis.
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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 laws and governmental regulations;
- difficulties and costs of staffing and managing international operations;
- potentially adverse tax consequences;
- uncertain protection for intellectual property rights;
- trade barriers for products and services 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 online destinations targeted to
Spanish- and Portuguese-speaking audiences in Latin America, the United States
and elsewhere. Competition for users and advertisers and business 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, 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 services, such as Yahoo!, America Online and T1MSN. Our competitors
may develop content that is better than ours or that achieves greater market
acceptance. New competitors also 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, marketing,
technical and other 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 acquisitions of IMPSAT Fiber Networks, Inc.'s retail
dial-up access customers in Brazil, Argentina and Colombia, we have recently
entered 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.
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
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as cable modems, wireless communications and digital subscriber line, commonly
known as DSL. These 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.
Recently, free Internet access services have been introduced in most of our
markets, and some Internet access providers are now offering subsidized or free
personal computers to their subscribers. If these trends accelerate, 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, all of which could have a material adverse effect on our
company.
We also expect that the e-commerce market will be extremely competitive. We
will compete with a substantial number of other companies, including the
following:
- traditional retailers, including retailers which are in the process of
developing online ("click-and-mortar") capabilities;
- local and international e-commerce companies;
- Internet portals, including some of our existing competitors which view
e-commerce as an integral part of their long-term business strategies;
and
- suppliers of products and services which primarily sell products and
services to other merchants, but which could in the future seek to make
sales directly to consumers and businesses.
Many of these existing or potential e-commerce competitors may have greater
financial, marketing, technical and other resources, greater brand recognition
and customer awareness, more extensive retailing experience and longer-standing
relationships with suppliers than 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 a major component of our total
revenues. In order for us to generate advertising 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
advertisers 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. 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 fails to develop or develops
slowly in Latin America.
Our future revenues and profitability will also depend on the acceptance
and use of the Internet in Latin America as an effective medium of commerce.
E-commerce is a recent phenomenon in these regions, and a sufficiently broad
base of online customers may not adopt or continue to engage in e-commerce. We
necessarily will rely on consumers and businesses that have historically used
traditional means of commerce to purchase products and services. Our future
success will depend on these customers accepting and using e-commerce as a new
method for conducting business and exchanging information.
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
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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 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 AND SERVICES SOLD OVER, OUR NETWORK.
The laws in the United States and in Latin American countries relating to
the liability of online content and service providers, such as our company, for
activities of their users remains unsettled. Claims have been made against other
Internet companies for defamation, negligence, copyright or trademark
infringement, obscenity or other grounds based on the nature and content of
information that was posted online 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 or services sold through our Websites.
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.
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
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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 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.
DATA REGARDING USAGE OF, AND GROWTH PROSPECTS FOR, THE INTERNET MAY NOT BE
ACCURATE.
The general market and similar data in this annual report 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, among others, 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.
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 online services and products 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.
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
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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 online 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 online 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, Chile, Colombia, Mexico, the
United States and Uruguay. We are in the process of expanding into Venezuela and
Spain later in 2000. In addition, we are considering expanding into other
countries in Latin America. Our financial performance 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.
Historically, the currencies of many countries in Latin America have
experienced substantial depreciation and volatility, particularly against the
U.S. dollar. 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 operations.
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 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.
We completed the initial public offering of our common shares in December
1999. We also listed our common shares on the Nasdaq National Market in the same
month. Since December 10, 1999 (the date on which trading commenced on the
Nasdaq National Market), a relatively active trading market for our common
shares has developed. However, we cannot assure you that an active trading
market will be sustained in future periods.
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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.
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, in each case, as
amended, 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.
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.
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ITEM 4. INFORMATION ON THE COMPANY
OVERVIEW
We are an Internet media company providing country-specific and global
interactive content for Spanish- and Portuguese-speaking audiences in Latin
America and the United States. We currently have, in addition to a global
Website, country-specific Websites for, and sales and content production offices
in, Argentina, Brazil, Chile, Colombia, Mexico, the United States and Uruguay.
We plan to establish sales offices in Venezuela and Spain later in 2000. We have
begun to offer branded retail dial-up Internet access ("connectivity") services
in Brazil and Argentina and, in April 2000, in Colombia. We are also undertaking
initiatives to develop an e-commerce platform targeted to Spanish- and
Portuguese-speaking audiences in Latin America and the United States -- most
notably, our pending acquisition of DeCompras.com, Inc., an e-commerce company
targeting Mexico and Mexican-Americans located in the United States.
Our registered users (meaning users who have provided personal information
such as name, e-mail address and address) grew from 100,000 persons at December
31, 1998 to 634,000 persons at December 31, 1999 and now exceed 1 million
persons. The number of pages viewed by our users on a quarterly basis increased
from 9 million in the fourth quarter of 1998 to 270 million in the fourth
quarter of 1999. In March 1999, we also commenced measuring unique visitors
(meaning the number of different individual users in a given period). The number
of unique visitors has increased from 175,000 in the month of March 1999 to a
monthly average of 2.7 million in the fourth quarter of 1999. We cannot predict
whether the recent growth in registered users, pages viewed and unique visitors
will continue.
For information concerning the history and development of our company, see
Item 5. "Operating and Financial Review and Prospects -- Overview".
OUR MARKET OPPORTUNITY
We believe a large and growing market consisting of Spanish- and
Portuguese-speaking audiences exists in Latin America and the United States for
content, e-commerce and connectivity services, and that this market presents us
with a significant opportunity. Latin America had a total population of
approximately 500 million people at December 31, 1999. At that date, the United
States had a total Hispanic population of more than 31 million people. 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.
From our inception, our philosophy has been to "Think regional, be local."
Consistent with this philosophy, we have launched a global Website and seven
country-specific Websites and have opened offices in seven countries in Latin
America and in the United States. We believe that the combination of
country-specific Websites supported by in-country management, marketing, sales
and content production personnel will enable us to implement the El Sitio vision
of building the premier Internet destination network for Spanish- and
Portuguese-speaking audiences in Latin America, the United States and, over the
long-term, Spain and Portugal.
OUR STRATEGY
To achieve our goal of becoming the leading Internet destination network
for Spanish- and Portuguese-speaking audiences in Latin America and the United
States, 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 that, first, the countries in Latin
America are diverse and, second, Internet users in Latin America are driven by
interactive content in Spanish and Portuguese that fosters user loyalty. As a
result, we seek to build a leading network by:
> Further Developing Country-Specific and Global Interactive Content. From
our inception, we have focused on developing quality country-specific and
global interactive content. We also provide content to our viewers under
agreements with well-known third-party content providers and vertical
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Internet portals. In addition, the community features on our Websites are
designed to encourage our users to interact with us and other users and
contribute content to our network. As a key part of our strategy, we
continue to expand and enhance our proprietary, user-generated and
third-party content. At December 31, 1999, we had 83 employees dedicated to
content development in the seven countries in which we currently operate.
> Incorporating Additional Community-Building Features. Our experience
indicates a strong preference on the part of users for interactive
community-building features, such as chat, cupido net (which is an
interactive meeting place for users), "en tu mail" (user-solicited e-mails
containing original El Sitio content) and other interactive resources. We
use online surveys and analysis of traffic patterns to enhance our content
and interactive resources, to further build our community of users and to
foster user loyalty to our network.
> Strengthening our Brand Identity. We seek to create a leading Internet
brand among Spanish- and Portuguese-speaking users. 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
strengthen our brand, we incurred approximately $15 million for branding
and advertising activities in 1999, and we plan to spend approximately $40
million on such activities in 2000.
-- GENERATING REVENUES FROM OUR NETWORK
We view substantial revenue-generation as a key to our long-term success,
and we plan to capitalize on our network to generate revenues by:
> Forging One-on-One Relationships with Advertisers. We seek to forge
long-term one-on-one relationships with multinational and local
advertisers. We are working to educate companies as to the 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 December 31, 1999, we had a total of 72 sales and marketing
personnel dedicated to expanding our advertising revenues.
> Developing Our E-commerce Business. With our growing community of users, we
believe e-commerce will offer us an opportunity to generate significant
revenue growth from our network. In December 1999, we added an e-shopping
guide to our Websites. In early March 2000, we entered into a definitive
agreement to acquire DeCompras.com, Inc., an e-commerce company that
targets Mexico and Mexican-Americans located in the United States.
> Integrating Connectivity into Our Network. We have acquired the retail
dial-up access customers of IMPSAT Fiber Networks, Inc. in Brazil and
Argentina and, in April 2000, in Colombia. We believe that offering El
Sitio-branded connectivity services will foster user loyalty and will also
encourage our users to utilize our developing e-commerce platform.
-- 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 key strategic shareholders, including Hicks,
Muse, Tate & Furst Incorporated, the Cisneros Group of Companies, IMPSAT Fiber
Networks, Inc., SLI.com Inc. and GC Companies Inc., have facilitated a number of
new commercial relationships, such as introductions to content providers,
advertising customers and e-commerce partners. Two of these shareholders are
also working with us on initiatives involving the production and distribution of
broadband content.
OUR NETWORK
Our network consists of seven country-specific Websites and a global
Website. We currently have, country-specific Websites for, and sales and content
production offices in, Argentina, Brazil, Chile, Colombia, Mexico, the United
States and Uruguay. We plan to establish sales offices in Venezuela and Spain
later in 2000.
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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 across
multiple markets with differing content and features from a single global
platform.
Our global content is produced by a team of programmers, designers, editors
and marketing staff. This team generates a substantial volume of proprietary
global content and acquires or develops software required to offer the features
that our market research indicates will most appeal to our users. In addition,
it incorporates generic content from well-known third-party providers such as
Reuters, Agence France Presse and The Weather Channel, as well as third-party
Internet portals that pay us a fee to be present on our network.
The content and community features prepared by our global team provides the
starting point from which our in-country production teams adapt our global
content to their local market preferences. Our local and regional production
offices 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.
CONTENT
Our network of country-specific Websites provides original proprietary and
third-party content and user-friendly interactive resources that bring our own
style to our user base.
Based on our market research, we believe that users in Latin America tend
to be impulsive and emotion-driven and use the Internet for entertainment,
leisure and services. As a result, we believe our targeted users are attracted
by the following four impulses, which we have highlighted in the design of our
homepage in each country-specific Website:
- News -- Our staff transforms relevant daily news in each country into an
interactive and entertaining experience for our users. News includes
editorials, polls, forums and video clips, which allow our users to help
shape opinions by contributing their points of view. We also provide
global and local third-party news coverage.
- Relationships -- We cover relationship topics that interest our users,
such as love, family, friendship, society, sex and 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 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.
- 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, forums,
video and photo productions. For example, our users participate in
interviews with top models, noted musicians and TV stars. In addition, we
provide our users with a variety of games, contests and prizes on a daily
basis.
Our user-friendly global interactive resources include:
- Chat -- provides entry to a "virtual community" in which our users
interact in real-time discussions about topics such as sports, politics,
relationships and current events. Our users create special interest chat
rooms and can also participate in moderated chat rooms.
- e-mail -- permits users to sign up for free e-mail services in Spanish,
Portuguese or English through an agreement with USA.Net, a leading
provider of e-mail and messaging services. Users
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benefit from features that enable them to control their e-mail accounts,
including customization of the e-mail interface.
- El Sitio 3-D -- is described below.
- Astrologia ("Astrology") -- includes studies and analysis on birth, early
childhood, karma, horoscopes and compatibility.
- Cupido net -- is an interactive meeting place on our network where users
can search for and develop new friends or special relationships.
- Batalla Cybernaval/Batalha Cybernaval ("Battleship") -- is an online
version of the classic board game "Battleship" in which users compete
with their own fleets and rockets on a monthly basis.
- Buscador ("Search") -- provides an internal search engine to enable users
to search our proprietary library and also allows them to use Inktomi's
search engine and have access to its library of over 110 million sites.
- Guia de Compras ("Shopping Guide") -- is described below under
"-- E-Commerce".
- En tu mail ("In your e-mail") -- where users solicit weekly e-mails of El
Sitio's original content in various areas of interest. El Sitio sends
over 770,000 such e-mails weekly.
- Tu Sitio Personal/Seu Site Pessoal ("Personal Home Page") -- offers our
users the ability to create their own content through their personalized
home pages.
- Auctions -- is an auction site to be operated on a regional basis under a
strategic alliance with Lokau.com. See "-- Business and Strategic
Relationships".
- Bulletin Boards -- offer our users the ability to post their own views
and opinions on a variety of topics to be shared with other users on our
Websites.
- 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.
- Premios/Premios ("Contests") -- uses contests with prizes, such as free
trips, cars and CDs, as a marketing tool to attract visitors to our
network.
In the first quarter of 2000, we launched El Sitio 3-D, which allows a user
to simultaneously access windows for audio, video, html and three-dimensional
navigation capabilities through the user's Internet browser. El Sitio 3-D
enables the user to navigate as a character inside a virtual world in which he
or she can communicate and play games, while advertisers can transform their
marketing offerings into virtual outdoor advertising spots and e-merchants can
use three-dimensional presentations to sell their products. We believe that El
Sitio 3-D illustrates the manner in which broadband capabilities will enhance
the Internet experience in the future.
In addition, our Websites offer a range of global and country-specific
vertical sites, including the following:
<TABLE>
<CAPTION>
GLOBAL COUNTRY-SPECIFIC
------ ----------------
<S> <C>
- Deportes/Esportes (Sports) - Noticas/Noticias (News)
- Finanzas (Finance) - Hometown (United States) (local news)
- El Tiempo/O Tempo (Weather) - Beleza (Brazil) (beauty)
- Salud (Health) - Geosfera (Brazil) (extreme sports)
- Turismo (Tourism) - Gastronomia (Uruguay)
- Vida (United States) (U.S. Hispanic
issues)
- Hard Rock (Mexico)
</TABLE>
The global sites are mostly third-party vertical Internet portals made
available through strategic alliances. See "-- Business and Strategic
Relationships".
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<PAGE> 22
E-COMMERCE
We view the development of an e-commerce platform as an important part of
our business strategy. We believe that an increasing number of businesses and
consumers in Latin America and the U.S. Hispanic market will embrace the
Internet as a viable marketplace for products and services.
In December 1999, we added a shopping guide to our network. This guide
provides links to other Websites for online sale by local and U.S.-based
e-merchants of books, flowers, music, gifts and technology products. We also
provide a shopping help center dedicated to assisting our users as they navigate
the online buying process. We do not currently receive any fees for the links to
other e-commerce Websites, but have entered into these arrangements in order to
attract users to our Websites and to provide us with useful experience in
building our own e-commerce platform.
In early March 2000, we entered into a definitive agreement to acquire
DeCompras.com, Inc., an e-commerce company that targets Mexico and
Mexican-Americans located in the United States. "DeCompras" means "shopping" in
Spanish. DeCompras.com began operations in Monterrey, Mexico in mid-July 1999.
It sells a broad range of products to consumers and businesses in Mexico,
including technology hardware and software products, consumer electronics,
photographic and video equipment, personal care products, home appliances,
office supplies, toys, gifts and jewelry, and, through a "baby store", baby
products. DeCompras.com achieved over $1.2 million in net revenues during its
first nine months of operations, with more than one-half of that revenue coming
in the first quarter of 2000. DeCompras.com also sells products to U.S.-based
Mexican-Americans for delivery in Mexico through its Paisano program. This
program targets the 65% of U.S. Hispanics who are Mexican-Americans and who are
concentrated in major cities such as Los Angeles, Chicago, San Francisco and San
Antonio. Under the terms of the agreement, our company will issue to
shareholders of DeCompras.com an aggregate of 1.75 million of our common shares
(equivalent to less than 4% of our outstanding shares on a fully diluted basis
at March 31, 2000) and pay $7 million in cash. This acquisition is expected to
close in the second quarter of 2000, subject to completion of satisfactory due
diligence reviews and other conditions precedent.
CONNECTIVITY
We entered the connectivity services business in the fourth quarter of
1999, when we acquired the retail dial-up access subscribers of IMPSAT Fiber
Networks, Inc. in Brazil and Argentina. We completed the acquisition of its
retail dial-up access subscribers in Colombia in April 2000. The total purchase
price for these acquisitions was $21.5 million. As a result of these
acquisitions, we have acquired approximately 57,000 subscribers in Brazil,
13,000 subscribers in Argentina and approximately 6,000 subscribers in Colombia,
for an aggregate total of approximately 76,000 subscribers.
A substantial majority of the subscribers acquired from IMPSAT Fiber
Networks, Inc. in Brazil and Argentina already has been incorporated as
registered users of our network. We have been using a combination of
www.osite.com.br and www.mandic.com.br as the homepages for the Brazilian
subscribers and www.elsitio.com.ar as the homepage for the Argentine subscribers
since February 2000 and March 2000, respectively.
We did not acquire the telecommunications infrastructure, such as
points-of-presence, switches and backhaul capacity, required to provide retail
Internet dial-up access. We have entered into one-year services agreements with
subsidiaries of IMPSAT Fiber Networks, Inc. to provide us with the necessary
infrastructure for our connectivity services operations. See "-- Technology"
below.
We are outsourcing 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.
We do not view connectivity services as a core business for our company,
but rather as a strategic tool to foster user loyalty and to support the
customer base for our developing e-commerce platform.
OUR COMMUNITY
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.
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<PAGE> 23
- 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, 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.
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 and unique visitor numbers are audited by I/Pro.
The following table presents the evolution in our registered user base at
quarter-end dates and total page views on a quarterly basis over the last five
quarters ended December 31, 1999:
<TABLE>
<CAPTION>
REGISTERED USERS
----------------
<S> <C> <C> <C>
4th Q '98 100344 '4th Q '98'
1st Q '99 251343 '1st Q '99'
2nd Q '99 281255 '2nd Q '99'
3rd Q '99 440838 '3rd Q '99'
4th Q '99 633600 '4th Q '99'
</TABLE>
We increased our registered users from 100,000 persons at December 31, 1998
to 634,000 at December 31, 1999, and our registered users now exceed 1 million
persons. From the fourth quarter of 1998 to the fourth quarter of 1999, total
pages viewed by our users increased from 9 million to 270 million. In August
1999, our number of registered users and our user traffic increased
significantly, due, in part, to the launching of our first mass media-based
branding and advertising campaign at the beginning of
21
<PAGE> 24
the month. We commenced measuring unique visitors in March 1999. The number of
unique visitors has increased from 175,000 in March 1999 to a monthly average of
2.7 million in the fourth quarter of 1999.
MARKETING
We depend upon advertising to develop our brand and to attract users to our
Websites and subscribers to our connectivity services.
We incurred approximately $15 million in 1999 for marketing, sales and
advertising (including advertising received in barter transactions in exchange
for advertising on our network). We have budgeted approximately $40 million for
these expenses in 2000. We anticipate that our branding and advertising expenses
will continue to represent the single largest component of our expenses.
We launched a mass media-based branding campaign, with an initial phase
commencing in August 1999 and a second phase in November 1999. We launched a new
phase in this new campaign on April 1, 2000. Our marketing 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. Our campaigns have emphasized the user-friendly attributes of our
network with the theme that "El Sitio se adapta a vos" ("El Sitio adapts to
you").
Our campaign utilizes the following media:
- broadcast media, including both television and radio;
- print media, including newspapers and magazines;
- online 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 has been
coordinated by major advertising agencies in each of our markets under the
umbrella of WPP Group PLC.
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 use and display Mr. Sosa's name and likeness
on the Internet. Mr. 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. Under the
agreement, Mr. Sosa received a total of $1 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. Mr. Sosa and Player's Choice
International L.L.C. will also receive a participation of the advertising
revenues generated and actually received as a result of the agreement.
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.
Under an agreement entered into in 1999, J. Walter Thompson S.A. has agreed
to place $3 million of advertising by its clients on our network of Websites,
with a commission of $1 million payable by El Sitio to J. Walter Thompson. We
will recognize revenues under this arrangement net of this commission. In
addition, we have agreed to obtain approximately $20 million of the advertising
that we intend to purchase during 2000, using J. Walter Thompson as our
advertising agency.
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<PAGE> 25
SALES
Advertising. At December 31, 1999, we had an internal marketing and sales
organization of 72 professionals, who are based at our offices in Buenos Aires
(34 persons, including both global and local Argentine personnel), Sao Paulo
(12), Mexico City (11), Miami (11) and Montevideo (4). We opened an office in
Santiago in March 2000, where marketing and sales are supported by our Chilean
partners, and in Bogota in April 2000, where we have three professionals. We
plan to open additional offices in Venezuela and Spain in 2000. A significant
portion of our sales personnel's income is commission-based. 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
operations. 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 and solutions.
We offer a range 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-specific Websites, or on a regional or global 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.
We have derived a substantial majority of our revenues to date from the
sale of advertisements and sponsorships. In 1999, we had 213 advertisers and
were not dependent upon any major advertiser for any material portion of our
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.
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 ("CPM") 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 generally 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 and audited by I/Pro. Receipt of audited statistics enables our
advertisers to assess more accurately the market penetration of their
advertising message.
E-Commerce. We are working with the management of DeCompras.com to devise
a sales strategy for our developing e-commerce platform. Among other things, we
plan to integrate DeCompras.com's e-commerce Website into our network by means
of links on our Websites that will lead users to the DeCompras.com shopping
experience. We also intend to conduct targeted marketing activities, utilizing
information in El Sitio's and DeCompras.com's user databases. More generally, we
plan to develop our e-commerce platform by leveraging El Sitio's growing user
base and by taking advantage of synergies between content and e-commerce
offerings. See "-- Our Network -- E-Commerce" above.
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<PAGE> 26
Connectivity. In light of our acquisitions of IMPSAT Fiber Networks,
Inc.'s retail dial-up access customers in Brazil, Argentina and 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 integrating our
connectivity services into the latest phase of our mass media-based branding and
advertising campaign that was launched on April 1, 2000.
We are pricing 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. We
vary our pricing and sales strategies by country, offering 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 December 31, 1999 in Brazil and Argentina, our two
principal markets for connectivity services:
BRAZIL
- - unlimited access;
- - twenty hours per month;
- - ten hours per month;
- - five hours per month; and
- - e-mail access only.
ARGENTINA
- - unlimited access (with three e-mail accounts);
- - unlimited access;
- - twelve hours per month;
- - six hours per month; and
- - e-mail access only.
For Internet use above the pre-paid access levels, subscribers are charged
per-minute rates. The average monthly subscription fee in December 1999 in
Brazil was $13.30 per month and in Argentina was $23.96 per month. The weighted
average monthly subscription fee in December 1999 for the subscribers
transferred to us in Brazil and Argentina was $15.32.
We are assessing the effect on our connectivity services business of the
recent introduction of free Internet services in our markets. See Item 3. "Risk
Factors -- Risks Related to Our Industry". Free Internet services could result
in decreased usage of our services by our subscribers, increased customer
turnover and pressure on us to reduce subscriber rates. However, free services
could also spur increased Internet penetration in our markets, which could
result in more user traffic for our Websites. In addition, we believe that we
can differentiate our connectivity services from the free services by providing
higher quality content as well as broader product offerings and better user
service.
BUSINESS AND STRATEGIC RELATIONSHIPS
In order to increase traffic at our Websites, expand our online 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, Agence France Presse and The Weather Channel, 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.
We have also entered into agreements with vertical content producers, such
as Patagon.com (financial services), PSN Multimedia International (sports
portal), Lokau.com (auctions), HogarDigital.com (real estate) and Viajo.com
(travel), among others, that will pay us a fixed fee and, in certain cases, a
share of revenues generated, to display content provided by them on our network.
In February 2000, we entered into a strategic alliance with Grupo Sarandi
Comunicaciones S.A., which owns and operates a network of radio stations in
Uruguay under the Grupo Sarandi name. Under this five-year agreement, we have
received an exclusive royalty-free license to use proprietary content broadcast
on the radio stations owned by Grupo Sarandi. We also have the right to rename
and rebrand the radio station under the El Sitio mark and, ultimately, to
purchase it from Grupo Sarandi for $1
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<PAGE> 27
million. Grupo Sarandi has agreed to provide a fixed amount of advertising time
on its radio stations to our company, valued at $450,000, and to guarantee us a
minimum amount of advertising for our Website in Uruguay. In exchange for Grupo
Sarandi 's obligations, we will design, host and maintain Websites for its radio
stations. In addition, we have issued to Grupo Sarandi an aggregate of 62,500 of
our common shares, which have been pledged by Grupo Sarandi as security for its
payment obligations to us. Grupo Sarandi is an affiliate of Guillermo Liberman
and SLI.com Inc., as well as Roberto Vivo-Chaneton, who are major shareholders
in our company.
In February 2000, we also signed a letter agreement with Red de Television
Chilevision S.A. and Iberoamerican Media Holdings Chile S.A. (together, "IRC").
Pursuant to this two-year agreement, we will design, host and maintain Websites
for IRC's eight radio stations and four television stations in Chile and will
receive the exclusive right to use content from IRC on our Chilean Website. IRC
will also provide us with administrative support in connection with the
development of our operations in Chile. In addition, IRC has agreed to sell
advertising for these Websites and to provide us with a portion of the revenue
received by IRC in connection with the sale of advertising. As part of these
agreements, IRC has guaranteed us a minimum of $300,000 in advertising revenues
during the first year of the agreement and $600,000 in the second year of the
agreement. In exchange for its obligations, we will issue to IRC an aggregate of
166,667 common shares. Red de Television Chilevision S.A. and Iberoamerican
Media Holdings Chile S.A. are affiliates of IAMP (El Sitio) Investments, Ltd.,
which is a major shareholder in our company.
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. Pending the closing of our
acquisition of DeCompras.com, Inc. and the development of propriety e-commerce
services, we are offering limited e-commerce services by way of links on our
e-shopping channel to the Websites of various e-merchants.
Connectivity. In connection with our acquisitions of retail dial-up access
customers of IMPSAT Fiber Networks, Inc. in Brazil, Argentina and Colombia, we
did not acquire the telecommunications infrastructure, such as
telecommunications bandwidth, points-of-presence, switches and backhaul
capacity, required to provide these services. Instead, we will outsource that
infrastructure from third-party telecommunications providers -- initially, from
subsidiaries of IMPSAT Fiber Networks, Inc.
We have entered into one-year services agreements with subsidiaries of
IMPSAT Fiber Networks, Inc. in Brazil and Argentina. Under these agreements,
IMPSAT Fiber Networks, Inc. is to 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 Fiber Networks, Inc. We pay a fee per
port or "channel" made available to our customers for the transmission of data.
We currently estimate that the aggregate fee payable by us for these services in
Brazil and Argentina will be approximately $475,000 per month. The terms of the
service agreements may be extended for another period of one year upon mutual
agreement by the parties. We have the right to terminate the agreement for any
reason, and without any penalty, by giving 30 days' notice. Each service
agreement also contains quality of service standards. We entered into a
substantially similar agreement in Colombia in April 2000.
IMPSAT Fiber Networks, Inc. uses access servers with an average
connectivity speed of 56 kbps. IMPSAT S.A. (Argentina) subscribers are able to
connect to the Internet through special dedicated phone lines at rates
significantly less expensive than connections through conventional telephone
lines.
Applications. We are party to several agreements relating to the provision
of third-party licenses and other applications. For example, we have entered
into an agreement with Inktomi, a leading Internet company, under which we have
use of the search engine software and access to the database of Inktomi, a
leader in search technology with a library of over 110 million sites. In
addition, through an 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.
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<PAGE> 28
Strategic Investors. Prior to our initial public offering in December
1999, we completed private placements, or commercial transactions involving
issuances, of our convertible preferred shares with strategic investors. See
Item 5. "Operating and Financial Review and Prospects". These strategic
investors include the following:
- Hicks, Muse, Tate & Furst Incorporated and the Cisneros Group of
Companies (through their jointly owned IAMP (El Sitio) Investments,
Ltd.);
- GCC Investments, LLC, an indirect subsidiary of GC Companies, Inc., which
owns and operates General Cinemas Theatres;
- SLI.com Inc., a subsidiary of Sociedad Latinoamericana de Inversiones
S.A.; and
- IMPSAT Fiber Networks, Inc.
We are working closely with our strategic investors in order to take
advantage of the synergies created by our relationships. See "-- Our Strategy"
above. In addition, we recently entered into strategic alliances with Sarandi
Comunicaciones S.A. in Uruguay and with IRC in Chile, which, as discussed above,
are affiliates of some of our major shareholders.
TECHNOLOGY
Network of Websites and E-commerce. We make our Websites available using
fifteen Sun Microsystems servers, nineteen Microsoft Windows NT servers, four
Linux servers, two Oracle database servers and two Microsoft SQL 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 separate
servers for the Brazilian site, currently located at the server farm facilities
of IMPSAT Brazil in Sao Paulo. The site is powered by ten Microsoft NT servers
and four Linux servers. We also have a back-up production server at IMPSAT Fiber
Networks, Inc.'s server farm facilities in Miami, Florida. In each of Argentina,
Brazil, Chile, 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
100 Mbps 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, IMPSAT Brazil and IMPSAT Fiber
Networks, Inc. provides comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours per day, seven
days per week. All facilities are protected by multiple power supplies. Our
operations will depend on the ability of IMPSAT Fiber Networks, Inc., IMPSAT
Brazil 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.
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
26
<PAGE> 29
process, which we believe will not affect the continuous operation of our
network, will be completed by the middle of 2000.
Connectivity. In connection with our acquisitions of retail dial-up access
customers of IMPSAT Fiber Networks, Inc. in Brazil, Argentina and Colombia, we
did not acquire the telecommunications infrastructure, such as
telecommunications bandwidth, points-of-presence, switches and backhaul
capacity, required to provide these services. Instead, we are currently
outsourcing that infrastructure from subsidiaries of IMPSAT Fiber Networks, Inc.
See "-- Business and Strategic Relationships" above.
IMPSAT Fiber Networks, Inc. uses access servers with an average
connectivity speed of 56 kbps. IMPSAT S.A. (Argentina) subscribers are able to
connect to the Internet through special dedicated phone lines at rates
significantly less expensive than connections through conventional telephone
lines.
COMPETITION
Many companies provide Websites, e-commerce and connectivity services
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 T1MSN. 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.
We expect that the e-commerce market will be extremely competitive. We will
compete with a substantial number of other companies, including the following:
- traditional retailers, including retailers which are in the process of
developing online ("click-and-mortar") capabilities;
- local and international e-commerce companies;
- Internet portals, including some of our existing competitors which view
e-commerce as an integral part of their long-term business strategies;
and
- suppliers of products and services which primarily sell products and
services to other merchants, but which could in the future seek to make
sales directly to consumers and businesses.
Many of these existing or potential e-commerce competitors may have greater
financial, technical, marketing and other resources, greater brand recognition
and customer awareness, more extensive retailing experience and longer-standing
relationships with suppliers than our company.
We recently entered the connectivity 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
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<PAGE> 30
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.
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 in Spain and Portugal. Although some of the 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 and common law rights
apply, 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. If 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. If 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 those 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.
Our Mexican subsidiary is registered as a provider of connectivity services
with the Mexican Federal Telecommunications Commission. We have also received
the necessary licenses from the relevant regulatory authorities to provide such
services in Argentina and are applying for a license in Colombia. Pending the
receipt by us of such a license in Colombia, we have entered into a joint
venture agreement with IMPSAT S.A., pursuant to which it provides such services
to our customers. We are not required to obtain a license to provide
connectivity services in Brazil.
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<PAGE> 31
The adoption or application of existing or new 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. See Item
3. "Key Information -- Risk Factors -- Risks Related to Our Industry".
FACILITIES
Our corporate offices are located in Buenos Aires, where we currently lease
approximately 1,600 square meters.
We also lease office space in Bogota, Mexico City, Miami, Montevideo,
Santiago and Sao Paulo.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
SUBSIDIARIES
We are a holding company that conducts its operations through subsidiaries
in each of the countries in which we maintain Websites and sales and production
offices. The following is a list of our subsidiaries:
<TABLE>
<CAPTION>
NAME COUNTRY OF INCORPORATION
---- ------------------------
<S> <C>
- - El Sitio Argentina, S.A. Argentina
- - O Site Entertenimentos do Brasil, S.A. Brazil
- - El Sitio Chile, S.A. Chile
- - El Sitio Colombia, S.A. Colombia
- - El Sitio Entretenimientos de Mexico, S.A. de C.V. Mexico
- - El Sitio U.S.A., Inc. United States
- - El Sitio Uruguay, S.A. Uruguay
- - El Sitio Management, S.A. Argentina
- - El Sitio Commerce, Inc. British Virgin Islands
</TABLE>
All of our subsidiaries are wholly-owned (except for a small number of
shares required to be issued to other persons to comply with local corporate law
requirements).
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<PAGE> 32
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following management's discussion and analysis should be read in
conjunction with our consolidated financial statements and the other information
appearing elsewhere in this annual report.
OVERVIEW
We are an Internet media company providing country-specific and global
interactive content for Spanish- and Portuguese-speaking audiences in Latin
America and the United States. We currently have, in addition to a global
Website, country-specific Websites for, and sales and content production offices
in, Argentina, Brazil, Chile, Colombia, Mexico, the United States and Uruguay.
We plan to establish sales offices in Venezuela and Spain later in 2000. The
launch of each country-specific 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 e-commerce. We have begun to
offer connectivity services in Brazil and Argentina and, in April 2000, in
Colombia. We are also undertaking initiatives to develop a major e-commerce
platform targeted to Spanish- and Portuguese-speaking audiences in Latin America
and the United States.
We were incorporated in the British Virgin Islands in July 1997, and we
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 we 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 initial mass media-based
branding and advertising campaigns and expanding our technological
infrastructure. See Item 4. "Information on the Company -- Our Community" for
information concerning growth in our registered users, page views and unique
visitors.
In August 1999, we entered into a framework agreement with IMPSAT Fiber
Networks, Inc., 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 Brazil, Argentina and Colombia. Under this
agreement, we acquired these customers for an aggregate of $21.5 million, which
is based on a price of approximately $294 per subscriber. IMPSAT Fiber Networks,
Inc. also purchased a total of 3,070,615 Class A convertible preferred shares
for an aggregate purchase price of $21.5 million. The Brazilian and Argentine
acquisitions were consummated in October 1999 and November 1999, respectively,
and we closed the acquisition in Colombia in April 2000. We did not acquire 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
Fiber Networks, Inc. These subsidiaries will provide us with telecommunications
infrastructure for a one-year terms, which are renewable on an annual basis, 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.
We consummated a series of private placements of our convertible preferred
shares in the second half of 1999 (including the sale of our Class A convertible
preferred shares to IMPSAT Fiber Networks, Inc. in connection with the above
acquisitions of retail dial-up access customers). We completed the initial
public offering of our common shares in mid-December 1999. See "-- Liquidity and
Capital Resources" below. We believe that these transactions have provided our
company with the liquidity and capital resources -- and, more generally, the
financial foundation -- to take advantage of our market opportunity and to
implement our business strategy. See Item 4. "Information on the Company -- Our
Market Opportunity" and "-- Our Strategy".
We have a limited operating and financial history and 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. Our historical results of operations are
not necessarily indicative of the results of operations to be expected in the
future.
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<PAGE> 33
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;
- e-commerce; and
- connectivity services.
Advertising. To date, we have derived the major portion 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;
- 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 after 1999. In future
periods, we expect to outsource these activities and plan 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
companies, such as TV Azteca, S.A. de C.V., IMPSAT Fiber Networks, Inc. and
Gramatur S.A., pursuant to which we exchange advertising on our network for
advertising or other services from these 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.
E-Commerce. To date, we have not derived any significant revenues from
e-commerce. In December 1999, we added an e-shopping guide to our Websites,
through which a limited offering of books, flowers, music, gifts and technology
products is made available from local and U.S.-based e-merchants. In early March
2000, we entered into a definitive agreement to acquire DeCompras.com, Inc., an
e-commerce company that targets Mexico and Mexican-Americans located in the
United States. See Item 4, "Information on the Company -- Our
Network -- E-Commerce". Despite these and other e-commerce initiatives, we do
not expect to derive meaningful revenues from e-commerce activities until at
least 2001.
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Connectivity. We have taken steps to expand our revenue base through our
acquisitions of the retail dial-up access customers of IMPSAT Fiber Networks,
Inc. in Brazil and Argentina and, in April 2000, in Colombia. As a result of
these acquisitions, we acquired a total of approximately 76,000 dial-up access
customers in Brazil, Argentina and 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.
OPERATING EXPENSES
Our principal operating costs and expenses consist of:
- product, content and technology expenses;
- marketing and sales expenses;
- corporate, general and administrative expenses;
- depreciation and amortization expenses; and
- share-based compensation.
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 Brazil, Argentina and Colombia from IMPSAT Fiber Networks,
Inc., 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 Fiber Networks, Inc. under
which, in exchange for an access fee linked to a number of dial-up access
customers and levels of usage, IMPSAT Fiber Networks, Inc. will provide the
connections and the telecommunication infrastructure necessary for our users to
connect to the Internet. We paid approximately $2.1 million to IMPSAT Fiber
Networks, Inc. for these services in 1999. 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 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 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.
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<PAGE> 35
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 Fiber Networks, Inc. in Brazil and Argentina and, in April 2000, 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 or will be allocated principally to this
intangible asset. This intangible asset will be amortized on a straight-line
basis over a three-year period ending in 2002 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
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, September, November and December 1999. These
options were granted at exercise prices below the then prevailing fair market
values for our common shares. As a result, we recorded total deferred
share-based compensation expense of $14 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.
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 our
initial offering, we expect that for the foreseeable future our interest income
will exceed our interest expense. Most of our assets are 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 at least
through 2002.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Our results of operations for 1999 were characterized by substantially
increased expenses that more than offset revenue growth during the period. We
recorded a net loss of $36.3 million in 1999, compared to a net loss of $3.5
million in 1998. During 1999, in addition to the continued development of
quality
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<PAGE> 36
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 established country-specific Websites for,
and sales and content production offices in, Chile and Colombia in the first
quarter of 2000, and we plan to enter Venezuela and Spain later in 2000. We
acquired a total of approximately 70,000 retail dial-up access customers from
IMPSAT Fiber Networks, Inc. in Brazil and Argentina on October 7, 1999 and
November 5, 1999, respectively. The results of operations for 1999 give effect
to these acquisitions from such dates and, accordingly, affect all year-to-year
comparisons between 1999 and 1998.
The following table sets forth, for the periods indicated, our net revenues
by country of operation (in thousands):
<TABLE>
<CAPTION>
CONSOLIDATED
YEAR ENDED DECEMBER 31, ARGENTINA URUGUAY MEXICO BRAZIL USA TOTAL
- ----------------------- --------- ------- ------ ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
1997 (partial year)............ $ 267 $ -- $ -- $ -- $ -- $ 267
1998........................... $ 657 $106 $ 17 $ -- $ -- $ 780
1999........................... $1,932 $762 $1,508 $2,196 $463 $6,861
</TABLE>
NET REVENUES
Our net revenues increased by 779.6% to $6.9 million in 1999 from $780,000
in 1998. Approximately 61% of our net revenues in 1999 was comprised of
advertising and related Web design and hosting services. We expect that our
revenues derived from Web design or hosting activities for other companies will
decline significantly after 1999. In future periods, we expect to outsource
these activities and, in any event, we plan to 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, page views and unique users,
together with the expansion of our marketing and sales force. Of these revenues,
35.9% was derived from Mexico, 31.1% was derived from Argentina and 18.1% from
Uruguay. In the future, we also expect to derive significant advertising
revenues from Brazil and the United States, where we have launched commercial
operations during 1999. During this period, 19.5% of our total net revenues was
derived from reciprocal services arrangements, compared to 23.1% of total net
revenues in the corresponding period in 1998. We do not receive any cash
payments from these arrangements.
The remaining 39% of our net revenues in 1999 was attributable to
connectivity services as a result of our acquisitions of IMPSAT Fiber Networks,
Inc.'s retail dial-up access customers in Brazil and Argentina in the fourth
quarter of 1999. Net revenues relating to connectivity services on a pro forma
basis (assuming that these acquisitions had occurred at the beginning of the
relevant years) would have been $11.7 million in 1999 as compared with $14.4
million in 1998. This decrease in pro forma net revenues relating to
connectivity services was primarily attributable to declines in average gross
subscription fees per customer (in U.S. dollar terms), which more than offset
increases in paying subscribers in both Brazil and Argentina. The decrease in
average gross subscription fees (in U.S. dollar terms) was primarily due to a
51% decrease in the value of the Brazilian real to 1.80 reais per U.S. dollar at
December 31, 1999 from 1.19 reais per U.S. dollar at December 31, 1998.
In Argentina, net revenues for the dial-up access business on a pro forma
basis increased to $3.8 million for 1999 from $3 million for 1998. This increase
resulted from the following factors:
- a small increase in paying subscribers to 14,549 at December 31, 1999
from 14,329 at December 31, 1998 (and a higher average number of paying
subscribers for 1999 as a whole); and
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<PAGE> 37
- a partially offsetting decline in the average gross subscription fee per
customer to $23.96 for the month of December 1999 from $30.78 for the
month of December 1998.
In Brazil, net revenues for the dial-up access business on a pro forma
basis decreased to $7.8 million for 1999 from $11.4 million for 1998. This
decrease resulted from the following factors:
- a decline in the average gross subscription fee per customer (in U.S.
dollar terms) to $13.30 for the month of December 1999 from $21.31 for
the month of December 1998, which decline was largely due to the
substantial decline in the value of the Brazilian real in relation to the
U.S. dollar during 1999; and
- a partially offsetting increase in paying subscribers to 57,656 at
December 31, 1999 from 48,603 at December 31, 1998.
We believe that the retail dial-up access businesses did not receive
managerial focus from IMPSAT Fiber Networks, Inc. during the months leading up
to our acquisitions of these businesses. Since completing these acquisitions, we
have been focusing on integrating the connectivity services businesses into our
operations, upgrading their technology and terminating their delinquent and
lower margin subscribers. We have been seeking to attract new subscribers as
part of our overall mass-media based branding and marketing campaigns. We
believe that we will be able to increase the size of our retail dial-up
subscriber base, although we cannot predict whether such an increase will occur.
We also anticipate that the cost of telecommunications infrastructure services
provided by third parties should decrease in future periods. At the same time,
we believe that we will experience declining average subscription fees in the
future -- at a rate of decline that we cannot predict. We do not view
connectivity services as a core business, but rather as a strategic tool to
foster user loyalty and to support the customer base for our developing
e-commerce platform.
COSTS AND EXPENSES
Product, Content and Technology Expenses. Our product, content and
technology expenses increased to $8.1 million in 1999 from $1.6 million in 1998.
Our product, content and technology expenses as a percentage of revenues
decreased to 117.7% in 1999 from 199.5% in 1998. The year-to-year increase was
principally attributable to:
- an increase in personnel costs relating to the development of content and
technological support to $3.8 million in 1999 from $1.1 million in 1998;
- an increase in expenses for telecommunications links (other than such
expenses relating to our newly-acquired connectivity services business)
to $490,000 in 1999 from $284,000 in 1998; and
- an increase of third-party content expenses to $263,000 in 1999 from no
such expense in the corresponding period in 1998.
In addition, $1.6 million of the increase in product, content and
technology expenses, consisting primarily of payments for telecommunications
infrastructure expenses, related to the acquisition of IMPSAT Fiber Networks,
Inc.'s retail dial-up access customers in Brazil and Argentina in the fourth
quarter of 1999.
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.
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<PAGE> 38
Marketing and Sales Expenses. Our marketing and sales expenses increased
to $20.6 million in 1999 from $674,000 in 1998. Our marketing and sales expenses
as a percentage of net revenues increased to 299.6% in 1999 from 86.4% in 1998.
This increase was principally attributable to:
- $17.1 million in costs for our mass media-based branding and advertising
campaign; and
- an increase in marketing and sales personnel costs to $1.6 million in
1999 from $274,000 in 1998, due mainly to opening or expanding offices in
Mexico, Brazil and the United States.
In addition, $320,000 of the increase in marketing and sales expenses,
consisting primarily of advertising expenses in Brazil, related to the
acquisition of IMPSAT Fiber Networks, Inc.'s retail dial-up access customers in
Brazil and Argentina in the fourth quarter of 1999.
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 $8.4 million in 1999 from $1.9 million in
1998. Our corporate, general and administrative expenses as a percentage of net
revenues decreased to 123% in 1999 from 248.7% in 1998. This year-to-year
increase was principally attributable to:
- an increase in corporate and administrative personnel costs to $2.6
million in 1999 from $480,000 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.
In addition, $377,000 of the increase in corporate, general and
administrative expenses related to the acquisition of IMPSAT Fiber Networks,
Inc.'s retail dial-up access customers in Brazil and Argentina in the fourth
quarter of 1999.
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 $2.1 million in 1999 from $107,000 in 1998. Our depreciation and
amortization expenses as a percentage of net revenues increased to 30.6% in 1999
from 13.7% in 1998. This increase was principally attributable to an increase of
$5.5 million in fixed assets (principally servers and personal computers).
Approximately $878,000 of the increase in depreciation and amortization
expenses, consisting primarily of amortization of the intangible asset relating
to the newly-acquired customer base, related to the acquisition of IMPSAT Fiber
Networks, Inc.'s retail dial-up access customers in Brazil and Argentina in the
fourth quarter of 1999. 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
$2.0 million in 1999. This amount represents the amortization in this period of
our total deferred share-based compensation relating to share options granted in
August, September, November and December 1999. See note 11 to our consolidated
financial statements. We did not incur share-based compensation expense 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 $765,000 in 1999 compared with a loss of $20,000 in 1998. This change
resulted primarily from interest income earned on the net proceeds of the
private placements and the initial public offering in 1999. See "-- Liquidity
and Capital Resources" below.
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<PAGE> 39
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.
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-specific 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 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
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<PAGE> 40
- 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.
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.
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.
We received total capital contributions of approximately $1.2 million in
1997 and $4.1 million in 1998. In 1999, we received capital contributions
totalling $205.7 million, primarily consisting of the net proceeds from private
placements, and commercial transactions involving issuances, of our Class A and
Class B convertible preferred shares in July 1999 and November 1999 and the
initial public offering of our common shares in December 1999.
In July 1999, we completed 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 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). Some of
our founders purchased $6.5 million of our Class A convertible preferred shares
in the private placement.
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 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 August 1999, we 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 connection with our acquisitions of retail dial-up access customers from
IMPSAT Fiber Networks, Inc. in Brazil and Argentina in October 1999 and November
1999, respectively, and Colombia in April 2000, IMPSAT Fiber Networks, Inc.
purchased approximately $21.5 million of our Class A convertible preferred
shares.
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<PAGE> 41
In mid-November 1999, we completed a private placement of 1,111,111 Class B
convertible preferred shares for a purchase price of $10 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 into one common share on June 15, 2000 (which is six
months after the closing date of our initial public offering). 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.
In mid-December 1999, we completed the initial public offering of our
common shares. We issued an aggregate of 9,430,000 common shares in the offering
and, in conjunction with the offering, listed our common shares on the Nasdaq
National Market under the symbol "LCTO". We received net proceeds from the sale
of our common shares in the initial public offering (after deduction of
underwriting discounts and transaction expenses) of approximately $137.5
million. For information concerning the use of the net proceeds of our initial
public offering, see Item 14. "Material Modifications to the Rights of Security
Holders and Use of Proceeds".
We used net cash in operating activities totaling $22.8 million in 1999,
$3.2 million in 1998 and $875,000 in the partial year 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.
We used net cash in investing activities totaling $23.2 million in 1999,
$733,000 in 1998 and $261,000 in the partial year 1997. Net cash used in
investing activities resulted primarily from the acquisitions of IMPSAT Fiber
Networks, Inc.'s retail dial-up customers in Brazil and Argentina and purchases
of capital assets.
We will pay $7 million in cash and issue 1.75 million of our common shares
in connection with our acquisition of DeCompras.com, Inc., which acquisition is
expected to close in the second quarter of 2000. See Item 4. "Information on the
Company -- Our Network".
We expect to make capital expenditures of approximately $8 million in 2000
and approximately $6 million in 2001, in each case including anticipated capital
expenditures relating to the post-acquisition development of the business of
DeCompras.com, Inc. The capital expenditures in 2000 will principally consist of
purchases of, or investments in, technical equipment. We expect that our capital
expenditures should increase modestly in the future, except to the extent
required as a result of new 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 expenses 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 our cash and cash equivalents balance of $160 million at
December 31, 1999 will be sufficient to meet our liquidity and capital resource
requirements through early 2002. We expect to require additional financing
during the period through 2003, which is the earliest year in which we may
achieve profitability. 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 sufficient amounts or on
satisfactory terms and conditions -- if at all.
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<PAGE> 42
YEAR 2000 COMPLIANCE
We did not experience any problems with our computer systems and other
equipment or disruptions to our operations as a result of the turn of the
century (i.e., from 1999 to 2000). Prior to January 1, 2000, we had initiated
and conducted internal reviews, tests and assessments of our systems and
equipment in an effort to achieve Year 2000 readiness. We spent a nominal amount
on Year 2000 compliance issues, primarily related to personnel costs associated
with time spent by employees in reviewing, testing and assessing Year 2000
readiness. All of these expenditures were incurred and expensed in 1999. We do
not anticipate that any remaining Year 2000 issues will have a material adverse
effect on our company.
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%, were automatically
converted into common shares upon completion of our initial public offering. 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.
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 foreign currency exposures are summarized as
follows:
AT DECEMBER 31, 1999
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
MONETARY
MONETARY ASSETS LIABILITIES NET EXPOSURE
--------------- ----------- ------------
<S> <C> <C> <C>
Argentina............................................. $5,298 $ 8,653 $(3,355)
Brazil................................................ 1,864 1,438 426
Mexico................................................ 1,719 739 980
Uruguay............................................... 354 137 217
------ ------- -------
$9,235 $10,967 $(1,732)
====== ======= =======
</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.
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.
To date, we have not been materially affected by inflation in any of the
countries in which we conduct business or have operations.
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<PAGE> 43
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS
Our articles of association provide for a minimum of nine 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.......................... 41 Co-founder and Director
Carlos Cisneros................................. 34 Director
Michael Greeley................................. 37 Director
Michael Levitt.................................. 40 Director
Guillermo Liberman.............................. 31 Director
Horacio Milberg................................. 53 Director
Sofia Pescarmona................................ 27 Director
Ricardo Verdaguer............................... 49 Director
</TABLE>
All of the directors serve for a period ending at each annual meeting of
shareholders, which generally will be held in May of each year.
Mr. Milberg was elected by the other eight directors to our board of
directors in April 2000 to fill a vacancy.
Eric C. Neuman (age 55) has been nominated by our board of directors for
election as a director at the annual meeting of shareholders scheduled for June
15, 2000. Mr. Neuman will replace Mr. Levitt as a director. Mr. Neuman has been
a Principal with Hicks, Muse, Tate & Furst Incorporated since April 1999.
Between June 1998 and March 1999, Mr. Neuman served as Senior Vice President and
Chief Strategic Officer of Chancellor Media, a company of which Hicks, Muse,
Tate & Furst Incorporated was the founder and largest shareholder. From 1993 to
1998, Mr. Neuman was an officer with Hicks, Muse, Tate & Furst Incorporated. Mr.
Neuman serves on the boards of directors of LIN Television Corporation and
Sunrise Television Corporation, and he previously was a director of Chancellor
Media and Capstar Broadcasting Partners. Mr. Neuman holds a Bachelor of Arts
degree from the University of South Florida and a Masters of Business
Administration degree from Northwestern University.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of our
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roberto Vivo-Chaneton...................................... 46 Co-founder and Chairman of the Board
Roberto Cibrian-Campoy..................................... 41 Co-founder, President and Chief
Executive Officer
Walter Forwood............................................. 37 Chief Operating Officer
Horacio Milberg............................................ 53 Chief Financial Officer and Secretary
Daniel Rotsztain........................................... 37 Executive Vice President, Business
Development and Strategic Planning
Alfredo Jimenez de Arechaga................................ 47 Chief Administrative Officer,
Controller and Treasurer
Eduardo Weber.............................................. 39 Chief Technology Officer
Lucia Suarez............................................... 50 Vice President -- Product Development
Mariano Varela............................................. 32 Vice President -- Marketing
Esteban Vivo-Chaneton...................................... 39 Vice President -- Sales
</TABLE>
Messrs. Roberto Vivo-Chaneton, Cibrian-Campoy, Forwood, Rotsztain and
Milberg are members of the executive committee within the management of our
company.
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<PAGE> 44
Executive officers are appointed by, and serve at the discretion of, our
board of directors.
BIOGRAPHICAL INFORMATION
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 Fiber Networks, Inc., 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
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 VeloCom Inc., Fuelman, Inc. and
MotherNature.com, Inc. Mr. Greeley was previously a director of Global
TeleSystems Group, Inc. and American Capital Access Holdings, LLC. 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 Fiber Networks,
Inc., and has also been a Director of IMPSAT since February 1996. From 1994 to
January 1998, Ms. Pescarmona held various positions within IMPSAT Fiber
Networks, Inc. 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 Fiber
Networks, Inc. since 1988. In 1988, as a senior
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<PAGE> 45
executive of Corporacion IMPSA, S.A., an Argentina-based multinational company
with holdings in manufacturing, transportation and telecommunications, Mr.
Verdaguer was involved in the founding of IMPSAT Fiber Networks, Inc. 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.
HORACIO MILBERG has served as our Chief Financial Officer since July 1999,
and as a Director since April 2000, 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.
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 Fiber Networks, Inc. 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.
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 Fiber Networks, Inc. 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.
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<PAGE> 46
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
member of the Directors Guild of America, Women in Communications and the
American Society of Composers and Publishers. Ms. Suarez holds a B.A. degree in
Journalism from New York University.
MARIANO VARELA has served as our Vice President -- Marketing since August
1999. From August 1994 until July 1999, Mr. Varela served as Director of Client
Services at Leo Burnett Worldwide Inc. in Argentina. From 1992 until 1994 he
served as an account executive at Young and Rubicam in Argentina. From 1990
until 1992, Mr. Varela served as an account executive at Marcet, Dreyfuss and
Associates. Mr. Varela has a degree in marketing from the Universidad del
Salvador Argentina.
ESTEBAN VIVO-CHANETON has served as our Vice President-Sales since August
1999. From April 1994 to July 1999, Mr. Vivo served as a vice president in the
Corporate Banking Department of Banco Rio de la Plata, a subsidiary of Banco
Santander Central Hispano. From 1992 to 1994, Mr. Vivo served as a vice
president of corporate banking at BankBoston in Buenos Aires, Argentina. From
1987 to 1992, Mr. Vivo served in various capacities at Banco Roberts in Buenos
Aires, Argentina. Mr. Vivo holds a Master of Business Administration degree from
the Instituto de Altos Estudios Empresariales and an undergraduate degree from
the Universidad Argentina de la Empresa.
Messrs. Roberto Vivo-Chaneton and Esteban Vivo-Chaneton are brothers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has standing audit and compensation committees.
The audit committee consists of Messrs. Greeley, Levitt and Liberman. 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. Roberto Vivo-Chaneton,
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.
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<PAGE> 47
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 Fiber Networks, Inc.
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
(9 persons as a group, excluding Mr. Roberto Vivo-Chaneton, who did not receive
any such compensation in 1999) was $809,000 for the year ended December 31,
1999. We did not set aside or accrue any amounts for pension, retirement or
similar benefits, as we do not provide such benefits for our executive officers.
The above amount does not include share options issued to these executive
officers under our 1999 share option plan.
At December 31, 1999, our executive officers (including Mr. Roberto
Vivo-Chaneton) held an aggregate of 2,346,000 options in respect of our common
shares at an average exercise price of $9.03 per share. 37,200 of these options
became exercisable in 1999, and an additional 703,800 options will become
exercisable in 2000. The five members of the executive committee hold, in the
aggregate, 2,046,000 of these options.
All 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. Each of these agreements also
provides for one year's salary in the event of termination of employment, except
if such termination is "for cause".
1999 SHARE OPTION PLAN
Our 1999 share option plan initially provided for the issuance of up to
1,240,000 common shares. An additional 2,000,000 common shares were reserved in
October 1999 and a further 1,572,700 common shares were reserved in December
1999. Shareholder ratification of the December 1999 increase in reserved common
shares will be sought at the next annual general meeting of shareholders, which
is currently scheduled for June 15, 2000.
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.
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 currently may be granted
options totaling more than 15% of the total number of options issuable under the
plan. Shareholder ratification of an increase in this percentage to 25% will be
sought at the next annual general meeting of shareholders, which is currently
scheduled for June 15, 2000.
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<PAGE> 48
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 December 31, 1999, options to purchase 3,694,530 common shares were
outstanding under the 1999 share option plan and 1,050,930 shares remained
available for future option grants, in each case subject to the above-mentioned
shareholder ratification. The weighted average exercise price for these
outstanding options is $9.16 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 DIRECTORS' AND OFFICERS' 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 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,
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<PAGE> 49
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.
EMPLOYEES
At December 31, 1999, we had 326 full-time employees, including 149 in
production and technology, 85 in marketing and sales and 92 in corporate,
finance and administration. By contrast, we had a total of 78 full-time
employees at December 31, 1998.
Our employee total at December 31, 1999 includes 46 persons who previously
worked for IMPSAT Fiber Networks, Inc. or its subsidiaries, following our
acquisition of its retail dial-up access customers in Brazil and Argentina.
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<PAGE> 50
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
PRINCIPAL SHAREHOLDERS
The following table presents, as of March 31, 2000, 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. Each shareholder has
the same voting rights as each other shareholder.
The table reflects the conversion of all of our outstanding Class A
convertible preferred shares into our common shares, which occurred
automatically upon the closing of our initial public offering in December 1999).
In addition, the table reflects of the conversion of our 1,111,111 outstanding
Class B convertible preferred shares, which will occur automatically on June 15,
2000 (six months after the closing of our initial public offering).
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER COMMON SHARES
BENEFICIAL OWNER OF SHARES (%)(1)
- ---------------- ---------- -------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS
IAMP (El Sitio) Investments, Ltd.(2)........................ 6,798,200 16.1
SLI.com Inc.(3)............................................. 4,956,676 11.8
Militello Limited(4)........................................ 4,799,414 11.4
IMPSAT Fiber Networks, Inc. ................................ 6,141,230 14.6
Tower Plus International.................................... 2,325,324 5.5
DIRECTORS AND EXECUTIVE OFFICERS
Roberto A. Vivo-Chaneton(5)................................. 10,940,644 26.0
Ricardo Verdaguer(6)........................................ 8,466,554 20.1
Sofia Pescarmona(7)......................................... 6,141,230 14.6
Carlos Cisneros(8).......................................... 6,799,250 16.1
Michael Levitt(9)........................................... 6,830,400 16.2
Guillermo J. Liberman(10)................................... 4,956,676 11.8
Michael Greeley(11)......................................... 1,461,156 3.5
Roberto Cibrian-Campoy(12).................................. 693,756 1.6
Walter Forwood(13).......................................... 6,250 *
Horacio Milberg(14)......................................... 7,800 *
Daniel Rotsztain(15)........................................ 87,846 *
Alfredo Jimenez de Arechaga(16)............................. 17,407 *
Eduardo Weber(17)........................................... 3,150 *
Lucia Suarez(18)............................................ -- --
Mariano Varela(19).......................................... 7,000 *
Esteban Vivo-Chaneton(20)................................... 6,250 *
All directors and executive officers as a group (16
persons).................................................. 27,282,209 64.8
</TABLE>
- ---------------
* indicates less than 1%.
(footnotes on following pages)
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<PAGE> 51
(1) Calculated according to Rule 13d-3(d) of the Securities Exchange Act of
1934, except that the table includes 1,111,111 common shares issuable on
June 15, 2000 upon automatic conversion of our outstanding Class B
convertible preferred shares. 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 owned by any
other person listed.
(2) Includes 514,150 common shares issued or issuable through March 31, 2000 to
Washburn Enterprises, an affiliate of IAMP (El Sitio) Investments, Ltd. See
"-- Related Party Transactions" below.
(3) Includes 62,500 common shares issued to Sarandi Comunicaciones S.A., which
is an affiliate of SLI.com Inc. and Guillermo Liberman. SLI.com Inc. and
Mr. Liberman disclaim beneficial ownership of all shares owned by Sarandi
Comunicaciones S.A.
(4) Includes 62,500 common shares issued to Sarandi Comunicaciones, which is an
affiliate of Militello Limited and Mr. Roberto Vivo-Chaneton. Militello
Limited and Mr. Vivo disclaim beneficial ownership of all shares owned by
Sarandi Comunicaciones S.A.
(5) Includes 4,736,914 common shares owned by Militello Limited in respect of
which Mr. Roberto Vivo-Chaneton has a controlling interest. Also includes
6,141,230 shares owned by IMPSAT Fiber Networks, Inc. attributable to Mr.
Vivo as a result of his affiliation with IMPSAT Fiber Networks, Inc. In
addition, includes 62,500 common shares issued to Sarandi Comunicaciones
S.A., which is also an affiliate of Mr. Vivo. Mr. Vivo disclaims beneficial
ownership of all shares owned by IMPSAT Fiber Networks, Inc. and Sarandi
Comunicaciones S.A. Excludes 400,000 options to purchase common shares
granted to Mr. Vivo under our 1999 share option plan.
(6) Includes beneficial ownership of 2,325,324 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 Fiber
Networks, Inc. attributable to Mr. Verdaguer as a result of his affiliation
with IMPSAT Fiber Networks, Inc. Mr. Verdaguer disclaims beneficial
ownership of all shares owned by IMPSAT Fiber Networks, Inc.
(7) Includes 6,141,230 common shares owned by IMPSAT Fiber Networks, Inc.
attributable to Ms. Pescarmona as a result of her position as a director in
IMPSAT Fiber Networks, Inc. Ms. Pescarmona disclaims beneficial ownership
of all shares owned by IMPSAT Fiber Networks, Inc.
(8) 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. Also includes 514,150 common shares
issued or issuable through March 31, 2000 to Washburn Enterprises, an
affiliate of IAMP (El Sitio) Investments, Ltd. Mr. Cisneros disclaims
beneficial ownership of all shares owned by IAMP (El Sitio) Investments,
Ltd. and Washburn Enterprises.
(9) 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. Also includes 32,200 common
shares owned by Hicks Muse, Tate & Furst Incorporated. In addition,
includes 514,150 common shares issued or issuable through March 31, 2000 to
Washburn Enterprises, an affiliate of IAMP (El Sitio) Investments, Ltd. Mr.
Levitt disclaims beneficial ownership of all shares owned by IAMP (El
Sitio) Investments, Ltd., Hicks Muse, Tate & Furst Incorporated and
Washburn Enterprises.
(10) Includes beneficial ownership of 4,894,176 common shares attributable to
Mr. Liberman as a result of his controlling interest in SLI.com Inc. Also
includes 62,500 common shares issued to Sarandi Comunicaciones S.A., which
is an affiliate of Mr. Liberman. See "-- Related Party Transactions" below.
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<PAGE> 52
(11) 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.
(12) Includes 693,756 common shares held through RC Limited, which is wholly
owned by Mr. Cibrian-Campoy and his wife. Excludes options to purchase
700,000 common shares granted to Mr. Cibrian-Campoy under our 1999 share
option plan.
(13) Excludes options to purchase 310,000 common shares granted to Mr. Forwood
under our 1999 share option plan.
(14) Excludes options to purchase 302,000 common shares granted to Mr. Milberg
under our 1999 share option plan.
(15) Includes options, which are currently exercisable, to purchase 37,200
common shares granted to Mr. Rotsztain under our 1999 share option plan.
Excludes options to purchase 296,800 common shares granted to Mr. Rotsztain
under such option plan.
(16) Excludes options to purchase 60,000 common shares granted to Mr. Jimenez
under our 1999 share option plan.
(17) Excludes options to purchase 60,000 common shares granted to Mr. Weber
under our 1999 share option plan.
(18) Excludes options to purchase 60,000 common shares granted to Ms. Suarez
under our 1999 share option plan.
(19) Excludes options to purchase 60,000 common shares granted to Mr. Varela
under our 1999 share option plan.
(20) Excludes options to purchase 60,000 common shares granted to Mr. Esteban
Vivo-Chaneton under our 1999 share option plan.
The above table does not include the following transactions or arrangements
with respect to our common shares:
- 3,657,330 common shares reserved for issuance upon exercise of options
granted under our 1999 share option plan, but that are not currently
exercisable, at a weighted average exercise price of $9.16 per share;
- 1,050,930 common shares reserved for issuance upon the exercise of
options that we may grant under our 1999 share option plan; and
- 1,199,682 common shares issuable to Washburn Enterprises in exchange for
remaining non-cash advertising time credits.
- 1,750,000 common shares issuable in connection with the acquisition of
DeCompras.com, Inc., which acquisition is expected to close in the second
quarter of 1999; and
- 166,667 common shares issuable to Red de Television Chilevision S.A., an
affiliate of IAMP (El Sitio) Investments, Ltd., in connection with the
pending establishment of our strategic alliance with that company. See
"-- Related Party Transactions" below.
------------------------
As of March 31, 2000, 18,461,981 common shares were held by holders in the
United States, and there were 88 record holders in the United States.
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<PAGE> 53
RELATED PARTY TRANSACTIONS
IMPSAT Fiber Networks, Inc. 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 Fiber
Networks, Inc. Roberto Vivo-Chaneton, our co-founder, and chairman, is a
director and deputy chief executive officer of IMPSAT Fiber Networks, Inc. Mr.
Vivo beneficially owns approximately 6% of the capital stock of IMPSAT Fiber
Networks, Inc. Ricardo Verdaguer, another of our directors, is the president and
chief executive officer of IMPSAT Fiber Networks, Inc. Mr. Verdaguer owns
approximately 3.5% of the capital stock of IMPSAT Fiber Networks, Inc. We
acquired the retail dial-up access customers of IMPSAT Fiber Networks, Inc. in
Brazil, Argentina and Colombia. In connection with the acquisitions, IMPSAT
Fiber Networks, Inc. purchased a total of 3,070,615 Class A convertible
preferred shares for approximately $21.5 million, and we entered or will enter,
into services agreements with subsidiaries of IMPSAT Fiber Networks, Inc., under
which they provided us with the telecommunications infrastructure to provide
connectivity services to the acquired customers for payments which amounted to
approximately $2.1 million in 1999. Under services agreements with subsidiaries
of IMPSAT Fiber Networks, Inc., IMPSAT Fiber Networks, Inc. provides us with
links to the Internet in exchange for advertising on our network. This
arrangement accounted for $38,000, $165,000 and $213,000 of our net revenues and
corresponding amounts of our operating expenses in partial year 1997, 1998 and
1999, respectively.
Guillermo Liberman, who is one of our directors and who holds common shares
in our company through SLI.com Inc., 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 $69,000 of our advertising revenues in 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 obligations of our company.
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 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 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
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aggregate, to IAMP (El Sitio) Investments Ltd., GCC Investments, LLC, Tower Plus
International, SLI.com, Inc., Militello Limited and IMPSAT Fiber Networks, Inc.
In February 2000, we entered into a strategic alliance in Uruguay with
Sarandi Comunicaciones S.A., which is an affiliate of Guillermo Liberman and
SLI.com Inc., as well as Roberto Vivo-Chaneton, who are major shareholders in
our company. See Item 4. "Information on the Company -- Business and Strategic
Relationships" for information concerning this strategic alliance.
In February 2000, we also signed an agreement with Red de Television
Chilevision S.A. and Iberoamerican Media Holdings Chile S.A., which are
affiliates of IAMP (El Sitio) Investments, Ltd., which is a major shareholder in
our company. See Item 4. "Information on the Company -- Business and Strategic
Relationships" for information concerning this strategic alliance.
ITEM 8. FINANCIAL INFORMATION
See Item 18. "Financial Statements" for the consolidated financial
statements of our company filed as part of this annual report.
ITEM 9. THE OFFER AND LISTING
Our common shares are listed on the Nasdaq National Market under the symbol
"LCTO". Trading in our common shares on the Nasdaq National Market commenced on
December 10, 1999. The following table sets forth, for the period indicated, the
high and low sales prices of our common shares on the Nasdaq National Market.
<TABLE>
<CAPTION>
SALES PRICES
------------
HIGH LOW
---- ----
<S> <C> <C>
Year ended December 31, 1999
Fourth quarter (from December 10)........................... $44 7/8 $22 5/8
</TABLE>
During the first quarter of 2000 (January 1, 2000 through March 31, 2000),
the high and low prices of our common shares on the Nasdaq National Market has
ranged from $40 to $18 1/2. During the month of April 2000 (through April 30),
the high and low prices of our common shares ranged from $21 1/2 to $6 5/8.
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
Our authorized capital consists of 200,000,000 common shares and
100,000,000 preferred shares.
COMMON SHARES
As of December 31, 1999 and March 31, 2000, we had 40,157,338 common shares
and 40,219,838 common shares, respectively, 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.
Our board of directors or our shareholders by resolution may amend our
memorandum and articles of association except as limited by British Virgin
Islands law or in limited circumstances reserved to the holders of, as the case
may be, the common shares or preferred shares.
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<PAGE> 55
PREFERRED SHARES
Authorized preferred shares may be issued from time to time by our board of
directors, in one or more classes or 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 class or 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 B CONVERTIBLE PREFERRED SHARES
General. As of December 31, 1999 and March 31, 2000, we had 1,111,111
Class B convertible preferred shares outstanding. Each Class B convertible
preferred share will automatically convert on June 15, 2000 (being the date six
months following the closing date of our initial public offering) into one
common share, subject to specified anti-dilution adjustments.
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.
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 to cause us to register their holdings of common shares of
$5 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.
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<PAGE> 56
SUMMARIES OF MATERIAL CONTRACTS
Item 19. "Exhibits" includes a list of our material agreements. The terms
and conditions of these material agreements are described under Item 4.
"Information on the Company".
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.
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 U.S. 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.
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<PAGE> 57
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 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
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<PAGE> 58
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
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.
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
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<PAGE> 59
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 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.
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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.
EXCHANGE CONTROLS
There are currently no British Virgin Islands laws or regulations
restricting the import or export of capital or affecting the payment of
dividends or other distributions to shareholders who are non-residents of the
British Virgin Islands.
Some of our subsidiaries may be subject from time to time to exchange
control laws and regulations that may limit or restrict the payment of dividends
or distributions or other transfers of funds by those
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subsidiaries to our company. We do not anticipate, however, that existing
exchange control laws and regulations affecting our subsidiaries will have a
material adverse effect on our company.
DOCUMENTS ON DISPLAY
We have filed with the Securities and Exchange Commission this annual
report on Form 20-F, including exhibits, under the Securities Exchange Act of
1934 with respect to the common shares.
You may read and copy all or any portion of the annual report 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, 13th
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).
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 5. "Operating and Financial Review and Prospects -- Market Risks"
for quantitative and qualitative disclosures about market risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
USE OF PROCEEDS
The following use of proceeds information relates to the registration
statement on Form F-1 (No. 333-91263) for the initial public offering of our
common shares, which registration statement was declared effective on December
9, 1999.
We received net proceeds of $137.5 million from our initial public offering
(after underwriting discounts of $10.6 million and transaction expenses of $2.8
million).
From the effective date of the Securities Act registration statement to
December 31, 1999, we did not use any of the net proceeds from the sale of our
common shares in the initial public offering. Instead, pending such use, we
invested all of these net proceeds in short-term, interest-bearing U.S. dollar-
denominated investments, mainly U.S. Treasury obligations. Since January 1,
2000, we have commenced using the net proceeds of the initial public offering in
the development of our business, including for product, content and technology
expenses, marketing and sales activities, and corporate, general and
administrative expenses. We also plan to use a portion of the net proceeds to
fund the $7 million cash component of the purchase price for our pending
DeCompras.com, Inc. acquisition.
Credit Suisse First Boston Corporation and Lehman Brothers, Inc. were the
joint lead managing underwriters for our initial public offering.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
ITEM 17. FINANCIAL STATEMENTS
See Item 18. "Financial Statements" for the consolidated financial
statements of our company filed as part of this annual report.
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PART III
ITEM 18. FINANCIAL STATEMENTS
The following consolidated financial statements of El Sitio and its
subsidiaries are included at the end of this annual report:
<TABLE>
<S> <C>
Index to Financial Statements............................... F-1
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 1997, December
31, 1998 and December 31, 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 year ended December 31, 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 year ended December 31, 1999................. F-5
Consolidated Statements of Cash Flow for the period from
July 16, 1997 (date of inception) through December 31,
1997, the year ended December 31, 1998 and the year ended
December 31, 1999......................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
ITEM 19. EXHIBITS
<TABLE>
<C> <S>
2.1 Framework Agreement, dated August 4, 1999, between IMPSAT
Fiber Networks, Inc. and
El Sitio, Inc. (formerly, El Sitio International
Corporation).*
3.1 Amended and Restated Memorandum of Association of El Sitio,
Inc.*
3.2 Amended and Restated Articles of Association of El Sitio,
Inc.*
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, among IMPSAT Fiber
Networks, Inc. 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, 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 Amended and Restated
Stock Option Plan.*
10.8 Assignment Agreement, dated April 1, 2000, between El Sitio
Colombia S.A. and IMPSAT S.A.
10.9 Form of Employment Agreement (substantially in the form
entered into by each of Roberto Cibrian-Campoy, Walter
Forwood, Horacio Milberg and Daniel Rotszain).
10.10 Form of Employment Agreement (substantially in the form
entered into by each of Eduardo Weber, Mariano Varela, Lucia
Suarez, Esteban Vivo-Chaneton and Alfredo Jimenez de
Arechaga).
10.11 Strategic Relationship Agreement, dated February 28, 2000,
between Grupo Sarandi and El Sitio Uruguay, S.A.
</TABLE>
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<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, 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 Fiber Networks, Inc.*
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, 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, 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, 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, among El Sitio, Inc. and certain of its
shareholders.*
10.25 Warrant Acquisition Agreement, dated June 25, 1999, between
Bear, Stearns & Co. Inc. and El Sitio, Inc. (formerly El
Sitio International Corporation).*
10.26 Purchase Agreement, dated March 10, 2000, among El Sitio,
Inc., Belagua B.V., Coracias, B.V., the stockholders of
DeCompras.com, Inc. and DeCompras.com, Inc.
10.27 Letter Agreement, dated February 17, 2000, among El Sitio,
Inc., Red de Television Chilevision S.A. and Iberoamerican
Media Holdings Chile S.A.
10.28 Form of Noncompete Agreement (substantially in the form
entered into by each of Roberto Cibrian-Campoy, Walter
Forwood, Alfredo Jimenez de Arechaga, Horacio Milberg,
Daniel Rotsztain, Lucia Suarez, Mariano Varela, Esteban
Vivo-Chaneton and Eduardo Weber).
21.1 List of Subsidiaries of the Company (included in Item 4.
"Information on the Company -- Subsidiaries").
</TABLE>
- ---------------
* Incorporated herein by reference to the Registration Statement (No. 333-91263)
on Form F-1, as filed with the Commission and declared effective on December
9, 1999.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1999... F-3
Consolidated Statements of Operations and Comprehensive Loss
for the period from July 16, 1997 (date of inception)
through December 31, 1997 and the years ended December 31,
1998 and 1999............................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the period from July 16, 1997 (date of inception)
through December 31, 1997 and the years ended December 31,
1998 and 1999............................................. F-5
Consolidated Statements of Cash Flows for the period from
July 16, 1997 (date of inception) through December 31,
1997 and the years ended December 31, 1998 and 1999....... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 66
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, 1998 and 1999 and
the related consolidated statements of operations and comprehensive loss,
shareholders' equity and cash flows for the period from July 16, 1997 (date of
inception) through December 31, 1997 and the years ended December 31, 1998 and
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 in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1999 and the results of its operations and its cash flows for the
period from July 16, 1997 (date of inception) through December 31, 1997 and the
years ended December 31, 1998 and 1999, in conformity with generally accepted
accounting principles in the United States of America.
DELOITTE & TOUCHE, LLP
Certified Public Accountants
Miami, Florida
February 28, 2000
F-2
<PAGE> 67
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 246 $160,029
Trade accounts receivable, net............................ 105 3,123
Other receivables......................................... 307 392
Prepaid advertising and other current assets.............. 12 10,094
------- --------
Total current assets.............................. 670 173,638
PROPERTY AND EQUIPMENT, net................................. 581 5,405
LICENSES AND PERMITS, net................................... 223 360
INTANGIBLE ASSETS -- CUSTOMER BASE, net..................... -- 18,209
OTHER ASSETS................................................ 7 4,308
------- --------
TOTAL ASSETS................................................ $ 1,481 $201,920
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade.................................... $ 336 $ 13,499
Accrued and other liabilities............................. 376 4,796
Current portion of installment loan....................... -- 28
Unearned revenues......................................... -- 958
------- --------
Total current liabilities......................... 712 19,281
======= ========
COMMITMENTS AND CONTINGENCIES (Note 14)
CLASS B CONVERTIBLE PREFERRED SHARES
Redeemable $0.01 par value, 8% cumulative
dividend -- 1,888,889 shares authorized, 1,111,111
shares issued and outstanding, liquidation preference
$0.01 per share........................................ -- 8,967
------- --------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 200,000,000 shares
authorized; 6,000,000 and 40,157,338 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 60 402
Additional paid-in capital................................ 2,940 225,860
Liability for future shares............................... -- 6,000
Irrevocable capital contribution.......................... 2,302
Deferred share-based compensation......................... -- (11,950)
Discount on Class B convertible preferred shares.......... -- (6,843)
Accumulated other comprehensive (loss) income............. (2) 1,061
Accumulated deficit....................................... (4,531) (40,858)
------- --------
Total shareholders' equity................................ 769 173,672
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 1,481 $201,920
======= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 68
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES:
Advertising and related services................... $ 267 $ 780 $ 4,205
Connectivity services.............................. -- -- 2,656
------- ---------- -----------
Total...................................... 267 780 6,861
------- ---------- -----------
COSTS AND EXPENSES:
Product, content and technology.................... 221 1,556 8,074
Marketing and sales................................ 142 674 20,554
Corporate, general and administrative.............. 727 1,940 8,439
Depreciation and amortization...................... 81 107 2,100
Share-based compensation........................... -- -- 2,042
------- ---------- -----------
Total costs and expenses................... 1,171 4,277 41,209
------- ---------- -----------
Operating loss....................................... (904) (3,497) (34,348)
------- ---------- -----------
OTHER INCOME (EXPENSES):
Interest income (expense), net..................... (75) (42) 799
Foreign exchange loss.............................. (3) (44) (9)
Other income (expense), net........................ (32) 66 (25)
------- ---------- -----------
Total other (expenses) income, net......... (110) (20) 765
LOSS BEFORE DIVIDENDS ON CLASS A AND B CONVERTIBLE
PREFERRED SHARES................................... (1,014) (3,517) (33,583)
DIVIDENDS ON CLASS A AND B CONVERTIBLE PREFERRED
SHARES............................................. -- -- (2,744)
------- ---------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS......... (1,014) (3,517) (36,327)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
Foreign currency translation adjustment............ -- (2) 1,063
------- ---------- -----------
COMPREHENSIVE LOSS................................... $(1,014) $ (3,519) $ (35,264)
======= ========== ===========
NET LOSS PER COMMON SHARE:
Basic and diluted.................................. $(10.14) $ (1.15) $ (2.66)
======= ========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted.................................. 100,000 3,050,000 13,681,306
======= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 69
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DISCOUNTS
LIABILITY ON CLASS B
ADDITIONAL FOR IRREVOCABLE DEFERRED CONVERTIBLE
COMMON PAID-IN FUTURE CAPITAL SHARE-BASED PREFERRED
SHARES AMOUNT CAPITAL SHARES CONTRIBUTION COMPENSATION SHARE
---------- ------ ---------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization......... 100,000 $ 1 $ 49
Net loss for the period........
---------- ---- -------- ------ ------ -------- ------
BALANCE, DECEMBER 31, 1997..... 100,000 1 49 -- -- -- --
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................... -- -- -- -- -- -- --
Net loss for the year.......... -- -- -- -- -- -- --
---------- ---- -------- ------ ------ -------- ------
BALANCE, DECEMBER 31, 1998..... 6,000,000 60 2,940 -- 2,302 -- --
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) -- --
Issuance of common shares in
initial public offering, net
of transaction expenses of
$2,849....................... 9,430,000 94 137,374 -- -- -- --
Conversion of Class A
convertible preferred
shares....................... 18,092,000 181 60,443 -- -- -- --
Discount on Class B convertible
preferred shares............. -- -- 7,778 -- -- -- (7,778)
(Continued)
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS) ACCUMULATED
INCOME DEFICIT TOTAL
------------- ----------- --------
<S> <C> <C> <C>
Initial capitalization......... $ 50
Net loss for the period........ (1,014) (1,014)
------ -------- --------
BALANCE, DECEMBER 31, 1997..... -- (1,014) (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) -- (2)
Net loss for the year.......... -- (3,517) (3,517)
------ -------- --------
BALANCE, DECEMBER 31, 1998..... (2) (4,531) 769
Issuance of common shares...... 84
Irrevocable capital
contribution................. -- -- 898
Capitalization of irrevocable
capital contribution......... -- -- --
Issuance of common shares in
initial public offering, net
of transaction expenses of
$2,849....................... -- -- 137,468
Conversion of Class A
convertible preferred
shares....................... -- -- 60,624
Discount on Class B convertible
preferred shares............. -- -- --
</TABLE>
F-5
<PAGE> 70
<TABLE>
<CAPTION>
DISCOUNTS
LIABILITY ON CLASS B
ADDITIONAL FOR IRREVOCABLE DEFERRED CONVERTIBLE
COMMON PAID-IN FUTURE CAPITAL SHARE-BASED PREFERRED
SHARES AMOUNT CAPITAL SHARES CONTRIBUTION COMPENSATION SHARE
---------- ------ ---------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of discount on
Class B convertible preferred
shares....................... -- -- -- -- -- -- 935
Liability for future shares.... 6,000
Exercise of share options...... 67,240 1 115 -- -- -- --
Deferred share-based
compensation related to share
options...................... -- -- 13,992 -- -- (13,992) --
Amortizations of deferred
share-based compensation..... -- -- -- -- -- 2,042 --
Foreign currency translation
adjustment................... -- -- -- -- -- -- --
Net loss for the year.......... -- -- -- -- -- -- --
---------- ---- -------- ------ ------ -------- ------
BALANCE, DECEMBER 31, 1999..... 40,157,338 $402 $225,860 $6,000 -- $(11,950) (6,843)
========== ==== ======== ====== ====== ======== ======
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS) ACCUMULATED
INCOME DEFICIT TOTAL
------------- ----------- --------
<S> <C> <C> <C>
Amortization of discount on
Class B convertible preferred
shares....................... -- -- 935
Liability for future shares.... 6,000
Exercise of share options...... -- -- 116
Deferred share-based
compensation related to share
options...................... -- -- --
Amortizations of deferred
share-based compensation..... -- -- 2,042
Foreign currency translation
adjustment................... 1,063 -- 1,063
Net loss for the year.......... -- (36,327) (36,327)
------ -------- --------
BALANCE, DECEMBER 31, 1999..... $1,061 $(40,858) $173,672
====== ======== ========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
F-6
<PAGE> 71
EL SITIO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JULY 16, 1997 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,014) $(3,517) $(36,327)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation............................. 81 107 2,100
Amortization of deferred share-based compensation......... -- -- 2,042
Amortization of discount on Class B convertible preferred
shares.................................................. -- -- 935
Changes in assets and liabilities:
Increase in trade accounts receivable, net.............. (48) (57) (3,018)
Increase in prepaid advertising and other current
assets................................................ (5) (7) (1,593)
Increase in other receivables and other non-current
assets................................................ (74) (240) (4,386)
Increase in accounts payable trade...................... 63 273 13,163
Increase in accrued and other liabilities............... 122 221 3,294
Increase in unearned revenues........................... -- -- 958
------- ------- --------
Net cash used in operating activities................. (875) (3,220) (22,832)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (261) (510) (5,502)
Purchases of licenses and permits......................... -- (223) (285)
Purchases of retail dial-up access customers.............. -- -- (17,373)
------- ------- --------
Net cash used in investing activities................. (261) (733) (23,160)
------- ------- --------
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 contributions..................................... 50 1,808 84
Irrevocable capital contributions......................... 2,302 898
Net proceeds from issuance of Class B convertible
preferred shares........................................ -- -- 8,967
Net proceeds from issuance of Class A convertible
preferred shares........................................ -- -- 58,135
Net proceeds from initial public offering................. -- -- 137,468
Exercise of share options................................. -- -- 116
------- ------- --------
Net cash provided by financing activities............. 1,225 4,110 205,668
------- ------- --------
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS........ -- -- 107
------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 89 157 159,783
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 89 246
------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 89 $ 246 $160,029
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. -- -- $ 1,732
------- ------- ========
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 installment loan........... -- -- $ 27
------- ------- ========
Advertising time acquired through the issuance of 355,478
Class A convertible preferred shares.................... -- -- $ 2,489
------- ------- ========
Advertising time acquired in exchange for obligation to
issue shares in the future.............................. -- -- $ 6,000
------- ------- ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 72
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
1. BACKGROUND AND EVOLUTION
El Sitio, Inc., a British Virgin Islands international business company
(the "Company"), is an Internet media company providing country-specific and
regional content for Spanish-and Portuguese-speaking audiences in Latin America
and the United States. The Company has begun to offer connectivity services in
Argentina and Brazil, and, in April 2000, in Colombia. The Company also intends
to provide e-commerce services for 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"). In December 1999,
an additional subsidiary was established in Colombia ("El Sitio Colombia").
All of the Company's subsidiaries are wholly-owned (except for a small
number of shares issued to other persons to comply with local corporate law
requirements). Minority interest in subsidiaries, which is immaterial, is
included in other liabilities and other income.
At December 31, 1999, the Company's operating subsidiaries were as follows:
<TABLE>
<CAPTION>
COUNTRY OPERATING SUBSIDIARIES
- ------- ----------------------
<S> <C>
Argentina El Sitio Argentina
Uruguay El Sitio Uruguay
United States El Sitio USA
Brazil El Sitio Brazil
Mexico El Sitio Mexico
Colombia El Sitio Colombia
</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 revenues adequate to support the Company's
cost structure. With the net proceeds of the private placement in July 1999 and
from the initial public offering in December 1999, the Company plans to fund its
sales and marketing (including 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
F-8
<PAGE> 73
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
2. MERGERS AND ACQUISITIONS (CONTINUED)
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.
During the year ended December 31, 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.
On October 7 1999, and November 5, 1999, the Company completed acquisitions
of IMPSAT Fiber Networks, Inc. ("IMPSAT") retail dial-up access customers in
Brazil and Argentina for $12,300 and $6,200, respectively. Each of these
acquisitions was accounted for as a purchase. The purchase price in excess of
the fair value of net assets acquired was approximately $18,500 and is recorded
as intangible asset-customer base and is being amortized over 3 years using the
straight line method.
The following information presents the pro forma information for the year
ended December 31, 1998 and 1999 of the Company as if the above two IMPSAT
acquisitions had occurred at the beginning of such years (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Net revenues............................................ $15,156 $ 15,863
======= ========
Net loss attributable to common shareholders............ $(7,709) $(40,087)
======= ========
Net loss per common share............................... $ (2.53) $ (2.93)
======= ========
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The financial statements are presented on a
consolidated basis and include the accounts of the Company and its subsidiaries.
All significant intercompany transactions and balances have been eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial 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 advertisement and connectivity services. 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 generally for a fixed fee based 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. 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
F-9
<PAGE> 74
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The Company's 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 unearned 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 performed
and the customer's Website is complete and operational. Web hosting revenues are
recognized ratably over the terms of the contracts. Revenues from Website design
and Web hosting are included in advertising and related services and amounted
to: $86 in 1997; $253 in 1998; and $499 in 1999.
Connectivity service 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.
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 these customers were the same in both years. For the
year ended December 31, 1999, the Company had no customers which exceeded 10% of
total revenue.
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 year ended December 31, 1999, revenues attributable to
reciprocal services totaled approximately $1,342. No gain or loss was recognized
on these reciprocal services arrangements for the period July 16, 1997 (date of
inception) through December 31, 1997 and the years ended December 31, 1998 and
1999.
F-10
<PAGE> 75
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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>
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 $16,109 for the period from July 16, 1997
(date of inception) through December 31, 1997 and the years ended December 31,
1998 and 1999, respectively.
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.
F-11
<PAGE> 76
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 period July
16, 1997 (date of inception) through December 31, 1997 and for the years ended
December 31, 1998 and 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
include accounts receivable, accounts payable, short-term debt, and convertible
redeemable preferred stock. The fair value of such financial instruments has
been determined using available market information and interest rates as of
December 31, 1998 and 1999. The fair value of these financial instruments was
not materially different than their carrying value.
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 accounting and reporting standards for
derivative instruments and for hedging activities. It also requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of Effective Date of SFAS No. 133. SFAS No.
137 deferred the effective date of adoption of SFAS No. 133 to 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, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
El Sitio Mexico.................................... $ -- $ 762
El Sitio Argentina................................. 96 1,345
El Sitio Uruguay................................... 29 62
El Sitio USA....................................... -- 635
El Sitio Brazil.................................... -- 330
---- ------
Total.............................................. 125 3,134
Less: allowance for doubtful accounts.............. (20) (11)
---- ------
Trade accounts receivable, net..................... $105 $3,123
==== ======
</TABLE>
F-12
<PAGE> 77
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
4. TRADE ACCOUNTS RECEIVABLE (CONTINUED)
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, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Beginning balances................................. $-- $ 20
Provision for doubtful accounts.................... 20 19
Write-offs, net of recoveries...................... -- (28)
--- ----
Ending balances.................................... $20 $ 11
=== ====
</TABLE>
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, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
El Sitio Argentina................................. $182 $141
El Sitio Uruguay................................... 48 115
El Sitio Brazil.................................... -- 95
All others......................................... 77 41
---- ----
Total.............................................. $307 $392
==== ====
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Computers, software and other equipment............ $ 523 $4,140
Furniture and fixtures............................. 209 775
Motor vehicles..................................... -- 81
Leasehold improvements............................. -- 1,154
----- ------
Total.............................................. 732 6,150
Less: accumulated depreciation..................... (151) (868)
----- ------
Depreciable property, net........................ 581 5,282
Construction in progress........................... -- 123
----- ------
Property and equipment net......................... $ 581 $5,405
===== ======
</TABLE>
F-13
<PAGE> 78
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
6. PROPERTY AND EQUIPMENT (CONTINUED)
Accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Beginning balance.................................. $ 44 $151
Depreciation expense............................... 107 717
---- ----
Ending balance..................................... $151 $868
==== ====
</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 $1,412 and $11,798 as of December 31, 1998 and 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.
8. INSTALLMENT LOAN
As of December 31, 1999, the Company had one installment loan, payable in
monthly installments of approximately six hundred dollars plus interest at a
rate of 2.90% and due on December 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.
F-14
<PAGE> 79
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
9. SEGMENT INFORMATION (CONTINUED)
The Company's segment information is as follows:
<TABLE>
<CAPTION>
EL SITIO, INC.
EL SITIO EL SITIO EL SITIO EL SITIO EL SITIO EL SITIO (PARENT
PERIOD OR YEAR ARGENTINA URUGUAY MEXICO BRAZIL USA COLOMBIA COMPANY) ELIMINATION
- -------------- --------- -------- -------- -------- -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Total assets......... $ 344 $ 52 $ -- $ -- $ -- $ -- $ -- $ --
Net revenues......... $ 267 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating loss....... $ (897) $ (7) $ -- $ -- $ -- $ -- $ -- $ --
DECEMBER 31, 1998
Total assets......... $ 698 $ 121 $ 243 $ 317 $ 31 $ -- $ 80 $ (9)
Net revenues......... $ 657 $ 106 $ 17 $ -- $ -- $ -- $ -- $ --
Operating loss....... $ (2,322) $(118) $ (569) $ (51) $ (268) $ -- $ (169) $ --
DECEMBER 31, 1999
Total assets......... $ 19,884 $ 429 $ 5,270 $14,867 $ 3,881 $ 41 $187,140 $(29,592)
Net revenues......... $ 1,932 $ 762 $ 1,508 $ 2,196 $ 463 $ -- $ -- $ --
Operating loss....... $(13,849) $(587) $(4,951) $(6,194) $(5,306) $(16) $ (3,443) $ (2)
<CAPTION>
CONSOLIDATED
PERIOD OR YEAR TOTAL
- -------------- ------------
<S> <C>
DECEMBER 31, 1997
Total assets......... $ 396
Net revenues......... $ 267
Operating loss....... $ (904)
DECEMBER 31, 1998
Total assets......... $ 1,481
Net revenues......... $ 780
Operating loss....... $ (3,497)
DECEMBER 31, 1999
Total assets......... $201,920
Net revenues......... $ 6,861
Operating loss....... $(34,348)
</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 a related party in exchange for telecommunication links and
connectivity services. During 1997, 1998 and 1999, such services totaled
approximately $38, $165 and $213, respectively. In addition, during 1999, the
Company paid $1,870 to the related party for telecommunications links and
connectivity services.
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 common shares were reserved in
October 1999, and an additional 1,572,700 common shares were reserved in
December 1999 (subject to ratification by the Company's shareholders at the
annual general meeting currently scheduled for June 2000). Options granted under
the Plan will 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 of the Company's Board of
Directors, or in the absence thereof, the full Board of Directors administers
and interprets the Plan and is authorized to grant options thereunder to all
eligible 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 August 1999 and September 1999, the Company granted nonstatutory share
options for 292,400 and 623,600 shares, respectively, at an exercise price of
$3.501. 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
F-15
<PAGE> 80
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
11. SHARE OPTION PLAN (CONTINUED)
per share. In December 1999, the Company granted additional share options for
490,550 and 1,051,120 common shares to employees at exercise prices of $9.00 and
$16.00, respectively, per share. These options vest 30% after the first year,
30% after the second year, and 40% after the third year.
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.
A summary of the status of the option plans as of and the changes during
each of the years with activity through the year ended December 31,1999 is
presented below:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTION PRICE PER SHARE ----------------------------
NUMBER OF ------------------------- NUMBER OF WEIGHTED AVERAGE
SHARES LOW HIGH WEIGHTED SHARES EXERCISE PRICE
--------- ----- ------ -------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Granted 1998....................... 322,400 $1.61 $ 1.61 $1.61 -- --
---------
Outstanding December 31,1998....... 322,400 $1.61 $ 1.61 $1.61 -- --
Granted 1999....................... 3,487,870 $3.50 $16.00 $9.67 -- --
Exercised 1999..................... (67,240) $1.61 $ 3.50 $1.73 -- --
Cancelled 1999..................... (48,500) $3.50 $ 9.00 $5.46 -- --
---------
Outstanding December 31,1999....... 3,694,530 $1.61 $16.00 $9.16 77,748 $1.61
=========
</TABLE>
The following table summarizes information concerning outstanding options
at December 31, 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>
$ 1.613 259,160 8.75 years 1.613 77,748 $1.613
$ 3.501 880,800 9.64 years 3.501 -- --
$ 9.000 1,503,450 9.89 years 9.000 -- --
$16.000 1,051,120 9.94 years 16.000 -- --
</TABLE>
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 1999, the Company recorded total deferred
share-based compensation of approximately $13,992. 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 year ended December 31, 1999 totaled approximately $2,042.
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 public 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
F-16
<PAGE> 81
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
11. SHARE OPTION PLAN (CONTINUED)
increased by approximately $8 ($0.002 per share basic and diluted) and $530
($0.039 per share basic and diluted) during the years ended December 31, 1998
and, 1999, respectively.
12. CLASS A CONVERTIBLE PREFERRED SHARES
The Company previously had outstanding Class A convertible preferred
shares, each of which shares were converted into two common shares on December
15, 1999 (the date of the Company's initial public offering). The Company had
issued such Class A convertible preferred shares during 1999 as follows:
PRIVATE PLACEMENT -- 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 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 one of our shareholders. Such advertising must be utilized during an
eighteen-month period following the closing date of the private placement. The
Company is required to issue and deliver the number of Class A Convertible
Preferred Shares equal to the advertising time incurred on a quarterly basis
with all remaining shares being issued at the end of the eighteen-month period,
irrespective of the use of the advertising credits. The Company is recognizing
advertising expense based on the fair value of such shares at the date of the
agreement as the advertising credits are used. As of December 31, 1999, the
Company has approximately $4,800 of unused advertising credits as is reflected
in prepaid advertising and other expenses. Additionally, no shares have been
issued under the agreement with Washburn Enterprises, Inc and, accordingly, a
liability to issue those shares has been included in shareholders' equity as of
December 31, 1999. 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.
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"), a major
Mexican 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 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. Prepaid advertising
was recorded in the accompanying consolidated balance sheet at the time the
shares were issued based on the fair value of the shares.
FRAMEWORK AGREEMENT -- On August 4, 1999, the Company entered into an
agreement with IMPSAT which included the private placement of 3,070,615 Class A
Convertible Preferred Shares at $7.00186 per share for $21,500.
F-17
<PAGE> 82
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
13. CLASS B CONVERTIBLE PREFERRED SHARES
On November 16, 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. The
Class B convertible preferred shares have an annual dividend rate of 8%. Each
Class B convertible preferred share will automatically convert, on June 15,
2000, 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 is being amortized as a deemed dividend during a six-month period.
14. COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement, 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 use such player's name and likeness
on the Company's websites 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 December 31,
1999, $750 remained to be paid in future installments. In addition, the Company
issued this baseball player 25,000 common shares of the Company, and this
baseball player is entitled, on or before January 31, 2001, to purchase an
additional 25,000 common shares at the closing price on January 29, 2001 (or the
prior day if that one day is a holiday) less 25%. Approximately $1,458 is
included in Other Assets and $ 980 is included in Accrued and other liabilities
in the accompanying consolidated balance sheet as of December 31, 1999 to
account for all of the provisions of this agreement. 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 as of the end of each fiscal period.
The Company has entered into employment agreements with various members of
management for periods extending for three years. Minimum annual compensation
approximates $3,091 in the aggregate.
The Company leases several facilities under non-cancelable leases for
varying periods through May 2004. Some of the Company's directors have from time
to time guaranteed short-term indebtedness or other obligations of the Company.
On August 4, 1999, the Company entered into a framework agreement with
IMPSAT for the purchase of IMPSAT's retail dial-up access customers in
Argentina, Brazil and Colombia for $21,500. The transactions for Argentina and
Brazil have been completed. The Colombia transaction was consummated in April
2000 (see Note 15).
Rent expense for these operating leases was approximately $20, $144 and
$511 for the years ended December 31, 1997, 1998 and 1999, respectively.
F-18
<PAGE> 83
EL SITIO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD (CONTINUED)
FROM JULY 16, 1997 THROUGH DECEMBER 31, 1997 AND THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under the various operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
2000................................................ $1,061
2001................................................ 1,119
2002................................................ 1,102
2003................................................ 1,085
2004 and thereafter................................. 536
------
Total minimum lease payments........................ $4,903
======
</TABLE>
15. SUBSEQUENT EVENTS
STRATEGIC ALLIANCES -- In February 2000, the Company entered into a
strategic alliance in Uruguay and a letter agreement to establish a strategic
alliance in Chile with entities affiliated with two different major
shareholders. These strategic alliances will include exchange of content,
services and advertising in exchange for the issuance of 62,500 shares and
166,667 shares to the Uruguay and Chile entities, respectively. These strategic
alliances will be accounted for using the fair value of the shares issued.
ACQUISITIONS -- In early March 2000, the Company entered into a definitive
agreement to acquire DeCompras.com, Inc., an e-commerce company that targets
Mexico and Mexican-Americans located in the United States. Under the terms of
the agreement, the Company will issue to shareholders of DeCompras.com an
aggregate of 1.75 million of common shares and pay $7 million in cash. This
acquisition is expected to close in the second quarter of 2000, subject to
completion of satisfactory due diligence reviews and other conditions precedent.
COLOMBIA IMPSAT ACQUISITION -- In April 2000, the Company completed the
acquisition of IMPSAT's retail dial-up access customers in Colombia for $2,300
(subject to purchase price adjustments).
F-19
<PAGE> 84
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
EL SITIO, INC.
/s/ HORACIO MILBERG
--------------------------------------
Horacio Milberg
Chief Financial Officer
Date: May 1, 2000
S-1
<PAGE> 1
Exhibit 10.8
ASSIGNMENT AGREEMENT
BY AND BETWEEN
EL SITIO COLOMBIA S.A.
AND
IMPSAT S.A.
------------------------------
April 1, 2000
------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. ASSIGNMENT; PAYMENT DATES........................................................................ 2
1.1 Assignment and Payment of the Purchase Price............................................ 2
1.2 Price of the Assignment. Payment Dates.................................................. 3
1.3 Stamp Tax............................................................................... 3
1.4 Deliveries.............................................................................. 3
1.5 Adjustment to Purchase Price............................................................ 3
1.6 Additional Clients...................................................................... 4
2. REPRESENTATIONS AND WARRANTIES................................................................... 4
2.1 Creation................................................................................ 4
2.2 Power................................................................................... 4
2.3 Non-Breach.............................................................................. 4
2.4 Binding Obligation...................................................................... 4
2.5 Title................................................................................... 4
2.6 Contracts............................................................................... 5
2.7 No Other Purchasers..................................................................... 5
2.8 Compliance.............................................................................. 5
2.9 Clients................................................................................. 5
2.10 No Consents............................................................................. 5
2.11 No Pending Actions, Proceedings or Investigations....................................... 6
2.12 No Brokers.............................................................................. 6
2.13 No Material Adverse Change.............................................................. 6
2.14 No Change In Any Law.................................................................... 6
2.15 No Misleading Statements................................................................ 6
2.16 Marks................................................................................... 6
3. REPRESENTATIONS AND WARRANTIES OF THE ASSIGNEE .................................................. 6
3.1 Creation................................................................................ 6
3.2 Power................................................................................... 6
3.3 Non-Breach.............................................................................. 7
3.4 Binding Obligation...................................................................... 7
3.5 No Misleading Statements................................................................ 7
4. INVOICING, ASSIGNMENT OF RIGHTS, DISTRIBUTION OF SUBSCRIPTIONS................................... 7
4.1 Invoicing............................................................................... 7
4.2 Assignment of Automatic Debits.......................................................... 7
4.3 Liability of the Assignor............................................................... 7
4.4 Outstanding Accounts Receivable......................................................... 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5. CONDITIONS TO CLOSING............................................................................ 8
5.1. CONDITIONS OF OBLIGATIONS OF THE ASSIGNEE............................................... 8
5.2. CONDITIONS OF OBLIGATIONS OF THE ASSIGNOR............................................... 9
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................................................... 9
7. INDEMNIFICATION.................................................................................. 9
7.1. INDEMNIFICATION BY ASSIGNOR............................................................. 9
7.2. INDEMNIFICATION BY ASSIGNEE............................................................. 10
7.3. INDEMNIFICATION PROCEDURE............................................................... 11
8. EXPENSES......................................................................................... 12
8.1. ASSIGNOR'S EXPENSES..................................................................... 12
8.2. ASSIGNEE'S EXPENSES..................................................................... 12
9. MISCELLANEOUS.................................................................................... 12
9.1. COMPLETE AGREEMENT...................................................................... 12
9.2. SPECIFIC PERFORMANCE.................................................................... 12
9.3 APPLICABLE LAW AND JURISDICTION......................................................... 12
9.4. NOTICES................................................................................. 13
9.5. ADDRESSES............................................................................... 14
9.6. FURTHER ASSURANCES...................................................................... 14
9.7. SEVERABILITY............................................................................ 14
9.8. COUNTERPARTS............................................................................ 14
9.9. CONFIDENTIALITY......................................................................... 14
9.10. SUCCESSORS AND ASSIGNS.................................................................. 15
9.11. HEADINGS................................................................................ 15
9.12. TRANSLATION............................................................................. 15
9.13. NO CONTACT.............................................................................. 15
</TABLE>
ii
<PAGE> 4
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Agreement") is made as of April 1, 2000, by and
between IMPSAT S.A., a company duly created under the laws of the Republic of
Colombia (the "Assignor"), and EL SITIO COLOMBIA S.A., a company duly created
under the laws of the Republic of Colombia (hereinafter called the "Assignee";
collectively, the "Parties").
W I T N E S S E T H
WHEREAS, the Assignor is controlled by IMPSAT Fiber Networks, Inc., a
corporation duly organized and existing under the laws of the State of Delaware,
United States of America ("IMPSAT");
WHEREAS, the Assignee is controlled by El Sitio, Inc., a company duly organized
and existing under the laws of the British Virgin Islands ("El Sitio");
WHEREAS, IMPSAT and El Sitio have entered into a Framework Agreement dated on
August 4, 1999 (the "Framework Agreement") in which the parties agreed on the
basic terms and conditions of a series of related agreements to be entered into
in connection with the sale of IMPSAT's retail Internet access businesses in
Argentina, Brazil and Colombia to El Sitio;
WHEREAS, the Assignee has informed the Assignor that it has not yet obtained
certain consents (the "Consents") required to obtain the license (the "Value
Added Services License") required to provide ISP services and other value added
services in Colombia;
WHEREAS, the Assignor renders telematic and value added services, and has agreed
to assign to the Assignee its Internet dial-up services contracts (written and
oral) (the "Assigned Contracts" or "Acquired Business") relating to the clients
(the "Clients") listed on Annex C (of which Annex shall designate the clients
subject to contracts that are oral contracts) who receive Internet access
service from the Assignor (the "Service") on the date that Assignee receives its
Value Added Services License (the "Assignment Date"), and the Assignee has
agreed to pay to the Assignor the Purchase Price for the Acquired Business,
pursuant to the terms and conditions detailed herein;
<PAGE> 5
WHEREAS, simultaneously with the execution of this Agreement, the Assignor and
the Assignee are entering into a Joint Venture Agreement in the form attached
hereto as Annex E (as herein defined); and
WHEREAS, the Assignee will not assume any liabilities or obligations of any
nature whatsoever of the Assignor of the Acquired Business arising prior to the
Closing Date (as defined herein) other than those specified on Annex F (each an
"Assumed Liability").
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter contained, the receipt and sufficiency of which is hereby
mutually acknowledged, the Parties hereto agree as follows:
1. ASSIGNMENT; PAYMENT DATES
1.1 Assignment and Payment of the Purchase Price.
(a) Pursuant to this Agreement, and according to the other
terms and conditions established herein, (i) on the Assignment Date the Assignor
shall assign to the Assignee the Assigned Contracts, and the Assignee shall
acquire from the Assignor the Assigned Contracts and (ii) on a date that the
parties shall mutually agree, but in no event later than fourteen (14) days from
the date of this Agreement (the "Closing Date"), the Assignee will pay the
Assignor the Purchase Price (as defined below) in accordance with the terms and
conditions set forth in Section 1.2 below.
(b) The Parties shall jointly inform the Assigned Clients,
before the Assignment Date and in conformity with Colombian law, that their
contracts have been assigned to Assignee.
(c) The Assignor hereby grants to the Assignee, at no cost,
the non-exclusive right, to use the domain name "impsat.net.co" (the "Dominion")
in order to allow the Assignee to continue rendering ISP services exclusively to
the Assigned Contracts and to any other clients that the Assignee may
incorporate in the future, for a nine month period from the Assignment Date.
Before the expiration of said term, the Assignee shall cease to use and cause
the Assigned Clients to cease in the use of the Dominion. Notwithstanding the
aforesaid, the Assignor shall be solely responsible for the lawful
administration of the Dominion during the nine month period referred above.
(d) The Assignor hereby grants to the Assignee, at no cost,
certain non-exclusive rights, to use the Assignor's logo, trademarks and
servicemarks set forth on Annex N (collectively the "Marks") for marketing
purposes, from the Closing Date until three months after the Assignment Date,
subject to the following limitations:
(i) At any time, the Assignor may request information
from the Assignee in order to verify the proper use of the Marks. The parties
hereby state, in compliance with their contractual liabilities, that they will
have access to confidential information from the other party, such as, but not
limiting to working methods, marketing
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plans, prices, list of customers, costs, etc. However, the Assignor shall not
have the right to examine equipment, methods and working place of the Assignee
which hold confidential information, nor shall it have access to the list of
clients and suppliers, internal accounting and other information which is
considered Assignee's trade secret under Colombian law; and
(ii) The Assignee shall use all reasonable skill and
care in the provision of any services pursuant to its use of the Marks; shall
comply with applicable laws and regulations; and shall provide such services at
the standard of quality commensurate with those provided by the Assignor.
1.2 Price of the Assignment. Payment Dates. In consideration for the
assignment of the Assigned Contracts, the Assignee shall pay the Assignor Two
Million Three Hundred Thousand U.S. Dollars (US$2,300,000) (the "Purchase
Price"), which shall be paid in an equivalent amount of Colombian Pesos
calculated at the market exchange rate offered on the Closing Date by
BanColombia S.A. to the Assignee for U.S. Dollars in an amount equal to the
Purchase Price, free of discounts due to transfer costs or any other banking
expense. Rights set forth under Sections 1.1 (c) and 1.1 (d) above, shall be
assigned to the Assignee by the Assignor at no cost. The Purchase Price shall be
paid on the Closing Date by the Assignee to the Assignor through a wire transfer
to account number designated by Assignor.
1.3 Stamp Tax. Any stamp taxes resulting from this Agreement shall be
borne by both parties in equal halves.
1.4 Deliveries. At or before the Closing Date, the Parties shall have
delivered all documents required to be delivered by them pursuant to this
Agreement or any other document signed in connection with this Agreement.
1.5 Adjustment to Purchase Price. Within 90 days from the Closing Date
(the "Audit Period"), the Assignee shall perform a good faith audit of the
number of the Assigned Contracts to determine whether or not an adjustment to
the Purchase Price is required. For purposes of this audit, Assignor agrees to
provide Assignee complete access to any records, data, reports and information
with respect to the Assigned Contracts.
The Purchase Price will be adjusted by an amount equal to US$425.77
multiplied by the number of Good Contracts greater or less than 5,402. This
adjustment shall be paid by either the Assignor or Assignee, as the case may be,
within 10 days of the Assignee's notification to the Assignor of the results of
its good faith audit.
For purposes of this Agreement, "Good Contracts" will include those
contracts included in the Assigned Contract that are entered into with customers
that:
(a) (i) are not in default of any payment obligation as of the
Closing Date and (ii) have information (valid credit card, phone number, billing
address and status as active users of the Service (i.e. have utilized the
Service at least once within the 30 day period prior to the Closing Date)) that
is verified by Assignee ("Verifiable Information"); or
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(b) (i) are not in default of any payment that has been due for
more than 120 days as of the Closing Date; (ii) have Verifiable Information;
(iii) are not in default at the end of the Audit Period of an amount that is
greater than the amount in default at the beginning of the Audit Period; and
(iv) are not in default of an amount greater than ninety (90) days of Service
fees as of the end of the Audit Period.
1.6 Additional Clients Those contracts that are not Assigned Contracts
(the "Bad Contracts") may be evaluated after the Closing Date by the Assignee
pursuant to the terms set forth in this Section 1.6. The Assignor shall have 60
days from the Closing Date to present to the Assignee any Bad Contracts that
have (i) a valid credit card, phone number and billing address and (ii) entered
into new contracts for the Service with IMPSAT (the "Rehabilitated Contracts").
The Assignee shall have 30 days from the date of receipt of the list of the
Rehabilitated Contracts to verify the status of the Rehabilitated Contracts.
After the Assignee has agreed on the list of Rehabilitated Contracts, the
Assignee agrees to purchase such Rehabilitated Contracts at a price of
U.S.$425.77 per Rehabilitated Contract within 10 days of the end of the Audit
Period.
2. REPRESENTATIONS AND WARRANTIES OF THE ASSIGNOR
The Assignor represents and warranties to the Assignee the following:
2.1 Creation. The Assignor is a duly created company, validly existing,
duly registered and in full compliance with all applicable laws pursuant to the
laws of the Republic of Colombia.
2.2 Power. The Assignor has full corporate authority and capacity to
grant and enter into this Agreement and the Joint Venture Agreement and perform
its obligations hereunder and thereunder and consummate the transactions
contemplated hereby pursuant to the terms and conditions established herein and
therein. The Board of Directors of the Assignor approved this Agreement,
pursuant to the terms and conditions hereof, as established in the copies
certified of the pertinent board minutes attached hereto as Annex G.
2.3 Non-Breach.The execution of this Agreement and the Joint Venture
Agreement, the performance of the operations stipulated herein, or the
fulfillment by the Assignor of any of the provisions hereof and thereof do not
or shall not conflict with, or result in the breach of, any organizational
document of the Assignor including its Bylaws.
2.4 Binding Obligation. This Agreement and the Joint Venture Agreement,
constitutes binding, valid and legal obligations of the Assignor and is
enforceable against it pursuant to their terms except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
and other laws relating to or affecting creditor's rights generally or by
equitable principles.
2.5 Title. Except as set forth in the Assigned Contracts, the Assigned
Contracts are free and clear of all pledges, security interests, liens,
encumbrances and claims of any
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kind, and the Assignee will acquire the Assigned Contracts free and clear of all
pledges, security interests, liens, encumbrances, or claims, except as created
by Assignee.
2.6 Contracts. Annex H contains the material terms of the form of
written contract used by the Assignor with the Assigned Clients; provided,
however, that some Assigned Clients have oral contracts and some written
contracts have been orally amended. None of the oral contracts are on terms that
are materially different than those found in the written contracts, and none of
the oral amendments materially change the economic terms of any of the written
contracts except as set forth on Annex C. Except in such cases as would not in
the aggregate have a material adverse effect on the Acquired Business (a) the
Assigned Contracts are valid, binding and enforceable in accordance with their
terms, (b) the Assignor has performed, and is now performing, the obligations
of, and are not in default (and would not by the lapse of time or the giving of
notice be in default) under any of the Assigned Contracts, (c) no parties have
notified the Assignor in writing of any claim, dispute or controversy or
withheld payments from the Assignor with respect to any of the Assigned
Contracts, (d) no other party to an Assigned Contract is in default or has
breached any term or provision of such Assigned Contract that has not previously
been cured, (e) the Assignor has not received notice or warning of alleged
nonperformance, delay in delivery or other noncompliance with respect to any of
the Assigned Contracts, and (f) the Assignor has not received any notice that
any Assigned Client intends to totally or partially terminate any of the
Assigned Contracts. For purposes of this Section 2.6, a "material adverse effect
on the Acquired Business" means an effect which would result in a diminution in
the revenues of the Acquired Business of more than five percent (5%), as
compared to the revenues as of Closing Date.
2.7 No Other Purchasers. There is no agreement, option or other right
or privilege outstanding in favor of any person for the purchase from Assignor
of the Acquired Business or any aspect of the Acquired Business.
2.8 Compliance. With respect to the Acquired Business, the Assignor has
complied in all material respects with all statutes, ordinances, codes, laws,
rules, regulations or orders during all times prior to the date hereof.
2.9 Clients. As of July 31, 1999, the Assignor had agreements with the
number of paying clients for receipt of dial-up access services identified in
the Deloitte & Touche report attached hereto as Annex I.
2.10 No Consents. Except to the extent that licenses and any other
permits required for the Assignee to provide the telecommunications value added
services, commonly called Internet or on-line dial-up access, have not been
received from the Ministry of Communications of the Republic of Colombia, there
are no governmental filings, registrations, consents, approvals, authorizations
or orders necessary for the execution, delivery and performance of this
Agreement and the Joint Venture Agreement by the Assignor and the transactions
contemplated hereby or to ensure the legality, validity, enforceability or
admissibility in the Republic of Colombia of this Agreement and the Joint
Venture Agreement.
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2.11 No Pending Actions, Proceedings or Investigations. There are no
pending, or to the best of Assignor's knowledge, threatened, judicial or
administrative actions, proceedings or investigations which question the
validity of this Agreement or question the action to be taken by Assignor in
connection with this Agreement. There is no material legal action pending or
threatened with respect to any of the Assigned Contracts.
2.12 No Brokers. The Assignor has not retained any broker, finder or
agent or agreed to pay any brokerage or similar fee with respect to the
transactions contemplated hereby.
2.13 No Material Adverse Change. To assignor's knowledge there has been
no material adverse change to the Acquired Business, results of operations,
financial conditions or prospects of the Acquired Business as a whole since July
31, 1999. As used in this Agreement, the phrase "material adverse change to the
Acquired Business", excludes any change or event which generally affects the
Internet industry.
2.14 No Change In Any Law. There is no pending or threatened change in
any law which materially affects or could materially affect the Acquired
Business.
2.15 No Misleading Statements. The annexes and the representations and
warranties of this Agreement and the Joint Venture Agreement are and shall at
the Closing Date be true, correct and complete in all material aspects, and this
Agreement, its annexes and representations and warranties of this Agreement, do
not contain and shall not contain any statement whatsoever that may be
incorrect, incomplete, false or misleading as regards the facts or acts
established in said representations and warranties.
2.16 Marks. The Assignor is the sole and exclusive owner of the Marks,
has the authority to grant the right to use the Marks, and the appropriate use
of the Marks by the Assignee will not infringe the rights of any third parties.
3. REPRESENTATIONS AND WARRANTIES OF THE ASSIGNEE
The Assignee hereby represents and warranties to the Assignor the following:
3.1 Creation. The Assignee is a duly created company, validly existing
and duly registered pursuant to the laws of the Republic of Colombia.
3.2 Power. The Assignee has full corporate authority and capacity to
enter into this Agreement and the Joint Venture Agreement and perform its
obligations hereunder and thereunder, consummate the transactions contemplated
hereby and thereby, pursuant to the terms and conditions established herein and
therein and has taken all the corporate measures required to authorize the
execution, delivery and performance of this Agreement and the Joint Venture
Agreement and the fulfillment of the operations stipulated herein and therein;
and this Agreement and the Joint Venture Agreement constitutes legal, valid and
binding obligations of the Assignee, enforceable against it pursuant to their
terms except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, moratorium and other laws relating to or affecting
creditor's rights generally or by
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equitable principles. The Board of Directors of the Assignee has approved the
acquisition of the Acquired Business, pursuant to the terms and conditions
hereof, according to the certified copies of the pertinent Board minutes
attached hereto as Annex K.
3.3 Non-Breach. Except to the extent that licenses and any other
permits required for the Assignee to provide the telecommunications value added
services, commonly called Internet or on-line dial-up access services, have not
been received from the Ministerio de Comunicaciones of the Republic of Colombia,
the execution of this Agreement and the Joint Venture Agreement the performance
of the operations stipulated herein and therein, or the fulfillment by the
Assignee of any of the provisions hereof and thereof: (i) do not breach or shall
not breach, or shall not be in conflict with or result in the breach of any law,
executive order, regulation, ordinance or any other provision or shall
constitute a breach (or a fact that, through notice or the lapse of time, or
both, may constitute a breach) of any term or provision of, or shall become a
breach under, any agreement of which the Assignee may be a party or to which its
business, property or assets may be subject; (ii) are not or shall not be in
conflict with, or shall result in the breach of the Bylaws of the Assignee,
copies of which are included as Annex B.
3.4 Binding Obligation. This Agreement and the Joint Venture Agreement,
constitutes binding, valid and legal obligations of the Assignee and is
enforceable against it pursuant to their terms except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
and other laws relating to or affecting creditor's rights generally or by
equitable principles.
3.5 No Misleading Statements. The representations and warranties of
this Agreement and the Joint Venture Agreement made pursuant to this Section 3
are and shall at the Closing Date be true, correct and complete in all their
aspects, and do not contain and shall not contain any statement whatsoever that
may be incorrect, incomplete, false or misleading as regards the facts or acts
established in said representations and warranties.
4. INVOICING, ASSIGNMENT OF RIGHTS, DISTRIBUTION OF
SUBSCRIPTIONS
4.1 Invoicing. Subject to the terms and conditions of the Joint Venture
Agreement, the invoicing with respect to the Acquired Business and the
collection of any and all fees shall be made by the Assignee as of the Closing
Date.
4.2 Assignment of Automatic Debits. Within thirty (30) days after the
Closing Date, the Assignor shall deliver to the Assignee a notice addressed to
the Banks and/or credit card companies included in Annex L, requesting that the
automatic debits with respect to the Acquired Business corresponding to the
rendering of the Service be done immediately in favor of the Assignee instead of
the Assignor, and will take such further actions as Assignee may reasonably
request in respect of the foregoing. The parties shall also inform the clients
the situation referred above.
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4.3 Liability of the Assignor.
(a) Notwithstanding the previsions under Section 1.5
(Adjustment to Purchase Price) the Assignor shall have no responsibility in the
event that any Assigned Client at any time on or after the Closing Date
terminates its Assigned Contract or its commercial relationship with the
Assignee for any reason whatsoever, and the Assignee shall have no claims
against the Assignor in respect to any such termination.
(b) The Assignor makes no warranty or guarantee nor does the
Assignor assume any liability whatsoever for the financial or economic condition
of any Assigned Client or for the payment of any amounts owing in respect of any
of the Assigned Contracts from and after the Closing Date, notwithstanding the
provisions under Section 1.5.
4.4 Outstanding Accounts Receivable. Neither Party shall have any right
or claim to any outstanding accounts receivable with respect to the Assigned
Contracts that are due and outstanding as of the Closing Date, except as set
forth herein.
5. CONDITIONS TO CLOSING
5.1. Conditions of Obligations of the Assignee. The obligations of the
Assignee to purchase and pay for the Assigned Contracts is subject to the
fulfillment in all material respects prior to the Closing Date hereof of the
following conditions, any of which may be waived in whole or in part by the
Assignee:
(a) The representations and warranties of the Assignor under
this Agreement shall be true and correct in all material respects on the Closing
Date without regard to any materiality qualifier set forth in any representation
and warranty contained herein.
(b) The Assignor shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by the Assignor on or before the Closing Date.
(c) 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.
(d) Since April 1, 2000 until the Closing Date, there shall
not have been a material adverse change to the Acquired Business. "Material
adverse change to the Acquired Business" 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 assets, liabilities,
prospects, results of operations or condition (financial or otherwise) of the
Acquired Business or (ii) on the ability of the Assignor to perform on a timely
basis any material obligation under this Agreement or to consummate the
transactions contemplated hereby.
(e) The Assignee shall have received from SE Consultores
Asociados Limitada, counsel for the Assignor, an opinion dated the Closing Date,
in the form attached as Annex J.
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(f) The Parties shall have entered into a Joint Venture
Agreement in the form attached hereto as Annex E.
(g) The parent of Assignor shall have entered into the
Guaranty in the form attached hereto as Annex M.
(h) The Assignor shall deliver to the Assignee on the Closing
Date a certificate executed by an officer of the Assignor, certifying the
satisfaction of the conditions specified in paragraphs (a), (b), (c) and (d) of
this Section 5.1.
5.2. Conditions of Obligations of the Assignor. The obligations of the
Assignor herein subject to the fulfillment in all material respects prior to the
Closing Date of the following conditions, any of which may be waived in whole or
in part by the Assignor:
(a) The representations and warranties of the Assignee under
this Agreement shall be true and correct in all material respects on the Closing
Date.
(b) The Assignee shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by the Assignee on or before the Closing Date.
(c) The Assignee 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. Notwithstanding the foregoing, the Assignor
expressly acknowledges that the Assignee has not yet obtained the Value Added
License and/or other consents required to provide telecommunications value added
services in Colombia, and the fact that such licenses or consents have not yet
been obtained shall not be deemed as a failure of any condition contained
herein.
(d) 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) The parties shall have entered into a Joint Venture
Agreement in the form attached hereto as Annex E.
(f) The Assignor shall have received from Brigard y Urrutia,
counsel for the Assignee, an opinion dated the Closing Date, in the form
attached hereto as Annex O.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties made by the Assignor shall survive the
execution and delivery of this Agreement and the completion of the transactions
contemplated herein for a period of five (5) years.
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7. INDEMNIFICATION
7.1. Indemnification by Assignor. The Assignor shall indemnify and hold
harmless the Assignee and/or each of its directors, officers, employees, and
representatives from and against any losses, expenses, claims, damages or
liabilities of whatever nature, joint or several, including without limitation
reasonable costs of investigation and reasonable legal fees and expenses of
legal counsel to which the Assignee and/or each of its directors, officers,
agents, employees, advisers and representatives may become subject, which arise
out of or are based upon:
(a) any representation or warranty of the Assignor made herein
not having been materially true, complete and accurate when made;
(b) any covenant made herein by the Assignor not having been
complied with;
(c) any liability with respect to the Acquired Business for
taxes including related liabilities, penalties, fines, additions and interest in
respect of any taxable period ending on or prior to the Closing Date; or
(d) any liability or obligation that is not an Assumed
Liability or that is attributed to the Acquired Business related to the period
prior to the Closing Date.
The Assignor's obligations to indemnify for the Assignee's losses under this
Agreement shall accrue only if the aggregate amount of such losses exceeds one
percent of the Purchase Price and the Assignor shall be liable for all such
losses, including such initial one percent amount; provided, however, that the
maximum liability of the Assignor under this Section 7.1 shall not exceed the
Purchase Price.
7.2. Indemnification by Assignee. The Assignee shall indemnify and
hold harmless the Assignor and each of its directors, officers, employees, and
representatives from and against any losses, expenses, claims, damages or
liabilities, joint or several, including without limitation reasonable costs of
investigation and reasonable legal fees and expenses of legal counsel to which
the Assignor and/or each of its directors, officers, employees, advisers and
representatives may become subject, which arise out of, or are based upon:
(a) any representation or warranty of the Assignee made herein
not having been materially true, complete and accurate when made;
(b) any covenant made herein by the Assignee not having been
complied with;
(c) any liability with respect to the Acquired Business for
taxes including related liabilities, penalties, fines, additions and interest in
respect of any taxable period ending after the Closing Date; or
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(d) any Assumed Liability and any liability or obligation
attributed to the Acquired Business related to the period after the Closing
Date.
The Assignee's obligations to indemnify the Assignor for losses under this
Agreement shall accrue only if the aggregate amount of such losses exceeds one
percent of the Purchase Price and in such event Assignee shall be liable for all
such losses, including such initial one percent amount; provided, however, that
the maximum liability of the Assignee under this Section 7.2 shall not exceed
the Purchase Price.
7.3. Indemnification Procedure
(a) In the case of any claim asserted by a third party against
a party entitled to indemnification under this Agreement (the "Indemnified
Party"), notice shall be given by the Indemnified Party to the indemnifying
party (the "Indemnitor") three calendar days after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and the
Indemnified Party shall permit the Indemnitor (at Indemnitor's expense) to
assume the defense of any claim or any litigation resulting therefrom, provided
that (i) the counsel for the Indemnitor who shall conduct the defense of such
claim or litigation shall be reasonably satisfactory to the Indemnified Party,
(ii) the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (iii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Indemnitor of its indemnification
obligation under this Agreement except to the extent that such omission results
in a failure of actual notice to the Indemnitor and the Indemnitor is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, the Indemnitor, in the defense of any
such claim or litigation, shall not consent to entry of any judgment or order,
interim or otherwise, or enter into any settlement that provides for injunctive
or other nonmonetary relief affecting the Indemnified Party or that does not
include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnitor might be expected to affect adversely the Indemnified Party's tax
liability or the ability of the Indemnified Party or any of its subsidiaries to
conduct its business, or that the Indemnified Party may have available to it one
or more defenses or counterclaims that are inconsistent with one or more of
those that may be available to the Indemnitor in respect of such claim or any
litigation relating thereto, the Indemnified Party shall have the right at all
times to take over and assume control over the defense, settlement, negotiations
or litigation relating to any such claim at the sole cost of the Indemnitor,
provided that if the Indemnified Party does so take over and assume control, the
Indemnified Party shall not settle such claim or litigation without the written
consent of the Indemnitor, such consent not to be unreasonably withheld. In the
event that the Indemnitor does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand and shall be entitled to settle or agree to pay in full
such claim or demand. Notwithstanding the foregoing, the Indemnitor shall still
provide indemnification to the Indemnified Party. In any event, the Indemnitor
and the Indemnified Party shall
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cooperate in the defense of any claim or litigation subject to this Section and
the records of each shall be available to the other with respect to such
defense.
(b) The obligations of the parties under this Section shall
survive the execution and delivery of this Agreement for a period of three (3)
years from the Closing Date.
8. EXPENSES
8.1. Assignor's Expenses. The Assignor shall pay all the costs and
expenses including, but not limited to, the fees and expenses of lawyers,
accountants and any other advisor hired by it and any other expenses incurred by
the Assignor related to this Agreement.
8.2. Assignee's Expenses. The Assignee shall pay all the costs and
expenses including, but not limited to, the fees and expenses of lawyers,
accountants and any other advisor hired by it and any other expenses incurred by
the Assignee related to this Agreement.
9. MISCELLANEOUS
9.1. Complete Agreement. This Agreement and its annexes contains
the complete agreement between the Parties as regards the operations stipulated
therein and replaces all the negotiations, depositions, statements, commitments,
offers and agreements, written or oral, entered into between the Parties before
the date hereof. No waiver or modification or amendment of any provision of this
Agreement shall be in force, unless it is made in writing and is duly signed by
the Parties.
9.2. Specific Performance.
(a) In the event either party fails to close the transactions
contemplated by this Agreement for any reason other than a material breach of
this Agreement by the other party, each party shall have the right, among other
remedies, to specifically enforce this Agreement. Such remedy, however, shall
not be exclusive and shall be in addition to any other remedies which the other
party may have under this Agreement or otherwise.
(b) The obligations of the parties under this Section shall
survive the execution and delivery of this Agreement for a period of three (3)
years from the Assignment Date.
9.3. Applicable Law and Jurisdiction
(a) The validity, duration and construction of this Agreement
shall be exclusively ruled by the laws of the Republic of Colombia.
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(b) The Parties agree to endeavor to resolve any dispute,
controversy or difference arising from this Agreement in good faith within 30
days from the occurrence of the conflict.
(c) In the event that the Parties do not resolve such dispute
within 30 days, the Parties agree to attempt to reach a settlement through a
friendly mediator.
(d) If an acceptable resolution cannot be reached under
Section 14(b) and (c), the dispute will be submitted before one (1) or three (3)
arbitration judges, and the number and identity of the arbitration judges will
be chosen by the parties. In the event that the Parties fail to agree on the
number and identity of the arbitration judges, they will be chosen by the
Chamber of Commerce.
(e) The arbitration award will obey the Colombian regulation
corresponding to this matters, especially Law 23, 1991 and Law 446, 1998. The
arbitration award will be in law.
(f) If the conflict between the parties refers to technical
matters, informatics, and/or telecoms, the Parties will submit their dispute
before an expert in the area concerning the dispute, in accordance with the
Colombian regulation for this matters. The Parties shall choose one (1) or three
(3) experts in the matters involved in the conflict. If there is no
understanding between the parties in the election of the appraisers, the
Colombian Chamber of Informatics and Telecommunications or the Central Auditor
Board will be in charge of choosing them.
(g) The arbitration or expert proceedings will take place in
Santa Fe de Bogota, in accordance with the proceedings established by the
Chamber of Commerce or the Chamber of Informatics and Telecommunications, as the
case may be.
(h) The arbitration awards or the expert opinions will be
definite and non-appealable between the Parties.
9.4. Notices. All notices, petitions, demands for performance and
other communications pursuant to this Agreement shall be in writing by overnight
delivery by a recognized international courier, or by hand, and in the following
due way:
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To the Assignor: To the Assignee:
IMPSAT S.A. EL SITIO COLOMBIA S.A.
Diagonal 126, No. 6719 Calle 114 No. 9-01
Santa fe de Bogota, D.C. Torre A
Attn: Mariano Torre Gomez Oficina 611
Attn: Alberto Rizzo
With copy to: With copy to:
Arnold & Porter Paul, Hastings, Janofsky & Walker LLP
555 12th Street, N.W. 399 Park Avenue
Washington, D.C. 20004-1202 New York, NY 10022
Attn: Neil M. Goodman Attn: Neil A. Torpey
Mark G. Pedretti
And to: And to:
S.E. Consultores Asociados Ltda. Brigard & Urrutia Abogados
Calle 98 No. 9-03 Of. 701 Calle 70 No. 4-60
Santa Fe de Bogota D.C. Santa Fe de Bogota, D.C.
Attn: Dra. Saturia Esguerra Portocarrero Attn: Maria M. Zuleta
9.5.Addresses. The addresses of the Parties set forth in Section 9.4
are the ones that the Parties establish for the purposes of this Agreement. Any
of the Parties hereto may change its address with previous notice to the other
Party specifying the new address, but said change shall not be considered until
the notice of change is actually received by the other Party.
9.6. Further Assurances. The Assignor and the Assignee agrees to
execute and deliver such other documents or agreements and to take action as may
be necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
9.7. Severability. If any provision of this Agreement is Agreement
is held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable, that provision shall not affect any other provision of this
Agreement, which shall remain in full force and effect to the extent possible
except for the event in which the clause is deemed to be essential for this
Agreement.
9.8. Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
9.9. Confidentiality. No party, without the consent of the other
party, shall disclose to any third party the existence of this Agreement, its
contents or any other confidential information to which it had knowledge as a
result of this Agreement, except as strictly to the extent required by any law,
rule or regulation or judicial process.
14
<PAGE> 18
9.10. Assigns. This Agreement shall inure to the benefit of and be
binding upon the Parties and their respective successors. This Agreement shall
not be assignable or otherwise transferable by any Party hereto; provided, that
the Assignee may assign this Agreement to any affiliate of such Assignee, but
any such assignment shall not relieve the Assignee of its obligations hereunder.
9.11. Headings. The headings of the Terms included in this Agreement
are for the Parties' reference and shall not affect the meaning or
interpretation of this Agreement. The use of the singular or masculine shall
include the plural and feminine and the use of the plural and feminine shall
include the singular and masculine, when necessary due to the context.
9.12. Translation. This Agreement shall only be executed in the English
version, but a official Spanish translation in a form satisfactory to Assignor
and Assignee shall be prepared immediately after its signature. In the event of
a conflict between the two versions, the Spanish language version will prevail.
9.13. No Contact From the date of this Agreement, the Assignor
agrees that it will not contact the Clients in connection with the services and
maters related with this Agreement on any grounds, except if granted written
permission from the Assignee.
15
<PAGE> 19
IN AGREEMENT THEREOF, the parties sign this Assignment Agreement in the City of
Santa Fe de Bogota, on the
IMPSAT S.A
By: /s/ Mariano Torre Gomez
_______________________
Name: Mariano Torre Gomez
Title: President
EL SITIO COLOMBIA S.A.
By: /s/ Sebastian Londono
______________________
Name: Sebastian Londono
Title:
16
<PAGE> 1
Exhibit 10.9
THIS AGREEMENT is entered into on _____________ BY AND BETWEEN:
1. EL SITIO, domiciled at _____________________, ______,
_______, herein represented by ________________ (THE "EMPLOYER"); and
2. ____________ domiciled at ________________ (THE "EMPLOYEE").
WHEREAS, IT IS HEREBY AGREED AS FOLLOWS:
DEFINITIONS
1.1 For purposes of this Agreement, the following expressions
will have the meanings stated below:
THE "EMPLOYMENT" will be the position of
__________________________ as set forth in this Agreement.
THE "GROUP" will mean EL SITIO, INC. (a British Virgin Islands
international business company) and the Group Companies.
THE "GROUP COMPANIES" will mean any controlled or controlling
company of El Sitio, Inc. and any controlled company of such controlling
company, in terms of __________________.
"DISMISSAL WITHOUT CAUSE" will mean any unilateral decision of
the EMPLOYER to terminate the employment relationship without expressing
any cause therefor.
"JUST CAUSE FOR DISMISSAL" will mean any non-observance by the
EMPLOYEE of the obligations assumed in the employment relationship that
constitutes damage and which, due to its seriousness, does not allow for
the continuation of the relationship between the EMPLOYEE and the
EMPLOYER.
"EMPLOYEE'S RESIGNATION" will mean any unilateral declaration of
the EMPLOYEE's will, notified by certified telegram or through the
competent Labor Authority, by which the EMPLOYEE serves notice to the
EMPLOYER of his decision to cancel the present Employment Agreement.
"TOTAL AND PERMANENT DISABILITY OF THE EMPLOYEE" will mean any
physical or mental disease confirmed by the EMPLOYER and suffered by the
EMPLOYEE, which
<PAGE> 2
prevents him from performing his duties on a normal and/or adequate
basis pursuant to this Agreement for a period of at least 12 months.
1.2 Reference to "clauses" will refer to the clauses of this
Agreement.
1.3 Headings of Clauses are only included for the sake of
convenience and will not affect the interpretation of this Agreement.
1.4 The terms and wording of this Agreement will be construed and
interpreted according to the Argentine labor legislation.
1.5 Any reference to a written provision will be considered as
including a reference to the amendment or new approval thereof.
APPOINTMENT
2.1 The EMPLOYER will employ the EMPLOYEE, and the latter
undertakes to act as ______________, subject to the terms and conditions set
forth in this Agreement.
TERM OF AGREEMENT
3.1 This Agreement will be considered as initiated on
_____________.
SCOPE OF EMPLOYMENT
4.1 The EMPLOYEE will be employed at first by EL SITIO as
_____________ ________________________________________, to which effect he may
be required to perform similar functions in any other Group Company.
4.2 The _____________________________________ will have the
following functions:
4.2.1 ______________________________________________;
4.2.2 ______________________________________________;
4.3 The _________________ shall:
4.3.1 Fully devote his time, attention and capacity to
compliance with his duties or obligations;
4.3.2 Faithfully and diligently perform such duties
consistent with his position as may be from time to time assigned to him;
<PAGE> 3
4.3.3 To obey any reasonable and lawful direction
instructions issued by the Board of Directors of EL SITIO INC.
4.3.4 To comply with all rules, regulations, policies and
procedures as may from time to time be issued by the EMPLOYER or any Group
Company.
4.4 The EMPLOYER hereby reserves the right to request from the
EMPLOYEE to perform other duties corresponding to a position of equivalent
hierarchy, be it in addition to or in replacements of the specifications
mentioned in point 4.2.
4.5 The EMPLOYER may, with the agreement of the EMPLOYEE,
transfer this Agreement at any time to any Group Company, in which case the
EMPLOYEE's seniority in the company to which his agreement is transferred will
be considered for employment purposes as from his starting date with EL SITIO
INC.
HOURS AND PLACE OF WORK
5.1 The EMPLOYEE will work during such hours as may be necessary
for the proper development of his duties.
5.2. The EMPLOYEE's place of work will be initially
_____________________ _____________________, but the EMPLOYER will be entitled
to ask the EMPLOYEE to work at any place within the _________________ or abroad.
In such case, the EMPLOYEE will be served reasonable advance notice.
COMPENSATION
6.1 The EMPLOYER will pay to the EMPLOYEE an annual gross
compensation of $___________________________________, to be paid as followings:
6.1.1 The EMPLOYER will pay to the EMPLOYEE a monthly
gross compensation of
_______________________________.
6.1.2 Additionally, and according to _________ of
___________, the EMPLOYER will pay to the EMPLOYEE
a gross amount of _________________________ as a
complementary annual bonus. This sum will be paid
to the EMPLOYEE in ________ parts:
________________________________.
6.2 The compensation mentioned in Clause 6.1 will include any fee
to which the EMPLOYEE may be entitled by the activities developed for the
EMPLOYER or any Group Company.
<PAGE> 4
6.3 The EMPLOYEE together with his spouse and children, will
enjoy the benefits of a medical plan chosen by the EMPLOYER.
6.4 All payments and benefits described in Clause 6.1, as
applicable, are gross amounts, that is to say without any deduction of income
tax and social security contributions or any other deduction or charge by the
EMPLOYEE which might be established in the future.
6.5 The EMPLOYER hereby guarantees to the EMPLOYEE, as from
signing of this agreement, a paid annual vacation which will consist of 20
working days per year, which period may be divided and distributed during the
whole year, and organized for convenience of both the EMPLOYEE and the Company.
DUTIES OF THE EMPLOYEE
7.1 Apart from those obligations set forth in ________, those set
forth separately and those which might be set forth by EMPLOYER, the EMPLOYEE
will have the duties indicated in this chapter.
7.2 The EMPLOYEE must cooperate with those employees of the
EMPLOYER of the same hierarchy in the management of the business of EL SITIO or
any other of the Group Companies. For description purposes and without any
limitation it is understood that the EMPLOYEE's duly to cooperate consists of
applying all resources and means at his disposal for achieving the established
goals in all matters requiring his participation. Non compliance with the duly
to cooperate as set forth herein by the EMPLOYEE will be considered a serious
default which authorizes the termination of the employment contract in terms of
________ of the __________________.
7.3 For the purposes of the above clause, employees of the same
hierarchy as the _______________________ are the ______________________________,
the ____________________________ and the ____________________________.
INDEMNIFICATION
8.1 In case of termination of the Employment Agreement due to a
dismissal without cause decided by the EMPLOYER, the Parties hereby agree to fix
a indemnification in favor of the EMPLOYEE -subject to compliance with the
conditions set forth herein- for an amount equivalent to the remunerations that
would have been paid to the EMPLOYEE as gross monthly salary during __ months,
according to the provisions of Clause 8.2.
8.2 For purposes of Clause 8.1, the indemnification payable to
the EMPLOYEE as gross monthly salary during __ months, will be calculated
according to the provisions of Clause 6.1.1. This amount includes any sums
payable to the EMPLOYEE as seniority compensation, indemnification for lack of
notice and payment of one-month notice of dismissal.
<PAGE> 5
8.3 Payment of the indemnification mentioned in Clause 8.1, will
be made within 5 working days following the date of the notification of the
dismissal.
8.4. The indemnification set forth in Clause 8.1 will not be
payable if the labor relationship is terminated due to:
8.4.1 Just Cause for Dismissal.
8.4.2 EMPLOYEE's resignation.
8.4.3 Assignment of the Agreement to any Group Company.
8.4.4 Abandonment by the EMPLOYEE of his place of work,
by mutual agreement or by the concurrent will of
the parties, or due to retirement, death,
disqualification or absolute and permanent
incapacity of the EMPLOYEE.
8.5. In the event that during the year following termination of
the labor relationship, the EMPLOYEE should fail to comply with the
non-competition obligation or with the confidentiality undertaking, he shall
forfeit all of his rights to indemnification set forth in this Agreement, and he
shall be obliged to return to the EMPLOYER any amounts he might have under any
provision of this Agreement which are more favorable conditions for the EMPLOYEE
than the legally required compensation, this being irrespective of the right of
the EMPLOYER to bring legal action as it may deem convenient for any damages
caused by such non-compliance.
VIOLATION OF NON-COMPETE AND CONFIDENTIALITY DUTIES
9.1 Non-compliance by the EMPLOYEE with the assumed
non-competition and confidentiality duties generates the obligation to indemnify
the EMPLOYER for the damages suffered.
INVENTIONS AND OTHER INTELLECTUAL PROPERTY
10.1 The parties hereby state that the EMPLOYEE may carry out
inventions or create other intellectual property in the performance of his
duties according to this Agreement and agree that the EMPLOYEE has, to this
respect, a special responsibility to foster the interests of the EMPLOYER and
the Group Companies.
10.2 Any invention, improvement, design, process, information,
copyright, work, trademark or trade name or presentation of goods carried out,
created or discovered by the EMPLOYEE during his employment (be it subject to
patent or registration) which may arise from industrial processes, methods or
installations owned by the EMPLOYER, jointly with or which may by any way affect
or be related to the business of any Group Company or which may be used or
adapted for use therein or in connection therewith, must be disclosed to the
EMPLOYER or to such Group Company as may be determined by the EMPLOYER.
<PAGE> 6
10.3 The EMPLOYEE shall, when so request by the EMPLOYER and at
the expense of the EMPLOYER or of any other Group Company as the EMPLOYER may
determine:
(a) apply for or join the EMPLOYER in applying for patents or
other form of protection or registration in Argentina and elsewhere in
the world for such invention, improvement, design, information, work,
trademark, trade name or presentation of the goods as mentioned above;
and
(b) subscribe and complete all necessary instruments and acts to
formalize such patents or other protection so obtained, in order to
appoint the EMPLOYER or the Group Company or such other person as the
EMPLOYEE may decide, as the only and absolute beneficiary thereof.
10.4 The EMPLOYEE hereby irrevocably and unconditionally waives
any right in relation to his authorship or copyright over any work in existence
or to be made in the future during the course of his employment, anywhere in the
world, including, without limitation:
(a) the right conferred so as to be identified as the author of
such work; and
(b) the right conferred so as not to submit such work to an
inappropriate treatment.
10.5 The EMPLOYEE hereby irrevocably appoints the EMPLOYER as his
proxy to subscribe and execute any document or act and in general to use his
name for purposes of granting the EMPLOYER the full benefit of this clause.
Any member of the EMPLOYER's Board of Directors may issue a
written and signed certificate, which will be sufficient and conclusive evidence
against the third parties of the appointment referred to above.
PRIOR LABOR CONTRACTS
11.1 This Agreement will substitute any prior letter of
appointment, labor contract or prior undertaking, be it written, oral or
implied, related to the employment of the EMPLOYEE with the EMPLOYER or any
other Group Company.
DOMICILE
12.1 Any change of domicile made by the EMPLOYEE must be
evidenced in writing to the EMPLOYER, and domicile indicated at the beginning of
this Agreement will be valid for any notification until a change has been
notified.
<PAGE> 7
APPLICABLE LAW
13.1 In all matters not stipulated herein, the employment
relationship will be governed by the labor laws of _________, and most
especially ______________________.
JURISDICTION
14.1 The Parties hereby agree to submit their disputes to the
Court of _________ ____________________________________________, thus waiving
any other court or jurisdiction.
In view whereof, two copies of this same document are signed on
____________.
__________________________
By El Sitio
Name:
Capacity:
The EMPLOYEE
Name:
<PAGE> 1
Exhibit 10.10
THIS AGREEMENT is entered into on _____________ BY AND BETWEEN:
1. EL SITIO, domiciled at _____________________, ______, _______,
herein represented by ________________ (THE "EMPLOYER"); and
2. ____________ domiciled at ________________ (THE "EMPLOYEE").
WHEREAS, IT IS HEREBY AGREED AS FOLLOWS:
DEFINITIONS
1.1 For purposes of this Agreement, the following expressions
will have the meanings stated below:
THE "EMPLOYMENT" will be the position set forth in this
Agreement.
THE "GROUP" will mean EL SITIO, INC. (a British Virgin Islands
international business company) and the Group Companies.
THE "GROUP COMPANIES" will mean any controlled or controlling
company of El Sitio, Inc. and any controlled company of such controlling
company.
"DISMISSAL WITHOUT CAUSE" will mean any unilateral decision of
the EMPLOYER to terminate the employment relationship without expressing
any cause therefor.
"JUST CAUSE FOR DISMISSAL" will mean any non-observance by the
EMPLOYEE of the obligations assumed in the employment relationship that
constitutes damage and which, due to its seriousness, does not permit
for the continuation of the relationship between the EMPLOYEE and the
EMPLOYER.
"EMPLOYEE'S RESIGNATION" will mean any unilateral declaration of
the EMPLOYEE's will, notified by certified telegram or through the
competent Labor Authority, by which the EMPLOYEE serves notice to the
EMPLOYER of his or her decision to cancel the present Employment
Agreement.
"TOTAL AND PERMANENT DISABILITY OF THE EMPLOYEE" will mean any
physical or mental disease confirmed by the EMPLOYER and suffered by the
EMPLOYEE, which prevents him or her from performing his or her duties on
a normal and/or adequate basis pursuant to this Agreement for a period
of at least 12 months.
1.2 Reference to "clauses" will refer to the clauses of this
Agreement.
<PAGE> 2
1.3 Headings of Clauses are only included for the sake of
convenience and will not affect the interpretation of this Agreement.
1.4 The terms and wording of this Agreement will be construed and
interpreted according to the Argentine labor legislation.
1.5 Any reference to a written provision will be considered as
including a reference to the amendment or new approval thereof.
APPOINTMENT
2.1 The EMPLOYER will employ the EMPLOYEE, and the latter is
bound to act as ______________, subject to the terms and conditions set forth in
this Agreement.
TERM OF AGREEMENT
3.1 This Agreement will be considered as initiated on
_____________.
SCOPE OF EMPLOYMENT
4.1 The EMPLOYEE will be employed at first by EL SITIO as
_____________ ________________________________________, to which effect he or
she may be required to perform similar functions in any other Group Company.
4.2 The _____________________________________ will be in charge
of the direction of _____________________________ that includes
________________.
4.3 The ____________________________________________ shall carry
out the following tasks:
4.3.1 To devote his or her whole time, attention and
capacity for compliance with his or her duties or obligations;
4.3.2 To perform truly and diligently those duties
consistent with his or her position that may be from time to time assigned to
him or her;
4.3.3 To obey any reasonable and legal direction
instructed to him or her by the Board of Directors of EL SITIO INC.
4.3.4 To comply with all rules, regulations, policies and
procedures that may be from time to time instructed by the EMPLOYER or any Group
Company.
<PAGE> 3
4.4 The EMPLOYER hereby reserves the right to request from the
EMPLOYEE to perform other duties corresponding to a position of equivalent
hierarchy, be they additionally or in stead of the specifications mentioned in
point 4.2.
4.5 The EMPLOYER may, with the agreement of the EMPLOYEE,
transfer this Agreement at any time to any Group Company, in which case the
EMPLOYEE's seniority in the company to which his or her agreement is transferred
will be considered for employment purposes as from his or her admission to EL
SITIO INC.
WORKING TIME AND PLACE
5.1 The EMPLOYEE will work during such hours as may be necessary
for the proper development of his duties.
5.2. The EMPLOYEE's working place will be initially at
_____________ ____________ at __________________, in ____________________, the
EMPLOYER being able to request the EMPLOYEE to work at any place within the
Argentine Republic or abroad. In such case, the EMPLOYEE will be served notice
of such circumstance with due reasonable time.
COMPENSATION
6.1 The EMPLOYER will pay to the EMPLOYEE an annual gross
compensation of ___________________________________, which will be paid in the
following manner:
6.1.1 The EMPLOYER will pay to the EMPLOYEE a monthly
gross compensation of
_______________________________.
6.1.2 The EMPLOYER will pay to the EMPLOYEE an additional
gross amount of _________________________ as
complementary bonus. This sum will be paid to the
EMPLOYEE in ________ parts.
6.2 The compensation mentioned in Clause 6.1 will include any fee
to which the EMPLOYEE may be entitled by the activities developed for the
EMPLOYER or any Group Company.
6.3 The EMPLOYEE will enjoy, together with his or her spouse and
children, a medical plan chosen by the EMPLOYER.
6.4 All payments and benefits described in Clause 6.1, as
applicable, are gross amounts, that is to say without any deduction of income
tax and contributions to social security or any other deduction or encumbrance
in charge of the EMPLOYEE that may be fixed in the future.
<PAGE> 4
6.5 The EMPLOYER hereby guarantees to the EMPLOYEE as from
subscription hereof, the enjoyment of a paid annual vacation which will consist
of __ working days annually, which period may be divided and distributed during
the whole year, and organized for convenience of both the EMPLOYEE and the
Company.
DUTIES OF THE EMPLOYEE
7.1 Besides the obligations set forth in art. 4.3, the EMPLOYEE
will have the duties indicated in annexes named "Confidentiality" and
"Non-compete" which, once subscribed together with those that the EMPLOYER may
establish, will be considered as an integral part of this Agreement.
SEVERANCE PAY
8.1 In case of termination of the Employment Agreement due to a
dismissal without cause decided by the EMPLOYER, the Parties hereby agree to fix
a severance package in favor of the EMPLOYEE -subject to compliance with the
conditions set forth herein- of an amount equivalent to the amount that would
have been paid to the EMPLOYEE as gross monthly salary during __ months
- -according to the provisions of Clause 8.2- or of an amount which may arise by
applying the legal rules in force, whichever is greater.
8.2 For purposes of Clause 8.1, the indemnification that would
have been paid to the EMPLOYEE as gross monthly salary during __ months, will be
calculated according to the provisions of Clause 6.1.1. This amount includes the
amounts that may correspond to the EMPLOYEE as seniority compensation,
indemnification for lack of notice and payment of one-month notice of dismissal.
8.3 Payment of the indemnification mentioned in Clause 8.1 will
be made within 5 working days following the date of the notification of the
dismissal.
8.4. The indemnification set forth in Clause 8.1, in cases where
it is higher than the legal compensation, will not proceed whenever the
employment relationship is terminated due to:
8.4.1 Just Cause for Dismissal.
8.4.2 EMPLOYEE's resignation.
8.4.3 Assignment of the Agreement to any Group Company.
8.4.4 Abandonment by the EMPLOYEE of his or her place of
work, by mutual agreement or concurrent will of the
parties, or by retirement, death, disqualification
or absolute and permanent incapacity of the
EMPLOYEE.
8.5. In the supposition that during the year following
termination of the employment relationship, the EMPLOYEE does not comply with
the non-compete obligation or
<PAGE> 5
with the confidentiality commitment assumed, he or she will lose any right to
the indemnification set forth in this Agreement, being obliged to return to the
EMPLOYER all amounts he or she would have received in view of the provisions of
this Agreement which may establish more favorable conditions for the EMPLOYEE in
relation to the legal compensation, and irrespective of the right of the
EMPLOYER to claim all damages that such non-compliance could originate through
any judicial proceedings he or she may deem convenient.
VIOLATION OF NON-COMPETE AND CONFIDENTIALITY DUTIES
9.1 Non-compliance by the EMPLOYEE with the assumed non-compete
and confidentiality duties, generates the obligation to indemnify the EMPLOYER
for the damages suffered.
INVENTIONS AND OTHER INTELLECTUAL PROPERTY
10.1 The parties hereby state that the EMPLOYEE may carry out
inventions or create other intellectual property in the performance of his or
her duties according to this Agreement and agree that the EMPLOYEE has, to this
respect, a special responsibility to promote the interests of the EMPLOYER and
the Group Companies.
10.2 Any invention, or improvement, design, process, information,
copyright, work, trademark or trade name or presentation of goods carried out,
created or discovered by the EMPLOYEE during his or her employment (be they
subject to patentability or registration) that may arise from industrial
processes, methods or installations owned by the EMPLOYER, jointly with or which
may by any way affect or be related to the business of any Group Company or
which may be used or adapted for use therein or in its connection, will be
disclosed to the EMPLOYER or to such Group Company to be determined by the
EMPLOYER.
10.3 The EMPLOYEE shall, at any time requested by the EMPLOYER
and at the expense of the EMPLOYER or of any other Group Company that the
EMPLOYER may determine:
(a) request or join the EMPLOYER in the application process for
patents or other protection or registration in the United States of
America and in any other part of the world for such invention,
improvement, design, information, work, trademark, trade name or
presentation of the property mentioned above; and
(b) subscribe and complete all necessary instruments and acts to
formalize such patent applications or other protection when obtained, in
order to appoint the EMPLOYER or the Group Company or any other person
that the EMPLOYEE may decide, as the only and absolute beneficiary.
10.4 The EMPLOYEE hereby irrevocably and unconditionally waives
any right in relation to his or her authority of any copyright corresponding to
a work in existence or to be
<PAGE> 6
made in the future during the course of his or her employment, in any part of
the world, including, without limitation:
(a) the right conferred so as to be identified as the author of
such work; and
(b) the right conferred so as not to submit such work to an
inappropriate treatment.
10.5 The EMPLOYEE hereby irrevocably appoints the EMPLOYER as his
or her proxy to subscribe and execute any document or act and in general to use
his or her name for purposes of granting the EMPLOYER the complete benefit of
this clause.
Any member of the EMPLOYER's Board of Directors may issue a
written and signed certificate, which will be sufficient and conclusive evidence
against the parties of the appointment referred to above.
PRIOR LABOR CONTRACTS
11.1 This Agreement will substitute any prior letter of
appointment, employment contract or commitment agreement, be they written, oral
or implied, related to the employment of the EMPLOYEE with the EMPLOYER or any
other Group Company.
DOMICILE
12.1 Any change of domicile made by the EMPLOYEE must be notified
in writing to the EMPLOYER, being in force for any notification the one
indicated at the beginning of this Agreement as long as the amendment is not
publicly known.
APPLICABLE LAW
13.1 The Parties hereby agree that for any lawsuit on this
Agreement, the law of ____________ will apply.
<PAGE> 7
JURISDICTION
14.1 The Parties hereby agree to submit their disputes to the
Court of the ______ ____________________________________________, thus waiving
to any other court or jurisdiction.
In view whereof, two copies of this same document are signed on
____________.
_________________________
By El Sitio
Name:
Capacity:
The EMPLOYEE
Name:
<PAGE> 1
Exhibit 10.11
STRATEGIC RELATIONSHIP AGREEMENT
This STRATEGIC RELATIONSHIP AGREEMENT is made and entered into
as of February 28, 2000 (the "Agreement"), between El Sitio Uruguay S.A. ("ES"),
an Uruguayan corporation and wholly-owned subsidiary of El Sitio, Inc., a
British Virgin Islands corporation ("El Sitio"), and Sarandi Comunicaciones
S.A., an Uruguayan corporation ("GS").
RECITALS
WHEREAS, El Sitio operates an Internet network providing
country-specific and regional content for Spanish- and Portuguese- speaking
audiences in Latin America and the United States, and ES operates a web site for
Uruguayan audiences;
WHEREAS, GS owns and operates several radio stations in
Uruguay, produces extensive proprietary news, commentary and entertainment, and
has extensive relationships with advertisers in Uruguay;
WHEREAS, ES and GS desire to maximize their mutual
opportunities and advantages by drawing upon their respective capabilities,
including, without limitation, El Sitio's Internet business growth potential,
ES's expertise in the development of web sites and GS's quality radio
programming, relationship with advertisers and established listener base; and
WHEREAS, to effect the foregoing, ES and GS desire to develop
a strategic relationship to lead in the convergence of Internet and traditional
media in Uruguay.
NOW THEREFORE, in consideration of the mutual promises and
agreements contained herein, ES and GS, intending to be legally bound, hereby
agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the specified meanings:
"Agreement" shall have the meaning set forth in the preamble.
"Arbitration Request" shall have the meaning set forth in
Section 14(b).
"Bankruptcy Event" shall mean, as to any Person, (a) (i) the
failure generally to pay its debts as they become due, (ii) the
admission in writing of its inability to pay its debts generally as
they become due, (iii) the commencement of a voluntary bankruptcy or
insolvency case or proceeding, (iv) the consent to, or acquiescence in,
the institution of a bankruptcy or an insolvency proceeding against it
or the entry of a judgment, decree or order for relief against it in an
involuntary case or proceeding, (v) the application for, consent to, or
acquiescence in, the appointment or taking possession by a custodian or
its business or of any part of its property, (vi) the making of a
general assignment for the benefit of its creditors or (vii) taking any
corporate action in furtherance of or to facilitate,
1
<PAGE> 2
conditionally or otherwise, any of the foregoing; or (b) any judgment,
decree or order of court or competent jurisdiction which (i) is for
relief against such Person in an involuntary bankruptcy or insolvency
case, (ii) appoints a custodian of such Person's business for any part
of its property or (iii) orders the winding-up or liquidation of such
Person's affairs; and such judgment, decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive days; or
any bankruptcy or insolvency petition or application shall be filed
against such Person, or any bankruptcy case or insolvency proceeding
shall be commenced against it and such petition, application, case or
proceeding is not dismissed within ninety (90) days.
"Content" shall mean headlines, summaries, features, stories,
materials, products, services, opinions, advice, advertisements,
promotions, links, pointers, sounds, including live speeches and
programming, and other information whether in digital, electronic,
audio or print form.
"Damages" shall have the meaning set forth in Section 13(a).
"Design Standards" shall have the meaning set forth in Section
4(a).
"Disclosing Party" shall have the meaning set forth in Section
12(b).
"El Sitio" shall have the meaning set forth in the preamble.
"ES" shall have the meaning set forth in the preamble.
"ES Banner" shall mean a graphical element designed by ES that
displays an ES Trademark and that, when clicked on by a user,
automatically transfers the user to an ES Site.
"ES Programming Slot" shall have the meaning set forth in
Section 7(a).
"ES Program" shall have the meaning set forth in Section 7(a).
"ES Server" shall mean any Internet server owned or controlled
by ES or its affiliates.
"ES Site" shall mean all Internet sites owned or controlled by
ES or its affiliates, or to which ES or its affiliates license Content,
including without limitation the ES Uruguay Site.
"ES Trademarks" shall mean the trademarks, service marks,
trade names, domain names, logos, chimes and other indicators of origin
pertaining to ES or its affiliates.
"ES Uruguay Site" shall mean the Internet site, currently
located at URL:http://www.elsitio.com.uy, which is owned and maintained
by ES for users in Uruguay and border areas.
"GS" shall have the meaning set forth in the preamble.
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"GS Sites" shall have the meaning set forth in Section 4.
"GS Stations" shall have the meaning set forth in Section 4.
"GS Trademarks" shall mean the trademarks, service marks,
trade names, domain names, logos, chimes and other indicators of origin
pertaining to GS.
"Guaranteed Minimums" shall have the meaning set forth in
Section 5(b).
"ICC Rules" shall have the meaning set forth in Section 14(b).
"Indemnified Party" shall have the meaning set forth in
Section 13(a).
"Indemnifying Party" shall have the meaning set forth in
Section 13(a).
"Intellectual Property" shall have the meaning set forth in
Section 10(a).
"Notice" shall have the meaning set forth in Section 13(b).
"Petitioner" shall have the meaning set forth in Section
14(b).
"Pledge Agreement" shall have the meaning set forth in Section
3(b).
"Pricing Schedule" shall have the meaning set forth in Section
6(b).
"Property Owner" shall have the meaning set forth in Section
10(a).
"Release Date" shall have the meaning set forth in Section
3(b).
"Respondent" shall have the meaning set forth in Section
14(b).
"Shares" shall have the meaning set forth in Section 3(a).
"Transfer" shall have the meaning set forth in Section 3(a).
2. Entry Into Strategic Relationship. ES and GS hereby enter
into a strategic relationship in accordance with the terms and conditions of
this Agreement for such purposes as are set forth or contemplated in this
Agreement, which purposes shall include the following:
(a) for ES, (i) to obtain access to quality Uruguayan news,
sports and music programming for use and publication on its web sites
in accordance with Section 8, (ii) to secure guaranteed advertising
revenue sourced in Uruguay in accordance with Section 5, (iii) to
obtain access to advertising and programming time on GS's radio
stations in accordance with Sections 6 and 7, and (iv) to obtain an
option to purchase a radio station of GS and other related rights in
accordance with Section 9; and
(b) for GS, (i) to invest in Internet growth in Latin America
through equity participation in El Sitio in accordance with Section 3,
and (ii) to benefit from ES's
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expertise in the development of its own web sites complimentary to its
radio programming in accordance with Section 4.
3. Share Purchase and Pledge.
(a) Share Transfer. ES hereby agrees to sell, transfer, assign
and deliver, or to cause El Sitio to issue, sell, allot and deliver,
("Transfer") on the date hereof or promptly thereafter, to GS, and GS agrees to
purchase and accept, sixty-two thousand and five hundred (62,500) common shares,
US$0.01 par value, of El Sitio (the "Shares"), promptly upon the execution of
this Agreement, in exchange for the obligations herein undertaken by GS, the
adequacy of which consideration is hereby acknowledged. ES shall carry out the
Transfer of the Shares by causing the delivery to the GS of 10 share
certificates each representing 6,250 Shares and made out in the name of "Sarandi
Comunicaciones S.A.".
(b) Share Pledge. GS hereby agrees to pledge all of the
acquired Shares as collateral security for the prompt and complete payment and
performance when due of its obligations under this Agreement and to enter into
the Pledge Agreement attached as Exhibit A hereto (the "Pledge Agreement")
promptly upon the execution of this Agreement. The execution and delivery of the
Pledge Agreement by GS in favor of ES shall be a condition to the Transfer of
the Shares. In accordance with the Pledge Agreement, GS shall, simultaneously
upon receipt of the Shares pursuant to Section 3(a), deliver to ES all
certificates evidencing all of the Shares acquired by it together with an
undated stock power covering each certificate, duly executed by GS with, if so
requested by ES, signature guaranteed. It is understood that, in accordance with
the Pledge Agreement, unless a breach of this Agreement shall have occurred and
be continuing, on March 31, June 30, September 30 and December 31 (or, if not on
a business day, the next succeeding business day) of each year until and
including June 30, 2002 (or, if not on a business day, the next succeeding
business day), one share certificate and the Shares represented thereby shall be
released from the pledge and delivered to GS (such date of release, the "Release
Date"). After June 30, 2002, unless a breach of this Agreement shall have
occurred and be continuing, no Shares shall be subject to the pledge or in any
way subject to forfeiture pursuant to the Pledge Agreement.
(c) Lock-up Agreement. GS agrees that it will not, until 365
days after the Release Date for any particular share certificate, 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 Shares or other equity securities of ES or any
securities convertible into or exchangeable for any Shares or other equity
securities, or sell or grant options, rights or warrants with respect to any
Shares or other equity securities, or (b) enter into any swap or other derivates
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 Shares or other securities,
in cash or otherwise, in each case without the prior written consent of ES.
4. Web Site Development and Hosting. ES hereby agrees to
design and develop a web site (the "GS Sites") for each of the following radio
stations owned by GS: Sarandi AM 690; Sarandi Sport AM 890; and FM 91.9 Sarandi
Satelital (collectively, the "GS Stations"). The services to be rendered by ES
and the related obligations of GS under this Section 4 are the following:
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(a) Design of Web Sites. ES shall design each GS Site in such
a manner that each GS Site (i) retains the "look and feel" of the existing web
sites of the GS Stations (or of a particular GS Station), and (ii) meets the
standards and practices of ES for web sites of similar characteristics as set
forth in the Design Standards to be agreed upon by the parties within 15 days of
the date hereof (the "Design Standards"). Each GS Site shall be accessible to
users of the Internet both directly or through one or more Universal Resource
Locators designated by GS or through the ES portals. In no event shall ES be
required by GS to create custom features for the GS Sites other than those set
forth in the Design Standards; provided, however, that GS shall have the right
to request additional features, such as audio streaming, for additional payments
to ES that shall be no higher than the lowest price for which such features are
offered by ES to other customers in Uruguay for web design and hosting at that
time. Notwithstanding the foregoing, ES hereby agrees to provide free of charge
audio streaming from two of the GS Stations to the GS Sites with a maximum
capacity at any one time of 50 users per each such GS Station. GS hereby agrees
that all web site development or hosting related services or features required
by GS Sites shall be purchased exclusively from ES. During the term of this
Agreement, ES shall have the right to modify to Design Standards in accordance
with modifications in its standards and practices for web sites of similar
characteristics.
(b) Hosting, Housing and Maintenance. The GS Sites shall be
hosted on ES Servers, and ES shall use commercially reasonable efforts to
provide the level of server capacity necessary for their effective operation. ES
shall use commercially reasonable efforts to assure that access to the GS Sites
shall be available twenty-four (24) hours a day, seven (7) days a week. At its
sole discretion and from time to time, ES shall have the right to carry out
maintenance, make changes or alterations to the technology used in the GS Sites
or in the ES Servers, including such maintenance, changes or alterations that
may result in temporary lack of Internet access to the GS Sites. All visitors to
the GS Sites shall be deemed and shall be counted as users of and visitors to ES
Sites in addition to the GS Sites.
(c) Development of Content. GS shall be responsible for
developing all Content (except for any ES Banners and any third-party banners or
other advertising procured by ES in accordance with Section 4(e)) displayed on
the GS Sites, which Content shall be in good taste and in accordance with all
applicable laws, rules and regulations. GS shall deliver all Content to ES on a
daily basis in digital format in a manner to be mutually agreed by the parties;
provided, however, that GS shall bear all costs for the delivery of such
Content, including any costs associated with the real-time or delayed delivery
of such Content to ES via telephone, cable, microwave, satellite, Internet or
other such means of transmission. All Content shall be delivered to ES at the
location or locations specified by ES in its sole discretion. The Content
delivered to ES, in or by any means whatsoever under this Section 4(c) and
Section 8(a), shall not contain any viruses, worms, Trojan horses or other
disabling devices or internal controls, and GS shall use the then current
version of a reputable antivirus software to test for compliance with this
warranty prior to the use or provision of any third-party hardware, software or
other technology in the digital preparation of the Content.
(d) Timing and Coordination. ES shall use commercially
reasonable efforts to have the GS Sites operational by March 31, 2000. Each GS
Site shall be pre-approved by GS prior to such GS Site's launching date (which
approval shall not be unreasonably withheld). ES shall respond to GS's requests
for services, upgrades and modifications to the GS Sites in a manner consistent
with its standard operating practices for customers for web design and hosting.
GS shall be required to pay for any services, upgrades or modifications in
addition to such
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services, upgrades or modifications as are contemplated in the Design Standards.
In order to coordinate the development and maintenance of the GS Sites, each of
ES and GS shall designate a program manager, who shall serve as the points of
contact for all matters relating to the development and hosting of the GS Sites.
(e) Advertising on GS Sites. GS shall own all rights, title
and interest in and to the GS Sites and the Content thereon (except for any ES
Banners, any ES proprietary design features or programming and any third-party
banners or other advertising procured by ES in accordance with this Section
4(e)). As partial consideration for the design, hosting and maintenance of the
GS Sites, GS hereby grants ES the non-exclusive right to use or sell, and
receive all revenues or other benefits from the sale of, banners or other
advertising to be displayed on the GS Sites. Notwithstanding the foregoing, all
advertising on the GS Sites shall be subject to GS's prior approval, which
approval shall not be unreasonably withheld or delayed.
(f) ES Advertising on GS Sites. Each GS Site shall contain ES
Banners, with hyper-links to the ES Sites, displayed continuously and
prominently above the fold on each main screen and subscreen. In no case shall
any GS Site include any advertising of any nature for any entity reasonably
construed to be in competition with ES or its affiliates.
(g) Limitation on ES Obligations. Unless specifically set
forth in this Section 4, ES shall have no obligations to GS regarding the design
and hosting of the GS Sites. GS shall be responsible for obtaining all licenses,
if any, and satisfying all other legal requirements (including costs associated
therewith) necessary to operate the GS Sites.
5. Guaranteed Advertising Revenues.
(a) Appointment as Non-Exclusive Sales Agent. Subject to
compliance with its obligations under this Section 5 and Section 10, during the
term of this Agreement, GS shall act as a non-exclusive sales agent in the
Republic of Uruguay for advertising on the ES Uruguay Site. ES shall advise GS,
on a periodic basis, of its then-current rate cards setting forth the number,
characteristics, pricing and other conditions of advertising spots available for
sale on the ES Uruguay Site; provided, however, that the rates to be charged by
ES for advertising procured by GS shall be substantially similar to the rates
charged in the preceding month to similarly-situated cash-paying clients for
advertising spots of similar characteristics. All such sales shall be subject to
the standard terms and conditions for advertising on the ES Sites. GS shall be
entitled to offer discounts on the pricing terms offered in the rate cards to
the extent offered by ES to a similarly situated advertiser for a similar sized
purchase of advertising. GS shall not contract with advertisers that are
reasonably objectionable to ES, including, without limitation, advertisements
for cigarettes, guns or pornography. ES shall have, in its sole discretion, the
right to reject advertising sold by GS if the advertiser or the substance of the
advertisement is inconsistent with ES's corporate image. Advertising spots shall
be available for sale on a first come first serve basis.
(b) Guaranteed Advertising Revenue. Notwithstanding any other
provision of this Agreement, GS hereby unconditionally and irrevocably
guarantees Uruguayan-sourced revenues (including sales tax), net of any
commissions and collection costs, from advertising on the ES Uruguay Site
procured solely by GS for the benefit of ES in the amount of (i) Three Hundred
Thousand U.S. Dollars (U.S.$300,000) in the year 2000, (ii) Three Hundred
Thousand U.S. Dollars (U.S.$300,000) in the year 2001 and (iii) One Hundred and
Fifty Thousand U.S.
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Dollars (U.S.$150,000) in the first six months of the year 2002 (the "Guaranteed
Minimum"). GS agrees that it shall pay the Guaranteed Minimum advertising
revenues promptly upon receipt but no later than on a quarterly basis, such that
(i) in the year 2000, no less than one-third of the Guaranteed Minimum for such
year shall be payable during each three-month period ended June 30, September 30
and December 31 of such year, (ii) in the year 2001, no less than one-fourth of
the Guaranteed Minimum for such year shall be payable during each three-month
period ended March 31, June 30, September 30 and December 31 of such year, and
(iii) in the six-month period during the year 2002, no less than one-half of the
Guaranteed Minimum for such six-month period shall be payable during each three
month period ended March 31 and June 30 of such six-month period; provided, that
if in the preceding quarter the amount of Uruguayan-sourced advertising revenues
generated by GS on behalf of the ES Uruguay Site exceeded the Guaranteed Minimum
for such calendar quarter, GS may, at its option, elect to designate such excess
above the Guaranteed Minimum as amounts paid toward the Guaranteed Minimum for
subsequent periods, in which event, the amount payable in such subsequent period
as may be designated shall be reduced by the amount of such excess.
(c) Financial Guarantee. GS hereby unconditionally and
irrevocably guarantees to ES the due prompt and complete payment in full when
due of any amount by which the Uruguayan-sourced advertising revenues generated
by GS on behalf of the ES Uruguay Site is less than the Guaranteed Minimum
advertising revenues for any calendar quarter procured from third parties by GS
and actually paid to the ES Uruguay Site in such calendar quarter or otherwise
attributed to such calendar quarter. ES shall not bear the risk as to the
collectibility of advertising sold on its behalf by GS. This guarantee of
payment, performance and compliance is in no way conditioned or contingent upon
any attempt by ES to collect from or enforce performance or compliance by ES
with any other condition whatsoever. If any accounts receivable are not paid
during a calendar quarter in which they were scheduled for payment, ES may
demand payment from GS pursuant to this paragraph. Upon receipt of payment from
GS regarding an overdue account receivable, ES shall assign to GS such account
receivable up to the amount of the payment received. No amounts of advertising
revenues shall be deemed procured by GS unless and until payment of such
revenues is actually received by ES.
(d) Sales Commission. As consideration for acting as sales
agent in accordance with Section 5(a), GS shall be entitled to receive 35% of
all revenues from advertising, net of any commissions and collection costs,
procured by GS and paid to ES relating to the ES Uruguay Site in any calendar
quarter in excess of the Guaranteed Minimum unless, such revenues are otherwise
allocated toward the Guaranteed Minimum in subsequent calendar quarters (in
which event no sales commission shall be payable).
(e) Billing Procedures. GS shall advise ES promptly upon
entering into an agreement to sell advertising on the ES Uruguay Site together
with the billing information and the proposed billing dates. ES shall itself
issue invoices for all such advertising and deliver to GS on a monthly basis a
copy of all invoices and other agreements related to advertising on the ES
Uruguay Site procured by GS. All payments for advertising on the ES Uruguay Site
shall be payable directly to ES. ES shall notify GS of any invoices on
advertising procured by GS the payment of which is delayed for more than one
month.
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6. Advertising Time on GS Radio Stations.
(a) Advertising Time. For no additional cost and as partial
consideration for the Shares and the obligations undertaken by ES under this
Agreement, GS shall guarantee to ES a total of Four Hundred and Fifty Thousand
U.S. Dollars (U.S.$450,000) of advertising time on its radio stations as
follows: (i) in the year 2000, Fifty Thousand U.S. Dollars (U.S.$50,000) in each
three-month period ended June 30, September 30 and December 31 of such year;
(ii) in the year 2001, Thirty-Seven Thousand and Five Hundred U.S. Dollars
(U.S.$37,500) in each quarter ended March 31, June 30, September 30 and December
31 of such year; and (iii) in the year 2002, Seventy-Five Thousand U.S. Dollars
(U.S.$75,000) in each three-month period ended March 31 and June 30 of such
year. All such advertising time shall be subject to the standard terms and
conditions for advertising on GS Radio Stations; provided, that (i) ES shall
have access to ratings, audience delivery, demographic and other information in
control of GS and (ii) no advertiser shall have more favorable terms, control
and direction over the frequency and other timing or the placement adjacent to
or in conjunction with programming of its advertising, or more favorable choice
of time spots, than ES.
(b) Pricing of Advertising Time. Advertising time provided by
GS to ES in accordance with Section 6(a) shall be regulated by the Pricing
Schedule to be agreed upon by the parties within 15 days of the date hereof and
revised as required by market conditions; provided, however, that in no event
shall the cost of advertising of ES be greater than the lowest rates charged as
of the date hereof to similarly-situated cash-paying clients of GS for
advertising time of similar characteristics.
(c) Scheduling of Advertising Time. ES shall have the right to
reserve advertising spots on a first-come, first-served basis. GS shall have the
right to preempt or substitute the broadcast of any ES advertisement for
programs of public importance (and in no event solely for another advertiser);
provided, that in such event, GS shall provide ES with alternative advertising
times of at least equivalent value and desirability. Advertising time to be
provided by GS to ES shall be reduced in accordance with the advertising time
actually used by ES. In the event that ES does not use all the advertising times
to which it is entitled in a given year under this Section 6(c), GS shall
provide ES with additional advertising times of an equivalent value (measured by
the same rates) in the following year, which time shall be subject to the
approval of ES. Any co-branding or reselling of advertising times by ES (unless
with or to one of its affiliates) shall be subject to the prior approval of GS,
which approval shall not be unreasonably withheld or delayed.
7. Programming Time on GS Radio Stations.
(a) Programming Services. GS hereby grants to ES the right to
one hour per day (including weekends and holidays) of continuous prime-time
over-the-air programming time (the "ES Programming Slot") for a five-year
period, commencing on the date three months from the date hereof and ending on
the fifth anniversary thereof, on one of the GS Stations as selected by ES. The
ES Programming Slot may be filled, at ES's sole option and entire discretion, by
original programming produced in accordance with Section 7(b) or with other
programming contracted by ES (the "ES Program"). The ES Programming Slot shall
be carried by the GS Station of ES's choice, at its sole option and entire
discretion. ES shall, from time to time, have the right to modify its (i) chosen
time slot or (ii) the GS station carrying the ES Programming Slot by written
notice to GS delivered no later than 30 days in advance of broadcasting. For the
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purposes of this Section 7(a), "prime-time" shall be understood as programming
between the hours of 9:00 p.m. and midnight.
(b) Provision of Content for Programming. Except when ES
chooses in accordance with Section 7(a) to fill the ES Programming Slot with
programming contracted by ES, GS shall produce the content of the ES Programs in
accordance with the instructions and material provided by ES. ES hereby agrees
to reimburse GS, within 30 days of receipt of an invoice from GS, for 50% of all
reasonable pre-approved production costs actually incurred by GS in connection
with its production of the content of ES Programs in accordance with this
Section 7(b) and satisfactorily evidenced in such invoice; provided, however,
that in no case shall ES be liable for any overhead costs related to the
maintenance of any GS Station or equipment pertaining to GS. Notwithstanding the
foregoing, the ES Programs shall be subject to ES's prior approval and editorial
direction. GS shall use reasonable care to ensure that all ES Programs are in
good taste and in accordance with all applicable laws, rules and regulations. GS
shall have no right to edit or alter the content of the ES Programs without the
prior approval of ES.
(c) Right to Revenues. Each party shall have the right to sell
advertising during the ES Programming Slot and each party shall have the right
to receive 50% of revenues from any sale (whether by ES, GS or otherwise) of
advertising during the ES Programming Slot, net of customary sales commissions.
Each party hereby agrees to use its commercially reasonable best efforts to sell
advertising during the ES Programming Slot. Each party hereby agrees to provide
the other party immediate notice of any sale of advertising time during the ES
Programming Slot and a copy of the invoice in connection with such sale within
15 days of such sale but in any event at least prior to broadcasting.
Notwithstanding the foregoing, all advertising during the ES Programming Slot
shall be subject to ES's prior approval, and GS shall use reasonable care to
ensure that all advertising during the ES Programming Slot is in good taste and
in accordance with all applicable laws, rules and regulations. Each party hereby
agrees not to sell, without the prior consent of the other party, advertising
time during the ES Programming Slot at a rate lower than the average rate
charged by GS for advertising time of similar characteristics. ES shall have the
sole right to sell, and receive all revenues from the sale of, its rights
hereunder to the ES Programming Slot, subject to the prior approval of GS, which
approval shall not to be unreasonably withheld or delayed.
(d) Limitation of Obligations. GS shall retain full authority
and power over each GS Station and their operation, and shall be responsible for
all costs associated therewith. GS shall assume all costs related to producing
and broadcasting the ES Programs in the same manner as GS produces and
broadcasts its own programming of similar characteristics. The parties expressly
understand and agree that no provision in this Agreement will be considered to
reduce or interfere with GS's absolute responsibility under applicable laws,
rules and regulations to supervise and control the GS Stations. GS shall have
the right to preempt or substitute the broadcast of any ES Program for programs
of public importance, provided, that in such event, GS shall provide ES with
over-the-air programming time of equivalent characteristics, which time shall be
subject to the approval of ES.
(e) Delivery and Care of Programs. ES shall use its
commercially reasonable best efforts to make available transmission tapes of the
ES Programs in sufficient time for their broadcasting as scheduled. Unless
otherwise agreed, any such transmission tapes and other materials supplied by ES
to GS for broadcasting shall be and shall remain at all times the exclusive
property of ES and, while in the possession or responsibility of GS, any loss or
damage
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shall be the sole risk of GS. GS shall undertake all necessary actions to ensure
the security of such tapes and materials.
8. Content and Staff.
(a) License to Use of Content. GS hereby grants to ES an
exclusive world-wide, royalty free license (GS shall be responsible for all
royalty payments required, if any) to distribute, perform, display, reproduce,
transmit, retransmit or otherwise disseminate on the Internet any and all
proprietary Content broadcasted on the GS Stations or created or otherwise
developed by GS; provided, however, that GS shall have the right to use such
proprietary Content on the GS Sites. Subject to ES's compliance with its
obligations set forth in Section 10, GS shall grant ES the exclusive license to
distribute, perform, display, reproduce, transmit, retransmit or otherwise
disseminate the GS Trademark on the ES Uruguay Site in association with the
transmission and display of such Content (and Content developed by ES in
accordance with Section 8(b)), provided that such transmission and display shall
be in good taste and in accordance with applicable laws, rules and regulations.
GS shall transmit the Content to ES on a daily basis in accordance with Section
4(c) and this Section 8(a). ES shall have the right to alter or modify the
Content upon its receipt to adapt it to its intended use. ES may elect, at its
sole option, to credit, or not to credit, to GS the use of Content sourced from
GS.
(b) Right to Access to Staff. GS shall grant ES free access
during business hours to all GS staff involved in the production of Content for
the GS Radio Stations solely in order for ES to develop, produce and display its
own Content on the ES Uruguay Site. In addition, GS shall grant to ES free
access to such individual radio personalities and journalists as ES may identify
to assist in the preparation of specific Content for ES or to participate in
chats with users of ES Sites, including the ES Uruguay Site. Such access shall
be limited to an aggregate of twelve hours per week from the date hereof to the
first anniversary thereof, and shall increase by four hours per week each
subsequent year. GS shall use its best efforts to cause such GS staff to use its
best efforts to provide the services requested by ES in accordance with this
Section 8(b).
9. Options to Rename and Purchase Radio Station.
(a) Option to Rename. GS hereby irrevocably grants to ES a
five year option to change, on any date specified by ES by at least one month
prior written notice to GS, the station name and identification of FM 91.9 from
"Sarandi Satelital" to a station name and identification related to the ES
Trademarks selected by ES such as "El Sitio FM". Once such option is exercised,
the use of the station name selected by ES is irrevocable and indefinite and is
not tied to the term of this Agreement. From the time of termination of this
Agreement pursuant to Section 15 hereof, in consideration for the use of an ES
Trademark, GS shall pay monthly to ES 3% of all revenues from such radio
station, net of any commissions and collection costs.
(b) Protection of Trademark. If ES should exercise its option
to rename Sarandi Satelital, GS's programming on such radio station shall be
subject to the ongoing satisfaction of ES that the Content of the programming is
consistent with the quality associated with the ES Trademarks; provided, that
programming substantially similar to the programming broadcasted on such radio
station in the three months preceding the date hereof shall be deemed to conform
to the quality associated with the ES Trademarks. If ES reasonably believes that
any of the programming broadcasted on such radio station does not meet the high
quality associated with
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the ES Trademarks, ES shall so inform GS and GS shall be afforded a reasonable
opportunity to make adequate changes to do so. In the event that after such
opportunity, ES is still not satisfied with the programming broadcasted on such
radio station, upon written notice by ES, GS shall, and shall cause all GS staff
to, promptly stop using any station name and identification related to an ES
Trademark in association with such radio station and shall within 30 days pay ES
the amount of U.S.$250,000 as liquidated damages.
(c) Option to Purchase. GS hereby irrevocably grants directly
or indirectly to ES the option to purchase, exercisable during the twenty-four
months following the date hereof, on any date specified by ES upon at least 15
days prior written notice to GS (but no later than 14 months from the date
hereof), all of GS's right, title and interest in FM 91.9 Sarandi Satelital and
assets related thereto free and clear of any lien, mortgage, or other
encumbrance for an amount equal to One Million U.S. Dollars (U.S.$1,000,000),
which amount shall, at the sole option of ES, be payable in cash, ES common
shares (based on the market price on such date) or a combination thereof. Such
purchase may be made either by ES directly or by any third party designated by
ES at its sole discretion. Such purchase shall be free and clear of all debts,
adverse claims, liabilities and obligations, direct, indirect, absolute or
contingent of GS, whether accrued, vested or otherwise, whether known or unknown
and whether or not actually reflected, or required by U.S. generally accepted
accounting principles to be reflected, in GS's balance sheets or other books and
records.
10. Intellectual Property.
(a) Extent of Intellectual Property Rights. Except as and to
the extent, if any, specifically set forth in this Agreement, neither ES nor GS
shall have the right to use such other party's Intellectual Property (as
hereinafter defined). Except as specifically set forth in this Agreement, each
of ES and GS acknowledges that (i) the other party or its affiliates (the
"Property Owner") is the owner or has the rights to use, such Property Owner's
patents, copyrights, trademarks, licences, service marks, initials, trade
secrets, proprietary knowledge, logos and corporate trade names or identity
(whether registered, applied for, or subsisting under the common law and/or the
laws of any jurisdiction) (collectively "Intellectual Property") and (ii) it is
not acquiring any right, title or interest in or to the Property Owner's
Intellectual Property as a result of this Agreement.
(b) Value of Intellectual Property. Each party acknowledges
the Intellectual Property of the other party has come to symbolize the goodwill
and reputation that such other party has built as a provider of high quality
goods and services. Each party agrees that, in its use of the other party's
Intellectual Property (which in any case shall be solely as specifically set
forth in this Agreement), it will maintain the goodwill symbolized by, and avoid
damage to, such other party's Intellectual Property.
11. Representations and Warranties.
(a) Mutual Representations and Warranties. Each of ES and GS
hereby represents and warrants to each other party that:
(i) It has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
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<PAGE> 12
(ii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action;
(iii) This Agreement has been duly executed and delivered by
an authorized officer, and is a legal, valid and binding obligation
enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law), and an
implied covenant of good faith and fair dealing;
(iv) The execution, delivery and performance of this Agreement
shall not constitute a breach or default under any contract or
agreement to which it is a party or by which it is bound or otherwise
violate the rights of any third party;
(v) Except pursuant to any exercise of the options set forth
in Section 9, no consent, approval or authorization of or from any
governmental entity or any other corporation, person or other entity
not a party to this Agreement, whether prescribed by law, regulation,
contract or agreement, is required for its execution, delivery and
performance of this Agreement or consummation of the transactions
contemplated hereby; and
(vi) No party will be required to make any kind of payment or
deliver any other consideration to any third person for or in respect
of another party's acquisition, exercise or exploitation of rights
granted (or purported to be granted) hereunder to it.
(vii) It is the legal holder of all licenses and other
authorizations necessary for the operation of each of its radio
stations, Internet sites or Internet severs (if any) as presently
conducted.
(b) Representations, Warranties and Covenants of GS. GS hereby
represents and warrants to ES that:
(i) GS is the owner of or otherwise has the right to
reproduce, prepare derivative works of, distribute, perform, transmit,
retransmit or display, as the case may be, the Content; and
(ii) the Content created or acquired by GS shall not infringe
upon any third party copyright, trademark or other proprietary right.
12. Confidentiality. (a) Unless required by law, each of ES
and GS shall maintain in confidence, and not disclose, divulge or otherwise
communicate to any other person, any proprietary information or materials about,
or held by, the other party or its affiliates which are communicated to, learned
by, developed or otherwise acquired by the party during the term of this
Agreement, or use such information for any purpose except to carry out the terms
of this Agreement or in a manner consistent with the terms of this Agreement
without the prior written consent of the other party. Each of ES and GS shall
exercise reasonable precautions to prevent
12
<PAGE> 13
and restrain the unauthorized disclosure of such confidential information about
the other party by any of its directors, officers, employees, consultants,
subcontractors, agents or affiliates.
(b) A party may disclose confidential information (the
"Disclosing Party") of the other party to the extent required by a court or
other governmental authority, provided that: (a) such party gives the other
party notice of the disclosure as soon as possible; (b) the Disclosing Party
uses reasonable efforts to resist disclosing the confidential information; (c)
the Disclosing Party cooperates with the other party on request to obtain a
protective order or otherwise limit the disclosure; and (d) as soon as
reasonably possible, the Disclosing Party provides a letter from its counsel
confirming that the confidential information is in fact required to be
disclosed. Notwithstanding the foregoing, the Disclosing Party may use for any
purpose or disclose any material or information that it can demonstrate (i) is
or becomes publicly known through no fault of the Disclosing Party; (ii) is
developed independently by the Disclosing Party; (iii) is known by the
Disclosing Party when disclosed by the other party if the Disclosing Party does
not then have a duty to maintain its confidentiality; or (iv) is rightfully
obtained by the Disclosing Party from a third party not obligated to preserve
its confidentiality who did not receive the material or information directly or
indirectly from the other party.
(c) The parties shall consult with each other prior to issuing
any public announcement or statement with respect to this Agreement or the
transaction contemplated hereby and that the initial press release shall be a
joint press release.
13. Indemnification. (a) Each party (an "Indemnifying Party")
hereby indemnifies and agrees to hold the other party, and their respective
directors, officers, employees, agents and affiliates (each such person, an
"Indemnified Party") harmless from and against all demands, claims, obligations,
actions or causes of action, charges, assessments, losses, damages, liabilities,
costs and reasonable expenses, including reasonable attorneys' fees
(collectively, "Damages"), asserted against, imposed upon or incurred by the
Indemnified Party arising out of or in connection with any bad faith, willful
misconduct, gross negligence or knowing violation of law, actual or alleged
infringement of any Intellectual Property right of a third party or breach of
any agreement or other contractual obligation that is caused by the Indemnifying
Party or any of its directors, officers, employees, agents or affiliates under
or in connection with this Agreement.
(b) In the event that any person shall incur or suffer any
Damages in respect of which indemnification may be sought hereunder, such
Indemnified Party may assert a claim for indemnification by written notice (the
"Notice") to the Indemnifying Party, stating the amount of Damages, if known,
and the nature and basis of such claim. In the case of Damages arising or which
may arise by reason of any third-party claim, promptly after receipt by an
Indemnified Party of written notice of the assertion or the commencement of any
action with respect to any matter in respect of which indemnification may be
sought hereunder, the Indemnified Party shall give Notice to the Indemnifying
Party and shall thereafter keep the Indemnifying Party reasonably informed with
respect thereto, provided that failure of the Indemnified Party to give the
Indemnifying Party prompt notice as provided herein shall not relieve the
Indemnifying Party of any of its obligations hereunder, except to the extent
that the Indemnifying Party is materially prejudiced by such failure. In case
any such action is brought against any Indemnified Party, the Indemnifying Party
shall be entitled to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party, by written notice of its intention to do
so to the Indemnified Party within 30 days after receipt of the Notice. If the
Indemnifying Party shall assume the
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<PAGE> 14
defense of such action, it shall not settle such action without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld, provided that an Indemnified Party shall not be required
to consent to any settlement that (i) does not include as an unconditional term
thereof the giving by the claimant or the plaintiff of a release of the
Indemnified Party from all liability with respect to such action or (ii)
involves the imposition of equitable remedies or the imposition of any material
obligations on such Indemnified Party other than financial obligations for which
such Indemnified Party will be indemnified hereunder. As long as the
Indemnifying Party is contesting any such action in good faith and on a timely
basis, the Indemnified Party shall not pay or settle any claims brought under
such action. 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 Party under this Section 13(b) 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 Indemnified Party shall be permitted
to participate in the defense of such action and to employ counsel at its own
expense; provided further, however, that if the defendants in any action shall
include both an Indemnifying Party and any Indemnified Party and such
Indemnified Party shall have reasonably concluded that counsel selected by
Indemnifying Party has or could have a conflict of interest because of the
availability of different or additional defenses to such Indemnified Party, such
Indemnified Party shall have the right to select separate counsel to participate
in the defense of such action on its behalf, at the expense of the Indemnifying
Party; provided that the Indemnifying Party shall not be obligated to pay the
reasonable expenses of more than one separate counsel for all Indemnified
Parties, taken together.
If the Indemnifying Party shall fail to notify the Indemnified
Party of its desire to assume the defense of any such action within the
prescribed period of time, or shall notify the Indemnified Party that it will
not assume the defense of any such action, then the Indemnified Party may assume
the defense of any such action, in which event it may do so acting in good faith
in such manner as it may deem appropriate, and the Indemnifying Party shall be
bound by any determination made in such action; provided, however, that the
Indemnified Party shall not be permitted to settle such action without the
consent of the Indemnifying Party, which consent shall not be reasonably
withheld. No such determination or settlement shall affect the right of the
Indemnifying Party to dispute the Indemnified Party's claim for indemnification.
The Indemnifying Party shall be permitted to join in the defense of such action
and to employ counsel at its own expense.
Amounts payable by the Indemnifying Party to the Indemnified
Party in respect of any Damages for which such party is entitled to
indemnification hereunder shall be (i) payable by the Indemnifying Party as
incurred by the Indemnified Party and (ii) limited in amount in accordance with
Section 18 hereof.
In the event of any dispute between the parties regarding the
applicability of the indemnification provisions of this Agreement, the
prevailing party shall be entitled to recover all Damages incurred by such party
arising out of, resulting from or relating to such dispute.
14. Dispute Resolution. (a) In the event of any unresolved
issue, dispute, legal disagreement or claim arising out of or relating to this
Agreement (including, without limitation, with respect to the interpretation of
this Agreement or the breach, termination or invalidity hereof), the chief
executive officers of ES and GS shall use their reasonable best efforts to
14
<PAGE> 15
address or resolve any such issue, dispute, legal disagreement or claim within a
period of 30 days after notice shall have been provided by ES or GS, as the case
may be, to the other party.
(b) In the event that any such unresolved issue, dispute,
legal disagreement or claim shall not be addressed or resolved by the oversight
committee and/or the corporate-level committee within the 30-day period set
forth in Section 14(a), then ES and GS shall submit to arbitration under this
Section 14(b), subject to the final sentence of this Section 14(b). Either party
may, in such circumstances, notify the other party that it wishes to commence an
arbitration proceeding under this Section 14(b) (an "Arbitration Request"). In
any arbitration proceeding, the party commencing the arbitration (the
"Petitioner") shall include in the Arbitration Request the name of a qualified
arbitrator designated by it. The party with whom the Petitioner has its dispute
(the "Respondent") shall within 30 days after the date of the Arbitration
Request designate a second arbitrator by notice to the Petitioner, but if it
shall fail to do so within such period the Petitioner may designate an
arbitrator on Respondent's behalf. The arbitrators chosen by the Petitioner and
the Respondent shall attempt to agree upon a third arbitrator, but if they are
unable to do so within 15 days after the designation of the second arbitrator,
the first arbitrator and the second arbitrator shall each, within 20 days after
the designation of the second arbitrator, suggest a list of four candidates for
the third arbitrator. If within 30 days after the designation of the second
arbitrator, the parties shall not have agreed on a third arbitrator, then either
arbitrator thereafter may apply to the International Chamber of Commerce (the
"ICC") for the selection of a third arbitrator in accordance with the ICC's
Rules of Conciliation and Arbitration (the "ICC Rules"). The arbitration panel
so selected shall have full power to decide any dispute referred to in this
Section 14(b). The parties irrevocably submit to the personal jurisdiction of
the ICC. The arbitration proceedings shall be held in Buenos Aires and shall be
conducted in the Spanish language. Any arbitration commenced pursuant to this
Section 14(b) shall be conducted in accordance with the ICC Rules. The decision
of the arbitration panel shall be final and binding upon the parties and may be
confirmed in any court of competent jurisdiction, and the costs and expenses of
such arbitration shall be borne equally by the Petitioner and the Respondent.
This Section 14(b) shall in no way affect the right of any party to such interim
relief, and only such relief, to maintain the status quo in aid of the
arbitration in any court of competent jurisdiction.
15. Term; Termination.
(a) Termination. This Agreement will terminate upon the
earlier to occur of the following:
(i) upon written notification of ES, in the event
that (A) there shall have occurred a material breach by GS of any of
its obligations under this Agreement that was not cured during any
applicable cure period or was not susceptible to cure or (B) any
Bankruptcy Event affecting GS shall have occurred;
(ii) upon written notification of GS, in the event
that (A) there shall have occurred a material breach by ES of any of
its obligations under this Agreement that was not cured during any
applicable cure period or was not susceptible to cure or (B) any
Bankruptcy Event affecting ES shall have occurred;
(iii) five years and three months from the date
hereof, unless extended in writing by the parties hereto; or
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<PAGE> 16
(iv) by the mutual written consent of ES and GS.
(b) Termination for Breach. Any party may terminate this
Agreement by written notice to each other party if a party materially breaches
any provision of this Agreement and fails to cure such breach within thirty (30)
days after receiving written notice of the breach from a non- breaching party.
Notwithstanding any termination of the Agreement, a party in breach of its
obligations under this Agreement shall be liable to any nonbreaching party for
all Damages incurred by such non-breaching party.
(c) Cure of Breach. No party hereto will be entitled to assert
that the other party has committed any breach of this Agreement, or to file or
otherwise commence any court or other judicial proceeding in respect of that
breach, unless: (i) such first party gives, to the alleged breaching party, a
notice that identifies both the alleged breach in reasonable detail and the
provision(s) of this Agreement allegedly violated; and (ii) the alleged
breaching party has failed to cure substantially the alleged violation within
thirty (30) days after such notice has been given. The foregoing provisions of
this Section will in no way limit or restrict the right of any party, however,
to seek immediate equitable relief against another party as and to the extent
such first party deems appropriate to enforce this Agreement or protect its
right hereunder.
(d) Remedies Regarding Pledged Shares. If a material breach
shall occur and be continuing or a bankruptcy event or insolvency shall occur
and be continuing, ES may exercise, in addition to all other rights and remedies
granted herein, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon GS (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
immediately collect, receive, appropriate and realize the pledged Shares or any
part thereof in accordance with the Pledge Agreement.
(e) Post-Termination Assistance. Upon the termination of this
Agreement, ES shall provide GS with commercially reasonable assistance for the
migration of the GS Sites from ES to any person that will provide successor
housing and hosting services; provided, however, that in no event shall ES be
required to provide such assistance more than two (2) months after the
termination of this Agreement. During any such transition period, GS shall pay
ES the then current market rate for the provision of any services provided by
ES.
(f) Survival. The obligations under this Agreement that by
their nature are intended to continue beyond the expiration or termination of
this Agreement shall survive the expiration or termination of this Agreement,
including without limitation, the provisions of Sections 9, 12, 13, 14 and 19.
16. Right to Inspect. Each party shall permit the officers and
designated representatives of the other party to examine its books of account
and discuss its affairs, finances and accounts with, and be advised as to the
same by, its and their officers and independent accountants, all at such
reasonable times and intervals and to such reasonable extent as such other party
may deem necessary to determine whether such party is in compliance with this
Agreement. If the parties, following any exercise of this right of inspection,
are unable to agree as to the compliance of a party with this Agreement, then
either party may request an audit by an independent, internationally recognized
accounting firm.
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<PAGE> 17
17. Other Agreements.
(a) Non-Exclusivity of Strategic Relationship. Except as
specifically set forth in this Agreement, ES and GS acknowledge and agree that
the strategic relationship established by this Agreement is not an exclusive
arrangement for either ES or GS or their respective affiliates. ES and GS (and
their respective affiliates) shall be entitled to pursue other business
activities independent of this strategic relationship even where such activities
might be viewed as being competitive with activities undertaken pursuant to this
Agreement or the other party or its affiliates. Such activities may include,
without limitation, joint ventures, partnerships, mergers or acquisitions and/or
alliances or relationships in any country.
(b) Separate Businesses. Except as and to the extent, if any,
specifically set forth this Agreement, neither ES nor GS nor any of their
respective affiliates shall have any involvement in or rights with respect to
the business activities of the other party or its affiliates. Except as and to
the extent, if any, specifically set forth in this Agreement, neither ES nor GS
nor any of their respective affiliates shall be considered a partner, co-partner
or joint venturer of the other party, but shall be deemed to be independent of
the other and as operating separate businesses. Neither ES nor GS shall have any
authority or right, express or implied, or hold itself out as having the
authority or right, to bind, commit or act as agent for the other party in any
way, nor will either party have the right to use the name of the other party,
except as and to the extent, if any, specifically set forth in this Agreement.
(c) Compliance with Applicable Law. Each of ES and GS shall
act in compliance with applicable laws, rules and regulations in connection with
the Strategic Relationship. Each of ES and GS agrees that nothing in this
Agreement will oblige any party (or any of its respective affiliates) to act in
contravention of any applicable law and that, if any provision of this Agreement
would be illegal or unenforceable under any applicable law, such provision will
be modified or reformed to the extent necessary to comply with applicable law,
but such modification or reformation will not in any way affect the legality of
the remaining provisions of this Agreement.
(d) Cooperation. Subject to the terms and conditions of this
Agreement, each of ES and GS agrees to use its reasonable commercial efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws to consummate and
make effective, as soon as reasonably practicable, the terms of this Agreement
and the transactions contemplated hereby and thereby.
(e) Recordkeeping and Auditing. Each party shall maintain
accurate books and records regarding any of its operation relevant to this
Agreement, which shall include net advertising revenues received and
calculations of the amounts payable to the other party in accordance with
generally accepted accounting practices. Each party shall have the right to
conduct an audit of the other party's books and records; provided however, that
each party may only exercise its right to conduct an audit once per calendar
year and during regular business hours.
(f) Obligation to Pay in Dollars; Judgment Currency. The
parties acknowledge that this Agreement is an international transaction in which
the specification of U.S. dollars, is of the essence, and U.S. dollars shall be
the currency of account in all events. The obligations of payment of a party
shall not be discharged by an amount paid in another currency, whether
17
<PAGE> 18
pursuant to a judgment or otherwise, to the extent that the amount so paid on
conversion to U.S. dollars under normal banking procedures does not yield the
amount of U.S. dollars due hereunder. If for the purpose of obtaining judgment
in any court it is necessary to convert a sum due hereunder in U.S. dollars into
another currency (the "Second Currency"), the rate of exchange which shall be
applied shall be that at which in accordance with normal banking procedures the
receiving party could purchase U.S. dollars with the Second Currency on the
business day next preceding that on which judgment is rendered. The obligation
of a party in respect of any such sum due to another party shall,
notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the business day following
receipt by the receiving party of any sum adjudged to be due hereunder in the
Second Currency, the receiving party may in accordance with normal banking
procedures purchase U.S. dollars with the amount of the Second Currency so
adjudged to be due; and the paying party hereby, as a separate obligation and
notwithstanding any such judgment, agrees to indemnify the receiving party
against, and to pay the receiving party on demand in U.S. dollars, any
difference between the sum originally due to the receiving party in U.S. dollars
and the amount of U.S. dollars so purchased and transferred.
18. Limitation of Liability; Disclaimers of Warranty; Force
Majeure.
(a) LIMITATION OF LIABILITY. NO PARTY SHALL BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF
PROFITS OR LOSS OF REVENUE RESULTING FROM THE USE OF THE GS SITES, GS STATIONS
OR THE ES URUGUAY SITE. ES SHALL NOT BE LIABLE FOR ANY LOSS OF DATA RESULTING
FROM DELAYS, NONDELIVERIES, MISDELIVERIES OR SERVICE INTERRUPTIONS.
NO PARTY SHALL BE LIABLE FOR OTHER DAMAGES HEREUNDER IN EXCESS
OF THE AMOUNTS PAID TO SUCH PARTY WITH RESPECT TO THE THEN CURRENT TERM OF THIS
AGREEMENT.
(b) DISCLAIMERS OF WARRANTY.
THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE LIMITED WARRANTIES AND
ARE THE ONLY WARRANTIES MADE BY THE RESPECTIVE PARTIES. THE PARTIES EXPRESSLY
DISCLAIM, AND HEREBY EXPRESSLY WAIVE, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
(c) Force Majeure. In the event that any circumstance beyond
the reasonable control of any party shall occur which delays or renders
impossible the performance of its obligations under this Agreement on the dates
herein provided for, such obligation shall be postponed for such time as such
performance necessarily has had to be suspended or delayed on account thereof.
In either such event, the parties shall promptly meet to determine an equitable
solution to the effects of any such event, provided that any party who fails
because of force majeure to perform its obligations hereunder will upon the
cessation of the force majeure take all reasonable steps within its power to
resume with the least possible delay compliance with its obligations. Events of
force majeure shall include, without limitation, war, revolution, invasion,
insurrection, riots, mob violence, sabotage or other civil disorders, fires,
floods or other acts of
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<PAGE> 19
God or nature, utility failures, outage or unavailability of the Internet or the
world wide web, strikes or other labor disputes, acts, laws, regulations or
rules of any government or governmental agency and any other similar cause or
event beyond the reasonable control of the Party, the obligations of whom are
affected thereby.
19. Miscellaneous.
(a) Amendment. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by all the parties
hereto.
(b) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
its other provisions. Following the determination that any provision of this
Agreement is unenforceable, the parties shall negotiate in good faith a new
provision that, as far as legally possible, most nearly reflects the intent of
the parties and that restores this Agreement as nearly as possible to its
original intent and effect.
(c) Counterparts. This Agreement may be executed by the
parties hereto in counterparts each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(d) Notices. All notices or service of process provided for
herein shall be validly given or served if in writing and delivered personally,
or by fax (with confirmation of receipt), if to:
El Sitio, Inc.:
Avenida Ingeniero Huergo 1167
1107 Buenos Aires, Argentina
Attention: Guillermo Bellati
Fax: 5411-4339-3750
Sarandi Comunicaciones S.A.:
Enriqueta Compte & Riquete 1250
Montevideo, Uruguay
Attention: Adolfo Vaeza
Fax: 5982-208-2612
Notice may be given to such other address or facsimile number as any party may,
from time to time, designate in a written notice given in a like manner.
(e) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
(f) No Third Party Rights; No Assignment. This Agreement is
intended solely for the benefit of the parties hereto, their respective
successors and (solely to the extent contemplated herein, their respective
affiliates) and is not intended to confer any benefits upon, or create any
rights in favor of, any other person. Neither this Agreement nor any of the
rights or
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<PAGE> 20
obligations arising hereunder will be assignable by either party without the
prior written consent of the other party.
(h) Governing Law. This Agreement is or, upon execution and
delivery thereof, shall be governed by, and construed in accordance with, the
laws of the Uruguay.
(i) Fees and Expenses. Whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, and except
as may otherwise be specifically provided in this Agreement, each party shall
pay the fees and expenses of its counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed by their respective authorized officers as of the
date hereof.
EL SITIO, INC.
By: /s/ Roberto Cibrian-Campoy
---------------------------------------
Name: Roberto Cibrian-Campoy
By: /s/ Einar Barfod
---------------------------------------
Name: Einar Barfod
SARANDI COMUNICACIONES S.A.
By: /s/ Adolfo M. Vaeza Bague
---------------------------------------
Name: Adolfo M. Vaeza Bague
Title: President
20
<PAGE> 1
Exhibit 10.26
Execution Copy
PURCHASE AGREEMENT
by and among
THE STOCKHOLDERS OF
DECOMPRAS.COM, INC.,
as "Sellers",
DECOMPRAS.COM, INC.,
as "Target",
and
EL SITIO, INC.,
as "Buyer"
Regarding purchase by Buyer of 100% of the issued and outstanding capital stock
of
DECOMPRAS.COM, INC.
Dated: March 10, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS.....................................................................................2
1.1 Defined Terms..........................................................................2
1.2 Other Defined Terms....................................................................9
1.3 Interpretation.........................................................................9
1.4 Currency...............................................................................9
ARTICLE II
PURCHASE AND SALE OF SHARES....................................................................10
2.1 Transfer of Purchased Capital Stock...................................................10
2.2 Consideration for Purchased Capital Stock.............................................10
2.3 Cash Purchase Price Adjustment........................................................10
2.4 Transfer Restrictions and Escrow Arrangements for Purchased Capital Stock.............11
ARTICLE III
CLOSING........................................................................................12
3.1 Closing...............................................................................12
3.2 Closing Deliveries....................................................................12
3.3 Escrow................................................................................13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
REGARDING SELLERS AND HOLDING COMPANIES........................................................14
4.1 Capital Stock.........................................................................14
4.2 Due Organization, etc. of Holding Companies...........................................15
4.3 Authorization.........................................................................15
4.4 No Conflict or Violation..............................................................15
4.5 Foreign Corrupt Practices Act.........................................................15
4.6 Consents and Approvals; Announcements.................................................16
4.7 No Brokers............................................................................16
4.8 No Operating Assets...................................................................16
4.9 Litigation............................................................................16
4.10 Accuracy and Completeness of Information Provided.....................................16
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
REGARDING TARGET AND COMPANY...................................................................17
5.1 Organization..........................................................................17
5.2 Capital Stock.........................................................................17
5.3 Authorization.........................................................................18
5.4 Absence of Certain Changes or Events..................................................18
5.5 Title to Assets, Etc..................................................................19
5.6 Material Contracts....................................................................20
5.7 No Conflict or Violation..............................................................20
5.8 Financial Statements..................................................................20
5.9 Litigation............................................................................21
5.10 Liabilities...........................................................................21
5.11 Consents and Approvals; Announcements.................................................21
5.12 Compliance with Applicable Laws; Permits..............................................22
5.13 Intellectual Property.................................................................22
5.14 Foreign Corrupt Practices Act.........................................................23
5.15 Conduct of Business...................................................................23
5.16 Labor Matters.........................................................................23
5.17 Employee Benefit Plans and Other Labor Matters........................................24
5.18 Transactions with Certain Persons.....................................................26
5.19 Taxes.................................................................................26
5.20 No Brokers............................................................................27
5.21 Products Liability; Product Recall....................................................27
5.22 Maintenance of Property; Insurance....................................................27
5.23 Environmental Matters.................................................................28
5.24 Operating Assets......................................................................29
5.25 Absence of Subsidiaries...............................................................29
5.26 Accuracy and Completeness of Information Provided.....................................29
5.27 No Other Representations or Warranties................................................29
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER........................................................29
6.1 Due Organization, etc. of Buyer.......................................................29
6.2 Buyer Shares..........................................................................29
6.3 Authorization.........................................................................30
6.4 Consents and Approvals................................................................30
6.5 No Conflict or Violation..............................................................30
6.6 No Brokers............................................................................30
6.7 Litigation............................................................................30
6.8 Financial Capability..................................................................31
6.9 SEC Reports and Financial Statements..................................................31
6.10 No Other Representations or Warranties................................................31
</TABLE>
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ARTICLE VII
ACTIONS BY SELLERS, HOLDING COMPANIES, TARGET
AND BUYER PRIOR TO THE CLOSING.................................................................32
7.1 Management of Target and Company......................................................32
7.2 Employment Matters....................................................................32
7.3 Investigation by Buyer................................................................33
7.4 Conditions to Closing.................................................................34
7.5 Regulatory and Other Authorizations; Notices and Consents.............................34
7.6 Notification of Certain Matters.......................................................35
7.7 Other Proposals or Discussions........................................................36
7.8 Employee Matters......................................................................36
7.9 Outstanding Share Options of Company Employees........................................36
7.10 Resignations of Directors; Auditors...................................................37
7.11 Transfer Taxes........................................................................37
7.12 Liquidated Damages....................................................................37
7.13 Legend on Certificates for Buyer Shares...............................................37
7.14 Organization and Transfers of Holding Companies.......................................38
7.15 Further Action........................................................................38
7.16 Conversion of Preferred Stock.........................................................38
ARTICLE VIII
CONDITIONS TO SELLERS' AND HOLDING COMPANIES' OBLIGATIONS......................................38
8.1 Representations, Warranties and Covenants.............................................38
8.2 Consents; Illegality..................................................................39
8.3 Registration Rights Agreement.........................................................39
8.4 Share Options.........................................................................39
8.5 Employment Agreements.................................................................39
8.6 Board of Directors Approval...........................................................39
8.7 Legal Opinion.........................................................................39
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS..............................................................39
9.1 Representations, Warranties and Covenants.............................................40
9.2 Consents; Illegality..................................................................40
9.3 Due Diligence Investigation...........................................................40
9.4 No Governmental or Other Legal Proceeding.............................................40
9.5 No Material Adverse Change............................................................41
9.6 Release of Encumbrances...............................................................41
9.7 Execution of Lock-up Agreements.......................................................41
9.8 Employment Agreements.................................................................41
9.9 Legal Opinions........................................................................41
9.10 Escrow Agreement......................................................................41
9.11 Buyer Board of Director Approval......................................................41
9.12 Power of Attorney.....................................................................41
9.13 New Share Options.....................................................................41
9.14 Financial Statements..................................................................42
9.15 Tax Certificate.......................................................................42
9.16 Conversion of Preferred Stock.........................................................42
</TABLE>
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9.17 Cancellation of Lease Obligations.....................................................42
9.18 Other Closing Documents...............................................................42
ARTICLE X
ACTIONS AFTER THE CLOSING......................................................................42
10.1 Further Assurances....................................................................42
10.2 Certain Tax Matters...................................................................42
ARTICLE XI
INDEMNIFICATION................................................................................43
11.1 Survival of Representations Etc.......................................................43
11.2 Indemnification.......................................................................44
11.3 Procedure.............................................................................44
11.4 Limitations to Indemnity..............................................................46
11.5 Net Indemnifiable Losses..............................................................47
11.6 Non-Exclusive Remedy..................................................................47
ARTICLE XII
MISCELLANEOUS..................................................................................48
12.1 Termination...........................................................................48
12.2 Confidentiality.......................................................................49
12.3 Assignment............................................................................49
12.4 Notices...............................................................................49
12.5 Governing Law.........................................................................50
12.6 Dispute Resolution....................................................................50
12.7 Judgment Currency.....................................................................51
12.8 Entire Agreement; Amendments and Waivers..............................................51
12.9 Counterparts..........................................................................51
12.10 Invalidity............................................................................52
12.11 Headings..............................................................................52
12.12 Expenses..............................................................................52
12.13 Schedules and Exhibits................................................................52
12.14 Reasonable Consent Required...........................................................52
12.15 Governing Language....................................................................52
12.16 Delegation to and Reliance on Sellers' Representatives................................52
12.17 Adherence to Agreement by Holding Companies...........................................53
</TABLE>
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EXHIBITS
A-1 Stockholders of Holding Companies
A-2 Key Employees
B Registration Rights Agreement
C Investment Direction
C-1 Form of Lock-Up Agreement (Key Employees)
C-2 Form of Lock-Up Agreement (Non-Key Employees and Holding Company B)
C-3 Form of Lock-Up Agreement (Holding Company A)
D-1 Terms and Conditions of Employment and Share Option Plan Arrangements
E Indicative Financial Statements
F Company Business Plan
G Power of Attorney
H Form of Buyer Officer's Certificate
I-1 Form of Sellers' Certificate
I-2 Form of Holding Companies' Officer's Certificate
I-3 Form of Target Officer's Certificate
J Escrow Agreement
K-1 Form of Promissory Note for First Loan
K-2 Form of Promissory Note for Second Loan
SCHEDULES
1 Permitted Investments
4.1 Capital Stock
4.7 No Operating Assets
5.2 Capital Stock
5.4 Absence of Certain Changes or Events
5.5(a) Title to Assets, Etc.
5.6 Material Contracts
5.8 Consents and Approvals--Company
5.13(a) Intellectual Property
5.13(b) Intellectual Property Infringements
5.18 Transactions with Certain Persons
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<PAGE> 7
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 10, 2000, by and among, (i) EL
SITIO, INC., a British Virgin Islands company ("Buyer"), (ii) the STOCKHOLDERS
OF DECOMPRAS.COM, INC., as set forth on Exhibit A-1 hereto (collectively,
"Sellers"), and (iii) DECOMPRAS.COM, INC., a California corporation ("Target").
WHEREAS, Sellers in the aggregate own 100% of the issued and
outstanding capital stock of Target as set forth on Exhibit A-1 hereto;
WHEREAS, certain of the Sellers, as set forth on Exhibit A-2 hereto
(collectively, the "Holding Company A Sellers"), have established Coracias,
B.V., a new holding company organized as a Netherlands corporation ("Holding
Company A"), to which Holding Company A Sellers will transfer 100% of their
shares in Target in exchange for shares in Holding Company A (such transfer, the
"Holding Company A Transfer");
WHEREAS, the remaining Sellers, as set forth on Exhibit A-2 hereto
(collectively, the "Holding Company B Sellers"), have established Belagua, B.V.
a new holding company organized as a Netherlands corporation ("Holding Company
B" and, together with Holding Company A, "Holding Companies"), to which Holding
Company B Sellers will transfer 100% of their shares in Target in exchange for
shares in Holding Company B (such transfer, the "Holding Company B Transfer",
and together with the Holding Company A Transfer, the "Holding Company
Transfers");
WHEREAS, Holding Companies, upon such Holding Company Transfers, will
in the aggregate own 100% of the issued and outstanding capital stock of Target;
WHEREAS, Holding Companies shall become parties hereto prior to Closing
(as defined below);
WHEREAS, Target owns (other than a de minimis number of shares required
to satisfy a diversity of ownership requirement in Mexico) 100% of the issued
and outstanding shares of DECOMPRAS.COM, S.A. DE C.V., a Mexican corporation
(sociedad anonima de capital variable) ("Company"); and
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to
sell to Buyer, 100% of the issued and outstanding capital stock of Target, upon
the terms and subject to the conditions of this Agreement (the "Capital Stock
Purchase").
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 8
ARTICLE I
DEFINITIONS
Defined Terms. As used herein, the terms below shall have the following
meanings:
"Accounts Receivable" shall have the meaning set forth in Section
5.8(c).
"Affiliate" shall mean, with respect to any specified Person, any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control", when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" shall mean this Purchase Agreement, together with all
schedules and exhibits referenced herein.
"Applicable GAAP" shall mean accounting principles and practices
(including, where applicable, prescribed accounting standards) generally
accepted in the United States (in the case of Target) or Mexico (in the case of
Company) as in effect from time to time.
"Applicable Laws" shall mean all national, provincial, state or local
laws, rules or regulations of any applicable jurisdiction (including Mexico, the
United States, The Netherlands and the British Virgin Islands), the rules,
regulations and administrative guidelines and policies of any governmental or
non-governmental body or agency in any such jurisdiction and all orders,
rulings, judgments and decrees of any court or tribunal in any such
jurisdiction.
"Assets" shall have the meaning set forth in Section 5.5.
"Attributable Indebtedness" shall mean, with respect to a
Sale/Leaseback Transaction, as at the time of determination, the present value
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Balance Sheet Date" shall mean December 31, 1999.
"Business Day" shall mean any day other than a Saturday or Sunday or a
day on which banking institutions are required or authorized by law to be closed
in New York City.
"Buyer Shares" shall mean Buyer's common shares comprising the Stock
Purchase Price.
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<PAGE> 9
"Capital Stock" shall mean, with respect to any Person, any and all
shares, stock, interests, rights to purchase, warrants, options, participation
or other equivalents of or interests in (however designated) the equity of such
Person, including any preferred stock, but excluding any debt securities
convertible into such equity.
"Capital Stock Purchase" shall have the meaning set forth in the
recitals.
"Capitalized Lease Obligations" shall mean an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with Applicable GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with Applicable GAAP; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease.
"Cash Purchase Price" shall have the meaning set forth in Section
2.2(a).
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.3(b).
"Closing Date" shall mean the date on which the Closing occurs.
"Company Business Plan" shall mean Company's business plan reviewed and
agreed by Buyer, dated March 1, 2000, attached as Exhibit F.
"Company Financial Statements" shall mean the audited balance sheets of
Target and Company as of December 31, 1999 and the audited statements of
operations and changes in financial position of Target (on an unconsolidated,
stand-alone basis) and Company for the fiscal year ended on such date, in each
case prepared in accordance with Applicable GAAP, together with the notes
thereon and the related audit reports of PricewaterhouseCoopers.
"Contracts" shall mean all agreements, contracts, commitments and
undertakings to which Company is a party, an obligor or a beneficiary, including
the following:
(i) joint venture, partnership or similar agreements or contracts;
(ii) licenses, sublicenses, consent agreements, royalty agreements,
transfer agreements, research and development agreements and
all other agreements relating to Intellectual Property
("Intellectual Property Contracts");
(iii) employment agreements or agreements relating to compensation
or benefits;
(iv) any agreements, contracts, commitments or undertakings that
would be breached or are terminable or under which default
would occur or any payment or repayment would be accelerated,
as a result of any of the transactions contemplated by this
Agreement;
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<PAGE> 10
(v) any agreements, contracts, commitments or undertakings entered
into involving an estimated total future payment or payments
in respect of each such agreement, contract, commitment or
undertaking in excess of U.S.$25,000;
(vi) any agreements, contracts, commitments or undertakings
evidencing indebtedness, guarantees or other obligations,
contingent or otherwise, for borrowed money in excess of
U.S.$25,000;
(vii) agreements restricting the ability of Company from competing
for or entering into a particular line of business or from
engaging in one or more lines of business in a particular
geographic area;
(viii) agreements between any director or officer of Company, on the
one hand, and Sellers or their respective Affiliates
(including Company) on the other; and
(ix) any other agreements, contracts, commitments or undertakings
as to the performance or non-performance of which is or would
be material to Company.
"Convertible Series A Preferred Stock" shall mean up to
4,080,000 shares of Target's Convertible Series A Preferred Stock, each
share of which entitles its holder to convert such share into one share
of Target's common stock.
"Escrow Agent" shall have the meaning set forth in Section
3.3.
"Escrow Agreement" shall mean an escrow agreement
substantially in the form of Exhibit J hereto.
"First Loan" shall mean the working capital loan in an
aggregate principal amount of U.S.$1.0 million made by Buyer to Company
on or about March 13, 2000, on the terms and conditions as set forth in
Exhibit K-1 attached hereto.
"Governmental Authority" shall mean any national, provincial,
state, or local governmental, regulatory body or agency, or court, in
any applicable jurisdiction (including in Mexico, the United States,
The Netherlands or the British Virgin Islands).
"Hedging Agreement" means, with respect to any Person, any
foreign exchange or interest rate protection or swap Contract or other
similar agreement as to which such Person is a party or a beneficiary.
"Income Tax" shall mean any national, provincial, state or
local income tax.
"Indebtedness" shall mean, with respect to any Person, on any
date of determination, the following (without duplication):
(i) the principal of and premium, if any, in respect of
indebtedness of such Person for borrowed money;
4
<PAGE> 11
(ii) the principal of and premium, if any, in respect of
obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement
obligations with respect thereto);
(iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (except trade
payables), which purchase price is due more than six months
after the date of placing such property in service or taking
delivery and title thereto or the completion of such services;
(v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person;
(vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided, however, that the amount of
such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the
amount of such Indebtedness of such other Persons;
(vii) all Indebtedness of other Persons to the extent
guaranteed directly or indirectly by such Person; and
(viii) to the extent not otherwise included in this
definition, net obligations of such Person under Hedging
Agreements (the amount of any such obligation to be equal at
any time to the termination value of such agreement or
arrangement giving rise to such obligation that would be
payable by such Person at such time).
"Indemnity Cap" shall have the meaning set forth in Section
11.4.
"Indicative Financial Statements" shall mean the unaudited
balance sheets of Target and Company as of December 31, 1999 and the
unaudited statements of operations and changes in financial position of
Target and Company for the fiscal year ended on such date, prepared in
accordance with Applicable GAAP.
"Intellectual Property" shall mean all U.S., Mexican and other
intellectual property rights and assets, including, without limitation,
the following:
(i) (a) patents, inventions, discoveries, processes,
designs, techniques, developments, technology, and related
improvements and know-how, whether or not patented or
patentable ("Patents"); (b) copyrights, mask works and works
of authorship in any media, including computer programs,
software, databases and related items and Internet site
content, whether or not registered or published
("Copyrights"); (c) trademarks, uniform resource locators
(URLs), service marks, trade names, brand names, corporate
names, fictitious business names, domain names, logos, trade
dress and all elements thereof, whether or not registered, the
goodwill of any business symbolized thereby, and all
common-law rights relating thereto ("Trademarks"); (d) trade
secrets, customer lists, plans, drawings, blueprints and all
confidential, technical or proprietary information ("Trade
5
<PAGE> 12
Secrets"); (e) industrial property rights and all other
authors', inventors' and intellectual property rights not set
forth above;
(ii) all registrations, applications, recordings, and
licenses or other agreements related thereto; and
(iii) all rights to obtain renewals, extensions,
continuations, continuations-in-part, reissues, divisions or
similar legal protections related thereto.
"Key Employees" shall mean, collectively, the following
employees at Company (each such employee, a "Key Employee"): Juan
Carlos Garcia S.; Abril Perez; Fernando Lopez; Hector Tassinari; Adrian
Garza de la Garza; Juan Manuel Gonzalez; Nestor Delgado; and Otilio
Sagastegui.
"Legal Proceeding" shall have the meaning set forth in Section
5.9.
"Letter of Intent" shall have the meaning set forth in Section
7.3(6).
"Liabilities" shall have the meaning set forth in Section
5.10.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, charge or restriction of any kind (including any
conditional sale or other title retention agreement or lease in the
nature thereof) whether or not recorded, filed or otherwise perfected
under Applicable Laws.
"Loans" shall mean the First Loan and the Second Loan.
"Loan Conversion Agreement" shall mean the Loan Conversion
Agreement, dated March 13, 2000, between Buyer, on the one hand, and
Target and Company, on the other hand, in the form attached hereto as
Exhibit L.
"Management Committee" shall have the meaning set forth in
Section 7.1.
"Material Adverse Effect" shall mean, with respect to any
Person, an effect that is materially adverse to the business,
properties, results of operations, financial condition or prospects of
such Person, other than effects arising solely out of this Agreement or
the transactions contemplated hereby, including the announcement or
pendency thereof.
"Mexico" shall mean the United Mexican States.
"Net Working Capital" shall mean, at any date, (a) the current
assets of Company as of such date minus (b) the current liabilities of
Company as of such date, excluding current liabilities in respect of
Indebtedness and any dividends payable, all valued in accordance with
Applicable GAAP.
"New Share Options" shall have the meaning set forth in
Section 7.9.
"Outstanding Share Options" shall have the meaning set forth
in Section 7.9.
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<PAGE> 13
"Permits" shall mean all licenses, permits, franchises,
orders, consents, approvals, registrations, authorizations,
qualifications and filings with and under all Applicable Laws.
"Person" shall mean an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an
unincorporated organization, a government or any department or agency
thereof or any other entity.
"Purchase Price" shall have the meaning set forth in Section
2.2(b).
"Purchased Capital Stock" shall mean all of the issued and
outstanding Capital Stock of Target immediately prior to Closing.
"Representative" shall mean any director, officer, employee,
attorney, agent, or other representative.
"Sale/Leaseback Transaction" shall mean an arrangement
relating to property now owned or hereafter acquired pursuant to which
Company transfers such property to a Person and Company leases it from
such Person.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Second Loan" shall mean the working capital loan in an
aggregate principal amount of U.S.$2.0 million to be made by Buyer to
Company, on the terms and conditions as set forth in Exhibit K-2.
"Sellers' Representatives" shall mean Messrs. Juan Carlos
Garcia S. and Adrian Garza de la Garza, acting jointly.
"Shares" shall have the meaning set forth in Section 5.2.
"Stated Maturity" shall mean, with respect to any security,
the date specified in such security as the fixed date on which the
payment of principal of such security is due and payable, including
pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such security at the option
of the holder thereof upon the happening of any contingency beyond the
control of the issuer unless such contingency has occurred).
"Stock Purchase Price" shall have the meaning set forth in
Section 2.2(b).
"Taxes" shall mean all national, federal, provincial, state or
local taxes imposed by any Tax Authority in any jurisdiction (including
in Mexico, the United States, The Netherlands and the British Virgin
Islands), including income, gross receipts, consumption, windfall
profits, alternative minimum, value added, property, production, sales,
use, license, excise, franchise, employment, withholding, industry and
commerce or similar taxes, together with any interest or penalties with
respect thereto and any interest in respect of such penalties.
7
<PAGE> 14
"Tax Authority" shall mean any competent Governmental
Authority responsible for the determination, assessment or collection
of Taxes.
"Tax Law" shall mean any Applicable Laws relating to Taxes.
"Tax Returns" shall mean all tax returns and reports
(including any schedules, elections or other documents relating
thereto) required to be filed with any Tax Authority or required to be
prepared and retained in accordance with any applicable Tax Law
relating to Company as currently conducted.
"Transfer Taxes" shall mean all excise, ad valorem, sales,
use, transfer (including real property transfer or gains), stamp,
documentary, filing, recordation and other similar taxes together with
any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties directly or
indirectly resulting from or arising out of the transactions
contemplated by this Agreement.
"Voting Stock" shall mean, with respect to any corporation,
all classes of Capital Stock of such corporation then outstanding and
normally entitled to vote in the election of directors.
"Walk-away Date" shall have the meaning set forth in Section
12.1(a).
1.2 Other Defined Terms. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
1.3 Interpretation. As used in this Agreement, the following
conventions shall be applied in interpreting and construing the provisions of
this Agreement:
(i) the terms "includes" and "including" and similar terms
shall be deemed to be followed by the terms "without
limitation";
(ii) definitions contained in this Agreement apply to singular
as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms;
(iii) terms in the singular shall be held to include the
plural and vice versa, and words of one gender shall be held
to include the other gender as the context requires;
(iv) the terms "hereof", "herein," and "herewith" and terms of
similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections,
paragraphs, Schedules and Exhibits to this Agreement unless
otherwise specified;
(v) the term "or" shall not be exclusive; and
(vi) provisions shall apply, when appropriate, to successive
events and transactions.
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<PAGE> 15
1.4 Currency. All references to dollar amounts in this Agreement are
references to U.S. dollars unless otherwise stated.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Transfer of Purchased Capital Stock. Upon the terms and subject to
the conditions contained herein, (i) each Seller shall, or shall cause Holding
Companies to, sell, convey, transfer, assign and deliver to Buyer, and (ii)
Buyer shall acquire, or shall cause its designee to acquire, in each case on the
Closing Date, the Purchased Capital Stock.
2.2 Consideration for Purchased Capital Stock. Upon the terms and
subject to the conditions contained herein, as consideration for the purchase of
the Purchased Capital Stock, on the Closing Date, Buyer shall pay, or cause its
designee to pay, to Holding Companies for the benefit of Sellers, as follows:
(a) an aggregate of U.S.$7,000,000 in cash (the "Cash Purchase
Price") payable by wire transfer in immediately available funds to an account or
the accounts that Sellers' Representatives on behalf of Holding Companies and
Sellers shall designate in writing to Buyer no less than two Business Days prior
to the Closing Date; and
(b) an aggregate of 1,750,000 of Buyer's common shares (the
"Stock Purchase Price" and, together with the Cash Purchase Price, the "Purchase
Price"), which Stock Purchase Price shall be payable as follows:
(i) by issuing to Holding Companies the Buyer Shares, as
fully paid and non-assessable, free and clear of any
Encumbrances of any nature whatsoever (except for any
Encumbrances arising solely as a result of any action
taken by Holding Companies); and
(ii) by delivery of a written order to Buyer's registrar
and transfer agent (A) to register the Buyer Shares
in the shareholder register of Buyer, (B) to issue
share certificates representing the Buyer Shares in
the names of Holding Companies; and the number of
Buyer Shares issued to each Holding Company shall
correspond to the number of shares held by Holding
Company A Sellers in Holding Company A and by Holding
Company B Sellers in Holding Company B, as set forth
on Exhibit A-2;
2.3 Cash Purchase Price Adjustment. (a) In accordance with the
provisions of this Section 2.3, the Cash Purchase Price shall be subject to
decrease by an amount, if any, equal to the sum of the following (the "Cash
Purchase Price Differential"):
(i) the excess, if any, of any operating expenses,
indebtedness, dividends, or capital expenditures through the Closing
Date, above the amounts specified in the Company Business Plan and
other than in the ordinary course of business; plus,
(ii) the amount of material differences (which are adverse to
Buyer) in Target's consolidated financial condition or results of
operations as between the Indicative
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<PAGE> 16
Financial Statements (which are unaudited) and Company Financial
Statements (which are audited) or from specific contingencies of
Company that are not disclosed in connection with Articles IV and V of
this Agreement and are identified during the course of Buyer's due
diligence review prior to the Closing Date (the amount of such specific
contingencies to be agreed upon by Buyer and Seller's Representatives).
(b) As soon as practicable but in any event on the earlier of
(i) three Business Days before the Closing Date and (ii) 25 days following the
date hereof, Target shall deliver to Buyer the Company Financial Statements
accompanied by an unqualified opinion of PricewaterhouseCoopers that such
balance sheet (the "Closing Balance Sheet") presents fairly in all material
respects the financial position of Company, its Indebtedness and Net Worth as of
the date hereof in conformity with Applicable GAAP applied on a consistent
basis.
(c) Promptly upon receipt by Buyer of the Company Financial
Statements, representatives of Buyer and Sellers' Representatives shall meet to
discuss and agree upon the amount of the Cash Purchase Price Differential, if
any. If Buyer and Sellers' Representatives are unable to agree upon the amount
of the Cash Purchase Price Adjustment, if any, Buyer shall preserve its rights
to assert a Claim for Damages in accordance with Article XI hereof. Upon
determination of the Cash Purchase Price Differential, if any, the Cash Purchase
Price and Purchase Price shall be reduced by such amount.
2.4 Transfer Restrictions and Escrow Arrangements for Purchased Capital
Stock. In addition to the Purchased Capital Stock, as part of the consideration
for the Purchase Price, Sellers and Holding Companies agree and acknowledge that
the Buyer Shares shall be subject to the following:
(a) lock-up agreements substantially in the forms
attached hereto as Exhibit C-1 (in the case of Sellers that
are Key Employees), Exhibit C-2 (in the case of Sellers that
are not Key Employees and in the case of Holding Company B),
and Exhibit C-3 (in the case of Holding Company A), as the
case may be (common shares of Buyer that are issued upon the
exercise of New Share Options also being subject to such
agreements);
(b) a deposit and pledge of a portion of the Buyer
Shares in accordance with the Escrow Agreement to indemnify
Buyer for up to the amount of Damages incurred by Buyer above
the De Minimis Threshold pursuant to Article XI; and
(c) in the case of the portion of the Buyer Shares to
be beneficially held by each of the Key Employees, a deposit
and pledge of such Buyer Shares in accordance with the Escrow
Agreement in connection with the employment contracts and
confidentiality and non-competition agreements to be entered
into by the Key Employees pursuant to Section 7.4, or the
termination with cause by Buyer or its Affiliate of any such
Key Employees under the terms of such Person's employment
contract. Sellers (including the Key Employees) and Holding
Companies acknowledge and agree that the restrictions upon
transfer referred to in the preceding sentence are negotiated
provisions and in exchange for good and valuable
consideration, the adequacy of which is hereby acknowledged.
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ARTICLE III
CLOSING
3.1 Closing. Subject to the conditions set forth in Articles VIII and
IX, the closing of the transactions contemplated herein (the "Closing") shall
take place within three Business Days after the date on which the conditions set
forth in Articles VIII and IX shall have been satisfied or waived or on such
other date as the parties may mutually agree. The Closing shall be held at 9:00
a.m. (New York City time) on the Closing Date at the offices of Simpson Thacher
& Bartlett, 425 Lexington Avenue, New York, New York, unless the parties hereto
otherwise agree.
3.2 Closing Deliveries. To effect the transfers referred to in Section
2.1 and the delivery of the consideration referred to in Section 2.2, on the
Closing Date, the parties hereto shall take or cause to be taken the following
actions:
(a) Closing Deliveries by Sellers and Holding Companies. Sellers
shall, or shall cause Holding Companies to, deliver to Buyer:
(i) duly executed stock transfer powers in favor of Buyer
or its nominee in respect of 100% of the Purchased
Capital Stock, together with the stock certificates
evidencing the Purchased Capital Stock duly endorsed
in accordance with the laws of the State of
California, free and clear of any Encumbrances of any
nature whatsoever (except for any Encumbrances
arising solely as a result of any action taken by
Buyer);
(ii) a written order to Company instructing Company (A) to
register the Purchased Capital Stock in the
shareholder register of Company, (B) to cancel and
make void the duly endorsed stock certificates
representing the Purchased Capital Stock and (C) to
issue new stock certificates representing the
Purchased Capital Stock in the name of Buyer;
(iii) a receipt for the Purchase Price;
(iv) executed counterparts of the Registration Rights
Agreement;
(v) executed counterparts of the Escrow Agreement
pursuant to Section 3.3;
(vi) the certificates required to be delivered by Sellers,
Holding Companies and Target pursuant to Section 9.1;
(vii) the legal opinions required to be delivered by
Sellers pursuant to Section 9.9; and
(viii) the other documents required to be delivered by
Sellers pursuant to Article IX.
(b) Closing Deliveries by Buyer. Buyer shall deliver, or shall
cause its designee to deliver, to Sellers and Holding
Companies:
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(i) the Cash Purchase Price, in immediately available
funds, to the accounts designated by Holding
Companies, for the benefit of Holding Companies and
Sellers;
(ii) for the benefit of Holding Companies and Sellers, the
Stock Purchase Price in accordance with Section
2.2(b);
(iii) a receipt for the Purchased Capital Stock;
(iv) an executed Registration Rights Agreement;
(v) executed counterparts of the Escrow Agreement
pursuant to Section 3.3;
(vi) the certificate required to be delivered on behalf of
Buyer pursuant to Section 8.1;
(vii) the legal opinion required to be delivered by Buyer
pursuant to Section 8.7; and
(viii) the other documents required to be delivered by Buyer
pursuant to Article VIII.
All instruments and documents executed and delivered to Buyer
pursuant hereto shall be in form and substance reasonably satisfactory to Buyer.
All instruments and documents executed and delivered to Sellers pursuant hereto
shall be in form and substance reasonably satisfactory to Sellers'
Representatives. All actions set forth above shall be deemed to occur
simultaneously at the Closing.
3.3 Escrow. At the Closing, (i) each of Sellers, Holding Companies,
Buyer and an internationally recognized financial institution based in New York
to be named by Buyer as escrow agent (the "Escrow Agent") shall execute and
deliver an escrow agreement substantially in the form attached as Exhibit J
hereto (the "Escrow Agreement"), and (ii) Sellers, Holding Companies shall
deposit into the escrow account identified in the Escrow Agreement (the "Escrow
Account") and pledge in favor of Buyer the Indemnity Shares (as defined in
Section 11.4) and certain additional Buyer Shares relating to the obligations of
the Key Employees in accordance with the Escrow Agreement. Such deposited shares
shall be applied in accordance with the terms and conditions set forth in the
Escrow Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
REGARDING SELLERS AND HOLDING COMPANIES
Sellers hereby represent and warrant as of the date hereof and
as of the Closing Date, and with respect to Holding Companies, as of the Closing
Date, and Holding Companies hereby represent and warrant, as of the Closing
Date, in each case jointly and severally, to Buyer, as follows:
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4.1 Capital Stock. (a) Capital Stock of Target. As of the date hereof,
Sellers, and as of the Closing Date, Holding Companies, are the record and
beneficial owners of the Purchased Capital Stock as set forth opposite their
names on Exhibit A-1 and Exhibit A-2, respectively, hereto, free and clear of
all Encumbrances, including any agreement, understanding or restriction entered
into by any of the Sellers affecting the voting rights or other incidents of
record or beneficial ownership pertaining to the Purchased Capital Stock. All of
the issued Target Shares have been, and as of the Closing Date, shall have been,
duly and validly authorized and are fully paid or properly credited as fully
paid. None of the issued shares of the Purchased Capital Stock have been and, as
of the Closing Date shall have been, issued in violation of any purchase option,
call, warrant, right of first refusal, preemptive, subscription or similar
rights under any provision of Applicable Law, the by-laws of Target, or any
contract, agreement or instrument to which Company, Target, Holding Companies,
Sellers or any other Affiliate thereof is subject or by which any of such
Persons is bound. Except for this Agreement and the Convertible Series A
Preferred Stock, there are no subscriptions, options, phantom share options,
warrants, calls, commitments, preemptive rights or other rights of any kind
outstanding for the purchase of, nor any securities convertible into or
exchangeable for, the Purchased Capital Stock, any other shares of Capital Stock
or any equity interests of Target. Except for this Agreement, there are no
restrictions upon the voting or transfer of any shares of Target pursuant to
Target's by-laws or any agreement or other instrument to which Target is a party
or by which Target is bound. Upon consummation of the Capital Stock Purchase,
Buyer shall acquire from Sellers and Holding Companies full and exclusive
ownership and dominion of the Purchased Capital Stock, free and clear of all
Encumbrances, except for any Encumbrances which may have been created by Buyer.
(b) Capital Stock of Holding Companies. As of the Closing
Date, Holding Company A Sellers and Holding Company B Sellers are the record and
beneficial owners of the issued and outstanding shares of capital stock of
Holding Companies as set forth opposite their names on Exhibit A-2 hereto, free
and clear of all Encumbrances, including any agreement, understanding or
restriction entered into by Sellers affecting the voting rights or other
incidents of record or beneficial ownership pertaining to the Purchased Capital
Stock. As of the Closing Date, all of the issued shares of Capital Stock of
Holding Companies has been duly and validly authorized and is fully paid or
properly credited as fully paid and Sellers own, in the aggregate, 100% of the
outstanding shares of capital stock of Holding Companies.
4.2 Due Organization, etc. of Holding Companies. Each of the Holding
Companies is a corporation duly organized and validly existing under the laws of
The Netherlands and has full corporate power and authority to conduct its
business and to own and lease its properties. Each of Holding Companies is duly
qualified to do business as a foreign entity and is in good standing in each
jurisdiction in which the character or location of the properties and assets
owned or operated by it or the nature of the businesses conducted by it makes
such qualification necessary.
4.3 Authorization. Each Person that is a Seller has executed this
Agreement. Each of the Sellers has all legal capacity and authority, and each of
the Holding Companies has all necessary corporate power and authority to enter
into this Agreement and consummate the transactions contemplated hereby and to
perform their obligations hereunder. This Agreement has been duly executed and
delivered by each of the Sellers and subsequently duly executed and delivered by
each of the Holding Companies and, assuming the due execution of this Agreement
by Buyer, constitutes a legal, valid and binding obligation of Sellers and
Holding Companies, enforceable against each and all of them in accordance with
its terms, subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or
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affecting creditors' rights and remedies generally and (ii) the effect of
equitable principles. As of the Closing Date, with respect to the Power of
Attorney to be executed by each of the Sellers, each of the Sellers shall have
all legal capacity and authority to grant the Power of Attorney; and the Power
of Attorney shall have been duly executed and delivered by Sellers.
4.4 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) any violation of or a conflict with any provision of the
organizational documents of Holding Companies or, if applicable, any of the
Sellers, (b) any breach of, or a default under, any term or provision of any
Contract, Indebtedness, Encumbrance, commitment, license, franchise, Permit,
authorization or concession to which Holding Companies or any of the Sellers is
or may be a party or is subject except for any such breach or default as would
not have a Material Adverse Effect or (c) any violation by Holding Companies or
by any of the Sellers of any Applicable Laws, order, judgment, writ, injunction,
decree or award, except any such violation as would not have a Material Adverse
Effect.
4.5 Foreign Corrupt Practices Act. Neither Sellers nor Holding
Companies, nor any of their Affiliates, including Target and Company, nor any
director, officer, employee, authorized agent or other person acting on behalf
of Sellers or Holding Companies, has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated, or, if it were applicable, would have violated or is, or, if it were
applicable, would have been in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
4.6 Consents and Approvals; Announcements. No consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Authority is required to be made or obtained by any Seller or either of Holding
Companies prior to, on or after, the Closing Date in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where failure to obtain such
consent, approval or authorization or make such declaration, filing or
registration would not have a Material Adverse Effect, and would not materially
and adversely affect Target's and Company's ability to consummate the
transactions contemplated hereby.
4.7 No Brokers. None of Sellers nor Holding Companies has employed, or
is subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by this Agreement
who will be entitled to a fee, commission, or expense reimbursement in
connection with such transactions, other than Sellers' and Holding Companies'
financial, legal and accounting advisors. Sellers and Holding Companies are
solely responsible for the fees and expenses of their advisors who have no
claim, contingent or otherwise, against Target, Company or Buyer, except as
otherwise provided by Section 12.12.
4.8 No Operating Assets. Each of the Holding Companies' only asset is
the Capital Stock of Target.
4.9 Litigation. To the knowledge of Sellers and Holding Companies,
there is no claim, action, suit, proceeding, arbitration, investigation or
inquiry (collectively, "Legal Proceedings") pending or threatened to which
Sellers, Holding Companies, Target, Company
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or any of the Key Employees are or may be a party. There is not in existence
any order, judgment, writ, injunction or decree of any Governmental Authority
enjoining the Sellers, Holding Companies, Target, Company or Key Employees from
taking any action, or requiring any of them to take action of any kind, or
otherwise prohibiting the Key Employees from engaging in or continuing any
conduct, activity or practice relating to Company's business.
4.10 Accuracy and Completeness of Information Provided. None of this
Agreement and the documents or written information delivered by Sellers, Holding
Companies, Target or Company to Buyer in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
REGARDING TARGET AND COMPANY
Sellers hereby represent and warrant, with respect to Sellers
and Target, as of the date hereof and as of the Closing Date, and with respect
to Holding Companies, as of the Closing Date, Holding Companies hereby represent
and warrant, as of the Closing Date, and Target hereby represents and warrants
as of the date hereof and as of the Closing Date, in each case jointly and
severally, to Buyer, as follows:
5.1 Organization. Organization of Target. Target is duly organized and
validly existing and is in good standing under the laws of the State of
California. Target is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the character or location of
the properties and assets owned or operated by it or the nature of the business
conducted by it makes such qualification necessary. Target has full corporate
power and authority to own or lease its assets or properties and to carry on its
business as it is currently being conducted. Target has made available to
Company a complete and correct copy of the charter and by-laws of Target and the
corporate records and minute books of Target. The stock certificate book and
register of shareholders of Target are complete and accurate.
(b) Due Organization, etc. of Company. Company is duly
organized and validly existing under the laws of Mexico. Company is duly
qualified to do business as a foreign entity and is in good standing in each
jurisdiction in which the character or location of the properties and assets
owned or operated by it or the nature of the business conducted by it makes such
qualification necessary. Company has full corporate power and authority to own
or lease its assets or properties and to carry on its business as it is
currently being conducted. Company has made available to Buyer a complete and
correct copy of the by-laws (estatutos) of Company and the corporate records and
minute books of Company. The share certificate book and register of shareholders
of Company are complete and accurate.
5.2 Capital Stock. Capital Stock of Company. The Capital Stock of
Company consists of 60 Series A shares, without par value, and 15,300,000 Series
B shares, without par value (collectively, the "Shares"), all of which are
issued and outstanding. All of the issued Shares of Company have been duly and
validly authorized and are fully paid or properly credited as fully paid. None
of the issued Shares of Company have been issued in violation of any
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purchase option, call, warrant, right of first refusal, preemptive, subscription
or similar rights under any provision of Applicable Law, the by-laws of Company,
or any contract, agreement or instrument to which Company, Holding Companies,
Sellers or any other Affiliate thereof is subject or by which any of such
Persons is bound. Except for this Agreement and the employee share options
described in Schedule 5.17(a), there are no subscriptions, options, phantom
share options, warrants, calls, commitments, preemptive rights or other rights
of any kind outstanding for the purchase of, nor any securities convertible into
or exchangeable for, the Purchased Capital Stock, any other Shares or any equity
interests of Company. Except for this Agreement, there are no restrictions upon
the voting or transfer of any shares of Company pursuant to Company's by-laws or
any agreement or other instrument to which Company is a party or by which
Company is bound.
5.3 Authorization. Target has all necessary corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by Target and, assuming the due execution of
this Agreement by Buyer, constitutes a legal, valid and binding obligation of
Target, enforceable against it in accordance with its terms, subject to (i) the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors' rights and remedies generally
and (ii) the effect of equitable principles.
5.4 Absence of Certain Changes or Events. Since the Balance Sheet Date
and prior to the date hereof, except as set forth in Schedule 5.4, there has not
been any:
(a) event, change or development, or absence thereof, which has
had or is likely to have a Material Adverse Effect on Target
or Company;
(b) sale, assignment or transfer of any assets of Target or
Company involving, in the aggregate, in excess of U.S.$5,000;
(c) establishment of or increase in any bonus, deferred
compensation, incentive compensation, share purchase, share
option (including any grant of any share options), share
appreciation, phantom share, savings, profit sharing,
severance or termination pay, health or other medial, dental,
life, disability or other insurance (whether insured or
self-insured), pension, retirement benefit, registered
retirement savings, supplementary retirement, employment,
consulting, collective bargaining, trade union,
change-in-control and any other benefit or compensation plan,
contract, program, agreement, arrangement, policy or practice,
of Target or Company;
(d) entry into any employment or severance agreement with any
Person by Target or Company, or any amendment to any such
agreement, except as to employment agreements related to new
hirings in the ordinary course of business consistent with
past practice or as the same may be required or imposed by
Applicable Laws;
(e) loans by Target or Company to employees other than for
relocation expenses and advances in the ordinary course of
business consistent with past practice;
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(f) acquisition of assets, properties, securities or business of
any other Person by Target or Company except the replenishment
of inventories and supplies, in each case in the ordinary
course of business consistent with past practice;
(g) cancellation of any Indebtedness owed to Target or Company or
waiver or compromise of any rights, in either case, whether or
not in the ordinary course of business (except with respect to
amortization of existing Indebtedness in the ordinary course);
(h) Lien or other Encumbrance of any assets of Target or Company
other than in the ordinary course of business consistent with
past practice;
(i) declaration, setting aside or payment of any dividends or
distributions (whether in cash, stock or property) in respect
of any Capital Stock of Target or Company or any redemption,
purchase or other acquisition of any Capital Stock of Target
or Company;
(j) issuance by Target or Company of, or commitment of Target or
Company to issue, any shares of Capital Stock or obligations
or securities convertible into or exchangeable for shares of
Capital Stock of Target or Company, except for the conversion
into common stock of Target of Target's outstanding
Convertible Series A Preferred Stock;
(k) entry into any Contract that is material to Target or Company,
except in the ordinary course of business consistent with past
practice and consistent with the Company Business Plan;
(l) amendment to the by-laws or other organizational documents of
Target or Company;
(m) entry into, cancellation, termination or modification of any
material Intellectual Property Contract;
(n) change of any Tax election, change of annual Tax accounting
period, change of any method of Tax accounting, filing of any
amended Tax Return, entrance into any closing agreement
relating to any Tax, settlement of any Tax claim or
assessment, surrender of any right to claim a Tax refund or
consent to any extension or waiver of the period applicable to
any Tax claim or assessment;
(o) increase in the compensation payable or to become payable to
any director, officer, employee, consultant, agent or other
representative of Target or Company, by Target or Company; or
(p) Contract by Target or Company to do any of the foregoing.
5.5 Title to Assets, Etc. Schedule 5.5(a) hereto lists all real
property owned, leased or otherwise used by Target or Company (collectively, the
"Real Property"). Either Target or Company is the legal and beneficial owner of
and has good and valid title to or valid and subsisting leasehold interests in
all such Real Property and in all personal property and other
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assets on its books and reflected on the balance sheet included in the
Indicative Financial Statements or acquired since the Balance Sheet Date (the
"Assets"). None of the Assets is subject to any Lien or other Encumbrance.
(b) Neither Target nor Company has entered into any agreement
to sell, encumber, or otherwise dispose of or impair any of its right, title and
interest in and to any Real Property or the air, density or easement rights
relating to any part of the Real Property.
(c) All Encumbrances against the Real Property have been
complied with to date.
(d) Neither Target nor Company has received any notification
of and is not aware of any outstanding deficiency notice or work order affecting
any of the buildings, improvements or other structures forming part of the Real
Property, or of any current non-compliance of such buildings, improvements or
other structures with building or zoning by-laws or other Applicable Laws.
5.6 Material Contracts. Except as set forth in Schedule 5.6 hereto, (i)
neither Target nor Company is a party to any material Contract; (ii) all of the
Contracts to which Target or Company is a party are valid and binding
obligations of Target or Company as the case may be, and neither Target, Company
nor any other Person is in material breach thereof or material default
thereunder, and there does not exist under any provision thereof or any event
that, with the giving of notice or the lapse of time or both, would constitute
such a breach or default; and (iii) no Person is renegotiating (x) any amount
paid or payable to Target or Company under any material Contract, or (y) any
other material term or provision of any material Contract.
5.7 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) any violation of, or conflict with, any provision of the by-laws
or other organizational documents of Target or Company, (b) any breach of, or
default under, any term or provision of any Contract, Indebtedness, Encumbrance,
commitment, license, franchise, Permit, authorization or concession to which
Target or Company is or may be a party or is subject or by which any assets of
Target or Company are bound, (c) any violation by Target or Company of any
Applicable Laws, order, judgment, writ, injunction, decree or award, (d) the
imposition of any material Encumbrance on the business of Target or Company or
on any assets of Target or Company or (e) the creation or exercisability of any
right of termination, cancellation or acceleration under any Contract to which
Company is or may be a party or by or to which it or any of their respective
assets or properties may be bound or subject.
5.8 Financial Statements.
(a) The Indicative Financial Statements and, as of the Closing
Date, Company Financial Statements are based on the books and records of each of
Target and Company and fairly present the financial condition and results of
operations of each of Target and Company, in each case as of the dates therein
or for the periods indicated.
(b) All accounts receivable of each of Target and Company that
are reflected on the Indicative Financial Statements or, upon their issuance,
Company Financial Statements or on the accounting records of each of Target and
Company as of the Closing Date (collectively, but excluding any accounts
receivable which on the Closing Date are more than forty-five (45)
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days past due, together with any interest or penalties due with respect thereto,
the "Accounts Receivable") represent or will represent valid obligations arising
from transactions actually made or services actually performed in the ordinary
course of business consistent with past practice. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible in the ordinary course of Company's business net of the
reserves shown on the Closing Balance Sheet. Subject to such reserves, each of
the Accounts Receivable either has been or will be collected in full, without
any set-off, within ninety days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the ordinary course of business consistent with past practice, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable.
5.9 Litigation. To the knowledge of Sellers, Holding Companies and
Target, there are no Legal Proceedings pending or threatened to which Sellers,
Holding Companies, Target or Company is or may be a party. There is not in
existence any order, judgment, writ, injunction or decree of any Governmental
Authority enjoining Company, Holding Companies or Sellers from taking any action
or requiring any of them to take action of any kind.
5.10 Liabilities. As of the Balance Sheet Date, neither Target nor
Company has, directly or indirectly, any Indebtedness, liability, claim, loss,
damage, deficiency, obligation or responsibility, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise ("Liabilities"), that were required by Applicable GAAP
to be set forth on the Indicative Financial Statements but that were not fully
set forth on the Indicative Financial Statements or that, upon their issuance by
PricewaterhouseCoopers, that are required by Applicable GAAP to be set forth in
the Company Financial Statements but that are not fully set forth in the Company
Financial Statements. Each of Target's or Company's accounting records include
all Liabilities incurred by each of Target and Company as of the date hereof.
Neither Target nor Company has any Liabilities except Liabilities set forth on
the Indicative Financial Statements or, upon their issuance, Company Financial
Statements and non-material Liabilities incurred subsequent to the Balance Sheet
Date in the ordinary course of business consistent with past practice.
5.11 Consents and Approvals; Announcements. No consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Authority is required to be made or obtained by Target or Company prior to, on
or after the Closing Date in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
5.12 Compliance with Applicable Laws; Permits. (a) Each of Target and
Company is in compliance with all Applicable Laws. Neither Target nor Company
has received any written notice to the effect that, or otherwise been advised
that, it is not in compliance with any Applicable Laws, and there are no
presently existing circumstances that are likely to result in violations of any
Applicable Laws.
(b) Each of Target and Company holds all Permits necessary for
the ownership and conduct of the businesses of Target and Company in each of the
jurisdictions in which Target and Company conducts or operates its businesses in
the manner now conducted, and such Permits are in full force and effect. There
are no pending or, to the knowledge of Sellers, Holding Companies or Target,
threatened Legal Proceedings with respect to revocation,
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cancellation, suspension or non-renewal of any such Permit, and there has
occurred no event which (whether with notice or lapse of time or both) will
result in such a revocation, cancellation, suspension or non-renewal thereof.
5.13 Intellectual Property. (a) Schedule 5.13(a) lists, with respect to
all Intellectual Property owned, held or used by Target or Company ("Company
Intellectual Property"), (i) all applications and registrations (including
trademarks uniform resource locators, service marks, trade names, brand names
and domain names) owned by Target or Company relating thereto, by jurisdiction
in which such applications are pending and in which such registrations are
owned; and (ii) all written Intellectual Property Contracts to which Target or
Company is a party or by which Target or Company is bound, except for any
perpetual, paid-up licenses to Target or Company for commonly available software
programs with a value of less than U.S.$5,000.
(b) Except as disclosed on Schedule 5.13(b): (i) each of
Target and Company owns or has the right to use all the Intellectual Property
necessary to conduct its businesses as currently conducted and consistent with
past practice, free and clear of all Encumbrances and obligations to make
payments to any other Person and no such right to use will be lost, or rendered
liable to any right of termination or cessation by any third party, by virtue of
the acquisition by Buyer of the Purchased Capital Stock; (ii) all registered or
patented Company Intellectual Property owned by Target or Company is unexpired
and has not been abandoned; (iii) none of Company Intellectual Property
infringes or makes unauthorized use of ("Infringe") the Intellectual Property of
any other Person nor are there any circumstances (including any act or omission
to act) likely to give rise to such Infringement of the Intellectual Property of
any other Person; (iv) to the knowledge of Sellers, Holding Companies and
Target, Company Intellectual Property is not being Infringed by any other
Person; (v) no judgment, decree, injunction, rule or order has been rendered or,
to the knowledge of Sellers, Holding Companies or Target, is threatened by any
Governmental Authority that limits or challenges the ownership, use, validity or
enforceability of any Company Intellectual Property owned by Company; (vi) no
Legal Proceeding is pending, or to the knowledge of Sellers, Holding Companies
and Target, is threatened, that limits or challenges the ownership, use,
validity or enforceability of any Company Intellectual Property owned by
Company; (vii) Company takes reasonable steps to keep all trade secrets
confidential; (viii) no party to an Intellectual Property Contract is, or is
alleged to be, in breach or default thereunder, and all Intellectual Property
Contracts are valid and enforceable; (ix) with respect to Company Intellectual
Property owned by Target or Company, no registered, patented or issued
Intellectual Property are subject to any fees or taxes or actions coming due
within 90 days after the Closing Date; (x) all registered or patented Company
Intellectual Property owned by each of Target and Company is owned solely,
legally and beneficially by such entity, and, each of Target and Company has
taken all reasonable actions to evidence, protect and maintain such sole legal
and beneficial ownership and neither Target nor Company has acquiesced in the
unauthorized use by any Person of Company Intellectual Property; (xi) neither
Target nor Company has not disclosed or permitted to be disclosed to any Person
other than Buyer any Intellectual Property where such disclosure would be
materially detrimental to the interests of Company; and (xii) no publication,
use or sale has been made or permitted by any of Sellers, Holding Companies,
Target or Company that would invalidate any of the existing Intellectual
Property applications listed or referred to on Schedule 5.13(a).
5.14 Foreign Corrupt Practices Act. Neither Target nor Company, nor any
of their Affiliates, nor any director, officer, employee, authorized agent or
other person acting on behalf of Target or Company, has (i) used any corporate
funds for any unlawful contribution, gift,
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entertainment or other unlawful expense relating to political activity, (ii)
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds, (iii) violated, or, if it
were applicable, would have violated or is, or, if it were applicable, would
have been in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or (iv) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
5.15 Conduct of Business. Since the Balance Sheet Date, the business of
Target and Company has been conducted solely in the ordinary course consistent
with past practice.
5.16 Labor Matters. No trade union, council of trade unions, employee
bargaining agency or affiliated bargaining agent:
(a) holds bargaining rights with respect to Target or
Company by way of certification, interim
certification, voluntary recognition, designation or
successor rights;
(b) has applied to be certified as the bargaining agent
of any employees of Target or Company; or
(c) has applied to have Sellers, Holding Companies or
Target declared a related employer or successor
employer pursuant to applicable labor legislation.
There are no actual, threatened or pending organizing activities of any
trade union, council of trade unions, employee bargaining agency or affiliated
bargaining agent or any actual, threatened or pending unfair labor practice
complaints, strikes, work stoppages, picketing, lock-outs, hand-billings,
boycotts, slowdowns, arbitrations, grievances or labor related proceedings
pertaining to Target or Company, nor have there been any such activities or
complaints within the last year.
5.17 Employee Benefit Plans and Other Labor Matters. (a) Schedule
5.17(a) hereto sets forth a true and complete list of all bonus, deferred
compensation, incentive compensation, share purchase, share option, share
appreciation, phantom share, savings, profit sharing, severance or termination
pay, health or other medical, dental, life, disability or other insurance
(whether insured or self-insured), pension, retirement benefit, registered
retirement savings, supplementary retirement, employment, consulting, collective
bargaining, trade union, change-in-control and any other benefit or compensation
plan, contract, program, agreement, arrangement, policy or practice, whether
formal or informal, funded or unfunded, registered or unregistered, oral or
written, maintained or contributed to, required to be contributed to or provided
by Target or Company, under which any current or former employee, or independent
contractor (or dependent of any such persons) in relation to Target or Company
has any present or future right to benefits or compensation or under which
Target or Company has any present or future liability or obligation other than
Required Benefits (as defined below). (All such plans, contracts, programs,
agreements, arrangements, policies or practices, other than those in which a
company is required by Applicable Laws to participate or which a company is
required by Applicable Laws to provide, shall be collectively referred to as the
"Company Plans").
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(b) Each of Target and Company has satisfied or fully reserved
for all of its payment or funding obligations regarding both current or former
directors, officers, employees or independent contractors (or dependents of any
such person) and former employees on a current basis for the following employee
expenses and has no pending obligations (other than contingent obligations and
current obligations in the ordinary course) and that any related assets or
reserves are correctly reflected on the accounting records of each of Target and
Company as of the Closing Date for each of the following employee benefits or
expenses that are not Company Plans (together, "Required Benefits"):
(i) severance payments;
(ii) vacation days (6 paid working days per year) and
vacation premium;
(iii) overtime payments and compensation, including
for work on Sundays and Christmas bonuses (aguinaldo) and such other
bonuses as are required by Applicable Laws;
(iv) profit sharing (PTV);
(v) other benefits that may be required by Applicable
Laws, including pension payments, mandatory health plan payments and
contributions to the Social Security Mexican Institute (IMSS), the Low
Cost Housing Fund (INFONAVIT) and the retirement fund (SAR);
(vi) benefits required under collective bargaining
agreements; and
(vii) any other benefits or employee-related expenses
required by Applicable Laws or pursuant to any Company Plan or
otherwise.
(c) Each of Target and Company has paid all fringe benefits
(prestaciones sociales) that are Required Benefits at the conclusion of the
employment of each of its former directors, officers or employees, in accordance
with all Applicable Laws.
(d) Any temporary employee retained by Target or Company was
retained in compliance with all Applicable Laws, and all amounts (other than de
minimis amounts in the aggregate) owing to such temporary employees have been
duly paid in full.
(e) No event has occurred and there has been no failure to act
on the part of Company or others, that would reasonably be expected to subject
Target or Company to the imposition of any material tax, penalty or other
liability with respect to any Company Plans or Required Benefits, whether by way
of indemnity or otherwise.
(f) With respect to any Company Plan or Required Benefit, no
material Legal Proceedings are pending or threatened.
(g) The consummation of the transactions contemplated by this
Agreement shall not constitute an event under any Company Plan or Required
Benefit that shall or may result (i) in any acceleration of, vesting of, or
increase in benefits with respect to any Company
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Employee or (ii) in any acceleration of or increase in the funding requirements
of any Company Plan or Required Benefit.
(h) Except as disclosed in Schedule 5.18, no present or former
director, officer or employee (or dependent or Affiliate thereof) nor any other
Person not dealing at arm's length with any such present or former director,
officer, or employee is indebted to Company in an amount in excess of
U.S.$5,000.
(i) Company has considered on its payroll all the remunerative
and payroll-based concepts required by Applicable Laws and has made all
deductions, withholding and remitted to the Tax Authorities all employee or
payroll-related amounts required by Applicable Laws.
(j) Except as disclosed in Schedule 5.17(j), (i) all employer
and, if applicable, employee contributions accrued prior to the Closing Date
under Company Plans or Required Benefits (including all current service costs
and any special payments required to be made) required to be remitted under the
terms of Company Plans, Required Benefits or Applicable Laws have been remitted,
(ii) Company Plans and Required Benefits have been funded in accordance with
their terms and Applicable Laws and (iii) Company Plans and Required Benefits
have no past service funding liabilities and are fully funded.
5.18 Transactions with Certain Persons. Schedule 5.18 hereto identifies
all Contracts, or other arrangements, whether actual, contingent or otherwise,
in existence or in effect as of the date hereof, by and between Target or
Company, on the one hand, and any Seller, either of the Holding Companies or any
Affiliate of Holding Companies or any Seller (other than Target and Company) or
any dependent of any Seller, on the other.
5.19 Taxes.
(a) All material Tax Returns that are required to have been
filed or prepared and retained (taking into account applicable extensions) by or
on behalf of each of Target and Company have been timely filed or prepared and
retained in the manner prescribed by the appropriate Tax Law, and all Taxes
shown and due on such Tax Returns have been paid. As of the time of filing or
preparing, as applicable, such Tax Returns were true, complete and correct in
all material respects.
(b) All material Taxes owed by each of Target and Company have
been timely paid. Each of Target and Company files Tax Returns in all
jurisdictions where required to file Tax Returns.
(c) Neither Target nor Company has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency. No adjustments or deficiencies of Taxes have
been proposed, asserted or assessed in writing by the relevant national,
federal, state or local Tax Authority, except for such adjustments or
deficiencies which have been fully paid or finally settled.
(d) To the best knowledge of the Company, no Tax audit or
other proceeding by any Governmental Authority has commenced, is pending or
ongoing with respect to any Taxes
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due from or with respect to Target or Company or any Tax Return filed by or with
respect to Target or Company.
(e) There are no Liens with respect to Taxes upon any of the
assets or properties of Company, other than with respect to Taxes not yet due
and payable.
(f) All material Taxes required to be withheld, collected or
deposited by or with respect to Target and Company or its employees have been
duly and timely withheld, collected or deposited, as the case may be, and, to
the extent required, have been paid to the relevant Tax Authority.
(g) Without limiting the foregoing representations and
warranties in any way, each of Target and Company has collected all sales, use
and value-added Taxes required to be collected, and have remitted, or will remit
on a timely basis where required prior to the Closing Date, such amounts to the
appropriate Tax Authorities, or have been furnished properly completed exemption
certificates.
(h) Records which are complete and accurate in all material
respects and which are necessary or appropriate for compliance with all Tax Laws
have been maintained and retained by or on behalf of each of Target and Company
for the period required by applicable Tax Laws and all other information or
evidence required or necessary to support those records, have been so maintained
and retained.
(i) No action has been taken by either of Target or Company in
default of any obligation to obtain a requisite consent from any Tax Authority,
and where such a consent has been obtained, any conditions thereto have been
complied with in all material respects. With respect to any period for which Tax
Returns have not yet been filed, or for which Taxes are not yet due or owing,
each of Target and Company has made due and sufficient accruals for such Taxes
in accordance with Applicable GAAP.
(j) Neither Target nor Company is a party to or bound by any
tax-sharing agreement, tax indemnity obligation or similar agreement or
arrangement with respect to Taxes. Neither Target nor Company is currently or
has ever been a member of an affiliated group filing a consolidated tax return,
nor has any liability for Taxes of a consolidated, combined or unitary tax
reporting group of which it was a member on or prior to the Closing Date.
Neither Target nor Company has any liability for the Taxes of any person (other
than itself) incurred by Target or Company under U.S. Treasury Regulations
Section 1.1502-6 or any other provision of Applicable Law, or as a transferee or
successor, by contract or otherwise.
(k) Target has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(a)(ii) of the Code.
5.20 No Brokers. Neither Target nor Company has employed, or is subject
to any valid claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who or which
will be entitled to a fee, commission or expense reimbursement in connection
with such transactions.
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5.21 Products Liability; Product Recall. No products sold or delivered
by Target or Company have been recalled or have resulted in Sellers, Holding
Companies, Target or any of their Affiliates, including Company, making payments
to customers in excess of, in the aggregate, U.S.$10,000 as a result of
defective products.
5.22 Maintenance of Property; Insurance. Each of Target and Company
keeps all property useful and necessary in its business in good working order
and condition. Each of Target and Company carries, or is covered by, insurance
from insurers of recognized financial responsibility in such amounts and
covering such risks as is adequate for the conduct of its business and the value
of it respective properties and as is prudent and customary for companies
engaged in similar businesses in similar industries; all policies of insurance
insuring Target, Company or their respective businesses, assets, directors,
officers and employees are in full force and effect; each of Target and Company
is in compliance with the terms of such policies and instruments in all material
respects; and there are no claims by either Target or Company under any such
policy or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; neither Target nor Company has
been refused any insurance coverage sought or applied for; and neither Target
nor Company 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.
5.23 Environmental Matters.
(a) Each of Target and Company and the Real Property and other
assets used in its businesses, are in compliance with all applicable
Environmental Laws.
(b) There is no Environmental Claim that is (i) pending or, to
the knowledge of Sellers, Holding Companies or Target, threatened against Target
or Company or (ii) pending or threatened against any Person whose liability for
such Environmental Claim has been retained or assumed by or can be imputed or
attributed by law or contract to Target or Company.
(c) There are no current or former actions, activities,
circumstances, conditions, events or incidents arising out of or relating to the
ownership, operation or use of any Real Property or other assets currently or
formerly owned, operated or used by Target or Company (or any predecessor in
interest), including the emission, discharge, disposal or other release of any
Hazardous Materials into the Environment, that (i) would reasonably be expected
to result in the incurrence of costs, fees, expenses or other liability under
Environmental Laws or (ii) would reasonably be expected to form the basis of any
Environmental Claim against or with respect to Target or Company or against any
person or entity whose liability for any Environmental Claim has been retained
or assumed by or can be imputed or attributed by law or contract to Target or
Company.
(d) For purposes of this Agreement, the terms below are
defined as follows:
"Encumbrances" shall mean any Liens claim, option, easement,
right-of-way, equity, encroachment, encumbrance, right-of-first
refusal, priority or other rights or adverse claim of third parties.
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"Environment" shall mean any surface water, ground water,
drinking water supply, land surface or subsurface strata, ambient air
and including any indoor location.
"Environmental Claim" shall mean any notice or claim by any
person or entity alleging liability (including liability for
investigatory costs, cleanup costs, governmental costs, or harm,
injuries or damages to any person, property or natural resources, and
any fines or penalties) arising out of or relating to (i) the emission,
discharge, disposal, or other release in or into the Environment of any
Hazardous Materials or (ii) circumstances that would result in any
violation of any applicable Environmental Law.
"Environmental Laws" shall mean all Applicable Laws relating
to pollution, the protection of human health, the protection of the
Environment or the emission, discharge, disposal or other release or
threatened release of Hazardous Materials in or into the Environment.
"Hazardous Materials" shall mean pollutants, contaminants, or
chemicals, that are hazardous or toxic materials or wastes, including
asbestos, or asbestos-containing materials, PCBs, and petroleum, oil or
oil products, derivatives or constituents.
5.24 Operating Assets. Target's only assets are the Capital Stock of
Company and certain Company Intellectual Property set forth in Schedule 5.13(a).
Except for such Company Intellectual Property as is held by Target, all of the
assets, Real Property, contractual rights, Intellectual Property and any other
asset, right, agreement, employment relationship or equitable interest relating
to the business operations of Company is held by Company.
5.25 Absence of Subsidiaries. Company has no Subsidiaries.
5.26 Accuracy and Completeness of Information Provided. None of this
Agreement and the documents or written information delivered by Target or
Company to Buyer in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading.
5.27 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article V, neither Sellers,
Holding Companies, Target nor any other Person has made or makes any other
express or implied representation or warranty, either oral or written, on behalf
of itself or themselves.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to each of Sellers and Holding
Companies as follows:
6.1 Due Organization, etc. of Buyer. Buyer is a company duly organized
and validly existing under the laws of the British Virgin Islands and has full
corporate power and authority to conduct its business and to own or lease its
assets and properties.
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6.2 Buyer Shares. The Buyer Shares will be validly issued, free and
clear of all Encumbrances. Subject to any limitations of or restrictions on
Sellers or any acts or omissions of Sellers, upon consummation of the Share
Purchase, Sellers shall acquire from Buyer full and exclusive ownership and
dominion of those Buyer Shares, free and clear of all Encumbrances, except for
any Encumbrances that may have been created by Sellers.
6.3 Authorization. Buyer has all necessary corporate power and
authority to enter into this Agreement and, except for the final approval of its
Board of Directors to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Buyer and, assuming the due execution of this Agreement by Sellers,
Holding Companies and Target, is a valid and binding obligation of Buyer
enforceable against it in accordance with its terms.
6.4 Consents and Approvals. No consent, approval or authorization of,
or declaration, filing or registration with, any Governmental Authority is
required to be made or obtained by Buyer on or prior to the Closing Date in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, except where failure
to obtain such consent, approval or authorization or make such declaration,
filing or registration would not restrict or adversely affect Buyer's ability to
consummate the transactions contemplated hereby.
6.5 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the memorandum
of association, articles of association or other organizational documents of
Buyer, (b) a breach of, or a default under, any term or provision of any
contract, agreement, indebtedness, lease, Encumbrance, commitment, license,
franchise, Permit, authorization or concession to which Buyer is a party or is
subject or by which any assets of Buyer are bound, except for any such breach or
default as would not have a Material Adverse Effect on Buyer, (c) a violation by
Buyer of any Applicable Laws, order, judgment, writ, injunction, decree or
award, except any such violation as would not have a Material Adverse Effect on
Buyer, or (d) the creation or exercisability of any right of termination,
cancellation or acceleration under any contract or other agreement to which
Buyer or any of its Subsidiaries is a party or by or to which they or any of
their assets or properties may be bound or subject, which would have a Material
Adverse Effect on Buyer.
6.6 No Brokers. Buyer has not employed, and is not subject to the valid
or binding claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who will be
entitled to a fee, commission or expense reimbursement in connection with such
transactions, other than Buyer's legal and accounting advisors. Buyer is solely
responsible for the fees and expenses of its advisors none of whom have any
claim, contingent or otherwise, against Company or Holding Companies.
6.7 Litigation. There is no Legal Proceeding pending or, to the
knowledge of Buyer, threatened to which Buyer or any of its Subsidiaries is or
may be a party, except for Legal Proceedings that, if adversely determined,
would not have, individually or in the aggregate, a Material Adverse Effect on
Buyer, and would not restrict or adversely affect Buyer's ability to consummate
the transactions contemplated hereby. There is not in existence any order,
judgment, writ, injunction or decree of any court or other tribunal or any
Governmental Authority
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enjoining Buyer or its Subsidiaries from taking or requiring any of them to take
action of any kind or to which any of them is subject or by which any of them is
or may be bound.
6.8 Financial Capability. Buyer has cash or cash equivalents sufficient
to consummate the transactions contemplated hereby, including the transactions
contemplated by Article II.
6.9 SEC Reports and Financial Statements. Buyer has filed a true and
complete copy of each form, report, schedule, registration statement and other
document (together with all amendments thereof and supplements thereto) with the
SEC from and after December 9, 1999 (as such documents, including Buyer's
prospectus dated December 9, 1999 relating to its initial public offering, have
since the time of their filing been amended or supplemented, the "Buyer SEC
Reports") that Buyer and its Subsidiaries were required to file with the SEC
since such date. As of their respective dates, the Buyer SEC Reports (i)
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not contain
any untrue statement of a material fact or omit to state a 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 audited consolidated financial statements and unaudited interim
consolidated financial statements (including, in each case, the notes, if any,
thereto) included in the Buyer SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC as of the date
thereof with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto and except
with respect to unaudited statements as permitted by the SEC) and fairly present
(subject, in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments that are not expected to be, individually
or in the aggregate, materially adverse to Buyer and its Subsidiaries taken as a
whole) the consolidated financial position of Buyer and its consolidated
subsidiaries as at the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended. Since
December 9, 1999, and except as otherwise disclosed in Buyer SEC Reports, there
has not been any event, change or development, or absence thereof, which has had
a Material Adverse Effect on Buyer.
6.10 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article VI, neither Buyer nor
any other Person has made or makes any other express or implied representation
or warranty, either oral or written, on behalf of Buyer.
ARTICLE VII
ACTIONS BY SELLERS, HOLDING COMPANIES, TARGET
AND BUYER PRIOR TO THE CLOSING
Sellers, Holding Companies, Target and Buyer covenant and
agree as follows for the period from the date hereof to the Closing Date:
7.1 Management of Target and Company. (a) From the date hereof through
the earlier of (i) the Closing Date and (ii) termination of this Agreement in
accordance with Section 12.1, Target and Buyer agree to establish a management
committee (the "Management Committee") consisting of Target's Chief Executive
Officer, Juan Carlos Garcia S., and Buyer's
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Executive Vice President for Business Development and Strategic Planning, Daniel
Rotsztain, which Management Committee shall have executive authority over the
management of the Target and Company and their businesses. Neither the Target
nor Company shall take any action outside of the ordinary course without the
approval of the Management Committee. In addition, any of the actions set forth
in Section 5.4 shall require the approval of the Management Committee. The
approval of the Management Committee shall require the favorable vote or consent
of the representatives of both Target and Buyer.
(b) Except as set forth in Schedule 7.1 or as otherwise
specifically required by this Agreement or with the express prior written
consent of Buyer prior to the Closing Date, from the date hereof through the
Closing Date, Sellers, Holding Companies and Target shall use their respective
best efforts to cause Target and Company and Target shall and shall cause
Company:
(i) to conduct their businesses and to engage in
transactions only in the ordinary course consistent with past
practice;
(ii) to preserve their goodwill and to protect their
business organizations;
(iii) to keep all property useful and necessary in
their businesses in good working order and condition;
(iv) to preserve their Contracts and Permits in full
force and effect in accordance with their respective terms;
and
(v) not to (A) take any action that would otherwise
cause the representations and warranties in Articles IV and V
hereunder to be incorrect in any material respect on the
Closing Date or (B) amend their organizational documents.
7.2 Employment Matters. Except with the express prior written consent
of Buyer, each of Sellers and Holding Companies shall use their respective best
efforts to cause Target and Company not to, and Target shall not:
(a) enter into, amend, modify or renew any employment,
consulting, severance or similar agreements or arrangements with any
director, officer or employee or independent contract of Target or
Company or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments); or
(b) other than as required by this Agreement, enter into,
establish, adopt, amend or terminate (except as may be required by
Applicable Laws) any bonus, deferred compensation, incentive
compensation, share purchase, share option, share appreciation, phantom
share, savings, profit sharing, severance or termination pay, health or
other medical, dental, life, disability or other insurance (whether
insured or self-insured), pension, retirement benefit, registered
retirement savings, supplementary retirement, employment, consulting,
collective bargaining, trade union, change-in-control and any other
benefit or compensation plan, contract, program, agreement,
arrangement, policy or practice, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer, or
employee of, or independent contractor with respect to, Company, or
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take any action to accelerate the vesting, exercisability, payment or
funding of stock options, restricted stock or other compensation or
benefits payable thereunder.
7.3 Investigation by Buyer. (a) Upon reasonable advance notice, Sellers
and Holding Companies shall use their respective best efforts to cause Target
and Company and their respective directors, officers, employees, counsel,
financial advisors and other representatives to allow Buyer's Representatives,
during regular business hours, to make such investigation of the business,
properties, books, contracts, personnel and records (including access to
suppliers, supply reports and customer online transaction reports) of Target and
Company, and to conduct such due diligence investigation of Target and Company
as Buyer deems necessary or advisable. Sellers and Holding Companies also agree
to use their respective best efforts to cause Target and Company and their
respective directors, officers, employees and representatives to, furnish
promptly to Buyer all information concerning their respective businesses,
properties, results of operations, financial condition, and prospects as Buyer
may from time to time reasonably request. Buyer covenants that such
investigation shall be conducted in such a manner as not to interfere
unreasonably with the business or operations of Target or Company.
(b) Any information provided to Buyer or its Representatives
pursuant to this Agreement shall be held by Buyer and its Representatives in
accordance with, and shall be subject to the terms of, the Letter of Intent,
dated February 22, 2000, as extended by a subsequent Letter of Intent, dated
February 29, 2000, by and between Target and Buyer (such letters, the "Letter of
Intent"), which terms are hereby incorporated in this Agreement by reference as
though fully set forth herein; provided, however, that all the references
therein to Target shall be deemed to include Sellers and Holding Companies; and
provided, further, that the terms thereof shall terminate on the Closing Date.
(c) No investigation by Buyer or its Representatives hereunder
shall affect or limit in any way the representations and warranties in Articles
IV and V or the conditions to the obligations of each of Sellers and Holding
Companies.
(d) Buyer agrees to hold all of the accounts, books and
records of Company existing and transferred to it on the Closing Date and not to
destroy or dispose of any such books or records for a period of six (6) years
from the Closing Date or such longer time as may be required by law.
7.4 Conditions to Closing. (a) Sellers and Holding Companies shall (i)
use their best efforts to satisfy the conditions to Buyer's closing obligations
set forth in Article IX (provided that best efforts shall in no event be
understood to require a party to waive a condition to closing that remains
unsatisfied), (ii) enter into the lock-up agreements substantially in the forms
attached hereto as Exhibit C-1, C-2 and C- 3, as set forth in Schedule 9.7, the
Escrow Agreement and the Power of Attorney and (iii) cause the Key Employees to
enter into Buyer's current standard employment contracts and confidentiality and
non-competition agreements on terms and conditions satisfactory to Buyer.
(b) Buyer shall (i) use its best efforts to satisfy the
conditions to Sellers' and Holding Companies' obligations set forth in Article
VIII (provided that best efforts shall in no event be understood to require a
party to waive a condition to closing that remain unsatisfied), (ii) enter into
the share option agreements under Buyer's 1999 Share Option Plan and (iii) enter
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into, with each of the Key Employees, Buyer's current standard employment
contracts and confidentiality and non-competition agreements on terms and
conditions satisfactory to Buyer.
7.5 Regulatory and Other Authorizations; Notices and Consents. (a) As
soon as practicable after execution and delivery of this Agreement and in any
event no later than three Business Days following the date hereof, Buyer and
Target shall jointly make any regulations, filings or qualifications required
under Mexican law and any other Applicable Laws. Each party hereto shall furnish
all information and documentation necessary in connection with such filings, as
follows:
(i) Sellers, Holding Companies and Target, respectively, shall
furnish Buyer with all information and documentation necessary and such
reasonable assistance as Buyer may request in connection with such filings as
such information and documentation relates to Target, Sellers and Holding
Companies, respectively;
(ii) Sellers and Holding Companies shall cause Target and its
respective directors, officers, employees and representatives to furnish Buyer
such information and documentation and such reasonable assistance as Buyer may
request relating to Target; and
(iii) Buyer shall furnish Sellers, Holding Companies and
Target, with all information and documentation necessary and such reasonable
assistance as Buyer may request in connection with such filings as such
information and documentation relates to Buyer. Sellers, Holding Companies,
Target and Buyer shall use their respective commercially reasonable best efforts
to take all other actions required to obtain as promptly as practicable after
the date hereof all necessary consents, approvals, authorizations and agreements
of, and to give all notices and make all other registrations, filings or
qualifications with, any Governmental Authorities and other Persons, necessary
to authorize, approve or permit the consummation of the transactions
contemplated hereby. Sellers, Holding Companies, Target and Buyer shall all use
their respective commercially reasonable best efforts to take such actions as
may be necessary to satisfy the conditions to the Closing as soon as practicable
after the date hereof. Sellers, Holding Companies, Target and Buyer shall not,
and shall use their respective commercially reasonable best efforts not to
permit any of their respective Affiliates to, take any action inconsistent with
the terms of this Agreement.
(b) All filing fees, if any, required in connection with the
application for or prosecution of any consent, approval, authorization,
registration, filing or submission in accordance with this Section 7.5 shall be
shared on a 50-50 basis by Sellers and Holding Companies, on the one hand, and
Buyer on the other hand. All other fees, expenses and disbursements (including
the costs of preparation of any such filings) incurred in connection with the
matters referred to in this Section 7.5 shall be borne by Buyer if incurred by
or on its behalf and by the Sellers and Holding Companies if incurred by or on
behalf of Target, Company (to the extent incurred prior to the Closing), Holding
Companies or Sellers.
(c) Until the Closing, Sellers, Holding Companies and Target,
on the one hand, and Buyer, on the other hand, shall promptly inform the other
of any material communication from any Governmental Authority regarding any of
the transactions contemplated hereby. If any such party or any Affiliate thereof
receives a request for additional information or documentary material from any
such Governmental Authority with respect to the transactions contemplated
hereby, then such party shall use all reasonable efforts to make, or cause to be
made, as soon as
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reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request.
7.6 Notification of Certain Matters. Sellers, Holding Companies and
Target shall give prompt notice to Buyer, and Buyer shall give prompt notice to
Sellers, Holding Companies and Target, of the following:
(i) the occurrence, or failure to occur, of any event,
occurrence or non-occurrence which would be reasonably likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect any time from the date hereof through the
Closing Date;
(ii) any material failure of Sellers, Holding Companies,
Target or Buyer, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder, and
each party shall use all reasonable efforts to remedy such failure on its part;
(iii) progress with respect to obtaining Permits and consents,
if any, that are conditions to the Closing; and
(iv) the occurrence, or failure to occur, of any event,
occurrence or non-occurrence which would be reasonably likely to cause a
condition to Closing not to be satisfied.
7.7 Other Proposals or Discussions. Prior to either (i) the Closing
Date or (ii) the termination of this Agreement pursuant to Section 12.1,
Sellers, Holding Companies, Target and each of their respective Affiliates,
including Company, shall not and shall direct their agents, representatives and
employees not to, directly or indirectly, solicit any inquiries or proposals or
enter into or continue any discussions, negotiations or agreements relating to
the direct or indirect sale, or exchange or other disposition of all or any
portion of the Purchased Capital Stock, the merger, reorganization,
consolidation or recapitalization or other similar transaction involving Target
or Company with, or the direct or indirect disposition of a significant amount
of Target or Company's assets or business to, any Person other than Buyer or its
Affiliates or provide any assistance or any information to or otherwise
cooperate with any Person in connection with any such inquiry, proposal or
transaction. In the event that Sellers, Holding Companies, Target or any of
their respective Affiliates, including Company, receives a solicited or
unsolicited inquiry, proposal or offer for such a transaction or obtains
information that such an inquiry, proposal or offer is likely to be made,
Sellers, Holding Companies and Target shall provide Buyer with notice thereof as
soon as practicable but in any event not later than 48 hours after receipt
thereof, including the identity of the prospective purchaser or soliciting
party.
7.8 Employee Matters. Sellers, Holding Companies, Target and Buyer
shall cooperate during the period prior to the Closing Date to ensure continued
employment of all officers and employees of Target and Company and to preserve
the human resources of Target and Company.
7.9 Outstanding Share Options of Company Employees. Sellers and Holding
Companies shall cause Target to cancel and extinguish, and Target shall cancel
and extinguished or cause to be cancelled and extinguished the outstanding share
options of Target or Company, (the "Outstanding Share Options") and the plan
under which such share options are issued, all of
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which are set forth in Schedule 5.17(a) hereto. In consideration for agreeing to
the cancellation and extinguishment of the Outstanding Share Options, the
holders of such options, will be granted options to acquire common shares of El
Sitio, Inc. under Buyer's 1999 Share Option Plan, subject to the terms of
Exhibit D-1 and on terms and conditions reasonably satisfactory to Buyer (the
"New Share Options"). Buyer shall have no obligation to grant and issue New
Share Options in respect of more that 100,000 common shares of Buyer, as set
forth in Exhibit D-1, and Buyer shall have no responsibility with respect to
allocation of the New Share Options. Sellers and Holding Companies shall cause
Target to notify Buyer, within ten (10) days after the date of this Agreement, a
plan for the allocation of the New Share Options. By their execution and
delivery of this Agreement, the holders of the Outstanding Share Options that
are signatories to this Agreement irrevocably consent to the cancellation and
extinguishment of such options and to the treatment of options as set forth
herein.
7.10 Resignations of Directors; Auditors. (a) Sellers and Holding
Companies shall furnish Buyer, at or prior to the Closing, with signed
resignations of the members of the board of directors of Target and Company,
effective as of the Closing Date.
(b) Concurrently with the Closing, Sellers and Holding
Companies shall cause PricewaterhouseCoopers to resign their position as
independent public accountants of Company and shall furnish Buyer, at the or
prior to Closing, with the signed letter of resignation of
PricewaterhouseCoopers, effective as of the Closing Date.
(c) Upon Buyer's written notification, Sellers and Holding
Companies shall cause Company to call a shareholders' meeting for the Closing
Date or a date within five days following the Closing Date as shall be requested
in Buyer's notification.
7.11 Transfer Taxes. Sellers and Holding Companies shall pay, or cause
to be paid, any Transfer Taxes required to be paid in connection with the sale
and delivery to Buyer of the Purchased Capital Stock.
7.12 Liquidated Damages. (a) Sellers, Holding Companies, Target and
Buyer agree that damages for certain breaches of this Agreement would be
difficult to calculate accurately and, therefore, agree that the following
liquidated damages ("Liquidated Damages") shall be payable:
(i) For breach of Section 7.7, Sellers, Holding
Companies and Target, shall, jointly and severally, pay Buyer
U.S.$35,000,000, within thirty (30) Business Days of a demand notice
presented by Buyer; and
(ii) For a failure by Buyer to pay or deliver all or
part of the Purchase Price pursuant to Section 2.2 that is not
attributable to a failure to satisfy any of the conditions set forth in
Article IX prior to the Walk-away Date, Buyer shall pay Target
U.S.$5,000,000, within thirty (30) Business Days of a demand notice
presented by Target; provided, however, that any amount payable
pursuant to this paragraph (ii) shall be reduced by the principal
amount of the Loan to the extent funded by Buyer or any Affiliate to
Target or Company.
(b) The Liquidated Damages shall be the sole and exclusive
remedy for the specified breaches or failures triggering the right to Liquidated
Damages that may be brought in contract, tort or otherwise. Sellers, Holding
Companies, Target and Buyer expressly
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acknowledge and agree that the Liquidated Damages are commercially reasonable in
view of the potential damages resulting from the breach of or failure to perform
the specified obligations.
7.13 Legend on Certificates for Buyer Shares. So long as applicable,
each certificate representing Buyer Shares shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH SUCH ACT. THESE SECURITIES ARE ALSO SUBJECT
TO CERTAIN TRANSFER RESTRICTIONS PURSUANT TO A PURCHASE
AGREEMENT, DATED MARCH 10, 2000 (THE "PURCHASE AGREEMENT"), BY
AND AMONG EL SITIO, INC., THE STOCKHOLDERS OF DECOMPRAS.COM,
INC., AND DECOMPRAS.COM, INC. INCLUDING CERTAIN LOCK-UP
AGREEMENTS AND ESCROW ARRANGEMENTS ENTERED INTO IN CONJUNCTION
THEREWITH."
Buyer agrees that, promptly upon the request of Sellers or
Holding Companies or any transferee, it will remove such legend from the
certificates representing Shares in the event that U.S. counsel for Sellers,
Holding Companies or such transferee determines that the transfer of such Shares
is no longer restricted by the Securities Act and, if requested by Buyer, such
U.S. counsel provides an unqualified written legal opinion to the foregoing
effect.
7.14 Organization and Transfers of Holding Companies. Sellers shall
cause (i) the organization in accordance with Netherlands laws of each of the
Holding Companies, and (ii) the consummation of each of the Holding Company
Transfers.
7.15 Further Action. Each of the parties hereto shall use its best
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things necessary, proper or advisable under applicable law, and execute
and deliver such documents and other papers, as may be required to consummate
the transactions contemplated by this Agreement.
7.16 Conversion of Preferred Stock. All of the outstanding Convertible
Series A Preferred Stock of Target shall have been duly converted into 4,080,000
shares of common stock of Target.
ARTICLE VIII
CONDITIONS TO SELLERS' AND HOLDING COMPANIES' OBLIGATIONS
The obligations of Sellers and Holding Companies to consummate
the transactions contemplated hereby are subject to the satisfaction or waiver,
prior to or on the Closing Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants. All representations and
warranties of Buyer contained in this Agreement or in any Schedule hereto shall
be true and correct, except for such failures as would not, in the aggregate,
have a Material Adverse Effect, at and as of the
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Closing Date as if such representations and warranties were made at and as of
the Closing Date, except for (i) representations and warranties that speak as of
a specific date or time other than the Closing Date (which need to only be true
and correct, except for such failures as would not, in the aggregate, have a
Material Adverse Effect, as of such date and time), (ii) representations and
warranties which are qualified by materiality or Material Adverse Effect (which
shall be true and correct in all respects) and (iii) changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Sellers and Holding Companies, and Buyer
shall have performed in all material respects all agreements and covenants
required hereby to be performed by it prior to or on the Closing Date. Buyer
shall deliver to Sellers and Holding Companies a certificate of Buyer (signed by
the President and Chief Executive Officer of Buyer) to the foregoing effect in
the form attached hereto as Exhibit H.
8.2 Consents; Illegality. There shall not be in effect any statute,
rule, regulation or order of any Governmental Authority which enjoins, prohibits
or makes illegal consummation of the transactions contemplated by this
Agreement.
8.3 Registration Rights Agreement. Buyer shall have executed and
delivered to Sellers the Registration Rights Agreement, substantially in the
form annexed hereto as Exhibit B.
8.4 Share Options. Buyer shall have entered into a share option
agreement with each of the Key Employees under Buyer's 1999 Share Option Plan,
including the terms and conditions set forth in Exhibit D-1 hereto.
8.5 Employment Agreements. Buyer's Mexican subsidiary shall have
entered into Buyer's current standard employment contracts and confidentiality
and non-competition agreements with the Key Employees on terms and conditions
satisfactory to Buyer.
8.6 Board of Directors Approval. Prior to or on the date that is ten
(10) Business Days after the date hereof, Buyer shall have communicated to
Sellers' Representatives the receipt of final approval from its Board of
Directors (subject to Buyer's reasonably satisfactory completion of its due
diligence investigation) to enter into the transactions contemplated hereby and
to execute and deliver the documentation required hereby.
8.7 Legal Opinion. Buyer shall have delivered, or shall have caused to
be delivered, to Holding Companies a legal opinion dated as of the Closing Date,
in form and substance reasonably satisfactory to Holding Companies, of Conyers,
Dill & Pearman, British Virgin Islands counsel to Buyer, covering such matters
as reasonably requested by Holding Companies.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions
contemplated hereby are subject to the satisfaction or waiver, at Buyer's sole
option and entire discretion, on or prior to the Closing Date, of each of the
following conditions:
9.1 Representations, Warranties and Covenants. All representations and
warranties of Sellers and Holding Companies contained in this Agreement or in
any Schedule hereto shall be true and correct, except for such failures as would
not, in the aggregate, have a Material Adverse
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Effect, at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date, except for (i) representations and
warranties that speak as of a specific date or time other than the Closing Date
(which need only be true and correct, except for such failures as would not, in
the aggregate, have a Material Adverse Effect, as of such date or time), (ii)
representations and warranties which are qualified by materiality or Material
Adverse Effect (which shall be true and correct in all respects) and (iii)
changes therein specifically permitted by this Agreement or resulting from any
transaction expressly consented to in writing by Buyer; and Sellers and Holding
Companies shall have performed in all material respects all agreements and
covenants required hereby to be performed by each of them prior to or at the
Closing Date. There shall be delivered to Buyer a certificate of (i) Seller's
Representatives (with respect to Sellers) in the form attached hereto as Exhibit
I-1; (ii) Holding Companies (signed by their respective Presidents) in the form
attached hereto as Exhibit I-2 and (iii) Target (signed by its Chief Executive
Officer) in the form attached hereto as Exhibit I-3, in each case to the
foregoing effect.
9.2 Consents; Illegality. (a) All consents, approvals and waivers from
Governmental Authorities and other Persons (including under all Contracts)
necessary to permit the consummation of the transactions contemplated by this
Agreement shall have been obtained, and no such consent, approval or waiver of
any Governmental Authority or other Person shall contain any term or condition
that Buyer in its reasonable discretion determine to be unduly burdensome.
(b) There shall not be in effect any statute, rule, regulation
or order of any Governmental Authority which enjoins, prohibits or makes illegal
the consummation of the transactions contemplated by this Agreement.
9.3 Due Diligence Investigation. Buyer shall have completed to its
reasonable satisfaction a due diligence investigation of the business,
properties, results of operations, financial conditions and prospects (including
all accounts, books and records, and Contracts) of Target and Company.
9.4 No Governmental or Other Legal Proceeding. There shall be no Legal
Proceeding, whether initiated or brought by any Governmental Authority or other
Person, pending or threatened which seeks to enjoin, restrain or prohibit the
consummation of the transactions contemplated by this Agreement or to impose
limitations on the ability of Buyer to exercise full rights of ownership of the
Purchased Capital Stock or the ability of Buyer to conduct the businesses
conducted by Company or to require the divestiture by Buyer of the Purchased
Capital Stock or by Company, Buyer or any of its Affiliates of any assets or
businesses, or which Buyer believes, acting reasonably, presents a material risk
that it or its Affiliates would suffer significant monetary damages (without
regard to whether such Legal Proceeding is being indemnified against under this
Agreement); provided that under no circumstances shall Company, Buyer or any of
its Affiliates be required to carry out divestitures or agree to restrict its
operations in any way.
9.5 No Material Adverse Change. From the date hereof and through the
Closing, there shall not have occurred any event, change or development
(excluding any event, change or development that relates generally to the Latin
American e-commerce industry or the Mexican economy) that has had or would
reasonably be expected to have a Material Adverse Effect on Company.
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9.6 Release of Encumbrances. Any existing Encumbrances in respect of
the Purchased Capital Stock shall have been released to the reasonable
satisfaction of Buyer.
9.7 Execution of Lock-up Agreements. Each of Sellers and Holding
Companies shall have executed and delivered to Buyer lock-up agreements
substantially in the forms attached hereto as Exhibit C-1 (in the case of
Sellers that are Key Employees), Exhibit C-2 (in the case of Sellers that are
not Key Employees and in the case of Holding Company B), and Exhibit C-3 (in the
case of Holding Company A), as set forth in Schedule 9.7.
9.8 Employment Agreements. The Key Employees shall have entered into
Buyer's current standard employment contracts and confidentiality and
non-competition agreements with Buyer's Mexican subsidiary on terms and
conditions satisfactory to Buyer.
9.9 Legal Opinions. Sellers and Holding Companies shall have delivered,
or shall have caused to be delivered, to Buyer legal opinions dated as of the
Closing Date, in form and substance reasonably satisfactory to Buyer, of (i)
Santamarina y Steta, S.C., Mexican counsel to Sellers and Holding Companies,
(ii) Wilson Sonsini Goodrich & Rosati, California counsel to Sellers and Target
and (iii) Ernst & Young, Dutch counsel to Sellers and Holding Companies, and
covering such matters as reasonably requested by Buyer.
9.10 Escrow Agreement. Sellers and Holding Companies shall have duly
executed and delivered the Escrow Agreement and the Escrow Agent shall have duly
executed and delivered the Escrow Agreement; such agreement shall be in full
force and effect; and each of the Sellers, Holding Companies and the Escrow
Agent shall have complied with all obligations required of it as of the Closing
Date under such agreement.
9.11 Buyer Board of Director Approval. Buyer shall have received final
approval from its Board of Directors (subject to Buyer's satisfactory completion
of its due diligence investigation) to enter into and consummate the
transactions contemplated hereby.
9.12 Power of Attorney. Each of the Sellers shall have executed a power
of attorney substantially in the form attached hereto as Exhibit G.
9.13 New Share Options. The New Share Options proposed by Target
pursuant to Section 7.9 shall be reasonably acceptable to Buyer and conform to
the terms and conditions of the employment and share option plan arrangements
set forth in Exhibit D-1.
9.14 Financial Statements. Holding Companies shall have delivered, or
shall have caused to be delivered to Buyer, Company Financial Statements, which
shall be substantially consistent with the Indicative Financial Statements.
9.15 Tax Certificate. Sellers shall have delivered to the Buyer a
certificate or certificates in form and substance satisfactory to Buyer, duly
executed and acknowledged, certifying any facts that would exempt the
transactions contemplated hereby from withholding pursuant to Section 1445 of
the U.S. Internal Revenue Code of 1986, as amended.
9.16 Conversion of Preferred Stock. All of the outstanding Series A
Convertible Preferred Stock of Target shall have been duly converted into
4,080,000 shares of common stock of Target.
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9.17 Cancellation of Lease Obligations. Company shall have delivered to
Buyer evidence of cancellation, by each of Juan Manuel Gonzalez, Juan Carlos
Garcia and Hector Tassinari, on a personal basis, of the obligation set forth on
Schedule 5.4.
9.18 Other Closing Documents. Sellers and Holding Companies shall have
delivered to Buyer such other closing certificates and documents as reasonably
requested by Buyer, including, without limitation, a receipt for the Purchase
Price, good standing certificates and certificates of the corporate secretaries
of Holding Companies and Company annexing resolutions, incumbency, signature and
other documents establishing the due authorization and execution of this
Agreement and other agreements and documents contemplated hereby.
ARTICLE X
ACTIONS AFTER THE CLOSING
10.1 Further Assurances. On and after the Closing Date, Sellers,
Holding Companies and Buyer shall use their respective best efforts to take all
appropriate action and execute all documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
provisions hereof.
10.2 Certain Tax Matters. (a) Buyer shall cause to be prepared (on a
basis consistent with prior periods except for changes required by changes in
applicable Tax Law) and filed all Tax Returns for Target and Company for all
taxable periods; provided, however, that PricewaterhouseCoopers shall prepare
the Tax Returns for year ended December 31, 1999. Sellers shall reimburse Buyer
for Taxes of the Target and Company with respect to such periods ten (10) days
prior to the date of payment by Buyer, the Target or Company of such Taxes to
the extent such Taxes are not reflected in the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Closing Balance Sheet (as
finally determined pursuant to Section 2.3). With respect to taxable periods
beginning before and ending after the Closing Date (a "Straddle Period"),
Sellers and Buyer shall to the extent permitted by applicable law, elect with
the relevant Tax Authority to close the taxable period of the Target and Company
on the Closing Date. Sellers shall reimburse Buyer for Taxes of the Target and
Company with respect to a Straddle Period, an amount equal to the portion of
such Taxes which relates to the portion of such taxable period ending on the
Closing Date. The portion of such Tax which relates to the portion of such
taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction,
the numerator of which is the number of days in the portion of the taxable
period ending on the Closing Date and the denominator of which is the number of
days in the entire taxable period, and (y) in the case of any Tax based upon or
related to income or receipts, be deemed equal to the amount which would be
payable if the relevant taxable period ended on the Closing Date.
(b) Sellers, Holding Companies, Target and Buyer shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 10.2 and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other
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proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Buyer and Sellers agree to retain all books and records with respect
to Tax matters pertinent to the Target and Company relating to any taxable
period beginning before the Closing Date until the expiration to the statute of
limitations (and any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with any taxing
authority and all applicable tax-record keeping laws. Prior to filing (or
subsequently amending) any Tax Return for any taxable period beginning before
the Closing Date, Buyer shall allow Sellers to review each such Tax Return and,
consistent with applicable Tax law, shall make such revisions as reasonably
requested by Sellers.
ARTICLE XI
INDEMNIFICATION
11.1 Survival of Representations Etc. The representations and
warranties of Sellers, Holding Companies, Target and Buyer contained herein or
in the Schedules or Exhibits hereto or any certificate delivered pursuant hereto
shall survive the Closing until the date one year and one day following the
Closing Date or, as to the representations and warranties in Section 5.13, until
the date two years and one day following the Closing Date (the "Representation
Survival Date"). Notwithstanding the foregoing, the representations and
warranties contained in Section 5.19 shall survive the Closing until the date
three years and one day following the Closing Date (the "Tax Representation
Survival Date").
11.2 Indemnification. (a) Sellers and, upon their execution and
delivery of this Agreement, Holding Companies and, until the Closing Date,
Target, shall indemnify Buyer and its Affiliates against, and hold Buyer and its
Affiliates harmless from, without duplication, any loss, damage, claim,
liability or expense, including interest, penalties and reasonable attorney's
fees (collectively "Damages"), arising out of (i) the breach of any
representation or warranty of Sellers, Holding Companies, Target or Company so
long as Notice (as defined in Section 11.3) is delivered before the
Representation Survival Date or Tax Representation Survival Date, as applicable,
as provided in Section 11.1, (ii) the breach of any covenant or agreement of
Sellers, Holding Companies or Company contained in this Agreement or (iii) any
Taxes of the Target or Company with respect to any Tax year or portion thereof
ending on or before the Closing Date (or for any Straddle Period, to the extent
allocable to the portion of such period beginning before and ending on the
Closing Date) and any and all Taxes arising out of, resulting from or caused by
the Holding Company Transfers. The indemnification obligations of the Sellers
Holding Companies and Target hereunder shall be joint and several. It is
understood and agreed by the parties thereto that upon the occurrence of the
Closing, Target shall have no further obligations under this Section 11.2(a).
(b) Buyer shall indemnify and hold Sellers and their
Affiliates harmless from any Damages arising out of (i) the breach of any
representation or warranty of Buyer until the Representation Survival Date so
long as Notice of such breach is delivered before the applicable Representation
Survival Date or (ii) the breach of any covenant or agreement of Buyer contained
in this Agreement.
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(c) As used in this Article XI, the term "Damages" is not
limited to matters asserted by third parties against any Person entitled to be
indemnified under this Article XI, but includes Damages incurred or sustained by
Sellers, Holding Companies, Target, Company, or Buyer or their respective
Affiliates in the absence of third-party claims. The term "Damages" as used in
this Article XI shall include consequential or punitive damages. Notwithstanding
any other provision contained herein, for purposes of this Section 11.2, in
determining the amount of any Damages resulting from any such breach, such
representations and warranties shall be read without regard to any "Material
Adverse Effect" qualifications or other "materiality" qualifications contained
therein.
11.3 Procedure. (a) Except as provided in Section 11.3(c), in the event
that any Person shall incur or suffer any Damages in respect of which
indemnification may be sought hereunder, the party seeking to be indemnified
hereunder (the "Indemnitee") may assert a claim for indemnification by written
notice (the "Notice") to the party from whom indemnification is being sought
(the "Indemnitor"), stating the nature and basis of such claim and, to the
extent practicable, the amount or estimate of the Damages attributable to such
Claim. In the case of Damages arising or which may arise by reason of any
third-party claim, promptly after receipt by an Indemnitee of written notice of
the assertion or the commencement of any Legal Proceeding with respect to any
matter in respect of which indemnification may be sought by such party
hereunder, the Indemnitee shall give the Notice to the Indemnitor and shall
thereafter keep the Indemnitor reasonably informed with respect thereto;
provided that failure of the Indemnitee to give the Indemnitor prompt notice as
provided herein shall not relieve the Indemnitor's obligations hereunder, except
that if the Indemnitor is prejudiced by such failure its obligations shall be
reduced to the extent of such prejudice resulting from such failure. In case any
such Legal Proceeding is brought against any Indemnitee, the Indemnitor shall be
entitled to assume the defense thereof, by written notice of its intention to do
so to the Indemnitee within 30 days after receipt of the Notice, in which event
the Indemnitor shall assume all past and future responsibility for such Legal
Proceeding, including reimbursing the Indemnitee for all prior reasonable legal
expenses in connection therewith. If the Indemnitor shall assume the defense of
such Legal Proceeding, it shall not settle such Legal Proceeding unless such
settlement includes as an unconditional term thereof the giving by the claimant
or the plaintiff of a release of the Indemnitee from all liability with respect
to such Legal Proceeding. As long as the Indemnitor has assumed the defense of
such Legal Proceeding, and is contesting any such Legal Proceeding in good faith
and on a timely basis, the Indemnitee shall not pay or settle any claims brought
under such Legal Proceeding. Notwithstanding the assumption by the Indemnitor of
the defense of any Legal Proceeding as provided in this subsection, the
Indemnitee shall be permitted to participate in the defense of such Legal
Proceeding and to employ counsel at its own expense; provided, however, that if
the defendants in any Legal Proceeding shall include both an Indemnitor and any
Indemnitee and such Indemnitee shall have reasonably concluded that counsel
selected by Indemnitor has a conflict of interest because of the availability of
different or additional defenses to such Indemnitee which, if asserted, would be
adverse to the Indemnitor, such Indemnitee shall have the right to select
separate counsel to participate in the defense of such Legal Proceeding on its
behalf, at the expense of the Indemnitor; provided that the Indemnitor shall not
be obligated to pay the expenses of more than one separate counsel for all
Indemnitees. The Indemnitor shall not be obligated to incur total expenses and
costs in excess of the Indemnity Cap.
(b) If the Indemnitor shall fail to notify the Indemnitee of
its desire to assume the defense of any such Legal Proceeding within the
prescribed period of time, or shall notify the
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Indemnitee that it will not assume the defense of any such Legal Proceeding,
then the Indemnitee may assume the defense of any such Legal Proceeding, in
which event it may do so in such manner as it may reasonably deem appropriate,
and the Indemnitor shall be bound by any determination made in such Legal
Proceeding or any settlement thereof effected by the Indemnitee; provided, that
the Indemnitee shall provide the Indemnitor with reasonable advance notice of
any proposed settlement; provided, further, that any such determination or
settlement shall not affect the right of the Indemnitor to dispute the
Indemnitee's claim for indemnification. The failure of the Indemnitor to assume
the defense of any such Legal Proceeding shall not be deemed a concession that
it is required to indemnify the Indemnitee for the subject matter of such Legal
Proceeding. The Indemnitor shall be permitted to join in the defense of such
Legal Proceeding and to employ counsel at its own expense.
(c) Notwithstanding anything to the contrary in this
Agreement, this Section 11.3(c) shall apply to any Tax audit or administrative
or court proceeding relating to any Tax covered by this Section 11 (a "Tax
Proceeding"). With respect to periods ending prior to or on the Closing Date,
the Sellers shall have the sole right to represent the interests of Company in
any Tax Proceeding covered by Section 11.2(a) and to employ counsel of its
choice; provided, however, that if the results of such Tax Proceeding could
reasonably be expected to have a Material Adverse Effect on the business,
properties, results of operations, financial condition or prospects of Buyer,
any of Buyer's Affiliates, or Company for any taxable period including or ending
after the Closing Date, then the Sellers, Holding Companies and Buyer shall
jointly control the defense and settlement of such Tax Proceeding, and each
party shall cooperate with the other party at its own expense and there shall be
no settlement or closing or other agreement with respect thereto without the
consent of the other party, which consent will not be unreasonably withheld;
provided, however, that in the event that one of the parties (Sellers and
Holding Companies being considered a single party for these purposes) does not
consent to a settlement or compromise that the other party is willing to accept,
the liability of first party in connection with such Tax Proceeding and its
indemnity obligation hereunder shall not exceed an amount equal to its allocable
share of the proposed settlement or compromise; and provided, further, that
Seller shall have no right to represent the interests of Company with respect to
matters for which Buyer has waived any right to indemnity from Seller hereunder.
The Sellers shall promptly notify Buyer if it decides not to control the defense
or settlement of any such Tax Proceeding and Buyer thereupon shall be permitted
to defend and settle such Tax Proceeding. With respect to any taxable period of
Company beginning before and ending after the Closing Date, the Sellers, Holding
Companies and Buyer shall jointly control the defense and settlement of any such
Tax Proceeding, and each party shall cooperate with the other party at its own
expense and there shall be no settlement or closing or other agreement with
respect thereto without the consent of the other party, which consent will not
be unreasonably withheld; provided, however, that in the event that one of the
parties (Sellers and Holding Companies being considered a single party for these
purposes) does not consent to a settlement or compromise that the other party is
willing to accept, the liability of first party in connection with such Tax
Proceeding and its indemnity obligation hereunder shall not exceed an amount
equal to its allocable share of the proposed settlement or compromise.
11.4 Limitations to Indemnity. (a) Any indemnification payable pursuant
to Section 11.2(a) (i) (except as a result of a breach of representation or
warranty contained in Section 5.19) or 11.2(a)(ii) shall not exceed an amount
equal to the value of 525,000 shares of Buyer's common stock (the "Indemnity
Cap") (as such number of shares may be adjusted to account for share splits and
combinations and recapitalizations or reorganizations, the "Indemnity Shares").
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<PAGE> 48
As of any date of calculation, the "value" of the Shares (or of the equivalent
stock of any successor entity) shall be calculated by reference to the average
of the high and low sales prices per share of Buyer's common shares on each of
the 20 consecutive Nasdaq National Market trading days ending on the second
trading day prior to such date of calculation; provided, that if the Shares are
no longer traded on the Nasdaq National Market, the Indemnity Cap shall be fixed
at the value of the Indemnity Shares at the time of delisting of the Indemnity
Shares from the Nasdaq National Market. No indemnification shall be payable
pursuant to Section 11.2 until the aggregate amount claimed against such
Indemnitor under this Agreement shall have exceeded U.S.$50,000 ("De Minimis
Threshold").
(b) Any indemnity payment under this Agreement shall be
treated as an adjustment to the Stock Purchase Price.
11.5 Net Indemnifiable Losses. (a) The amount of any Damages shall not
include, and shall be deemed net of, (i) amounts collected by the Indemnitee in
respect of such Damages pursuant to any applicable insurance coverage or third
party indemnification rights and (ii) any proceeds from claims, cross-claims and
counterclaims that are actually received by the Indemnitee pursuant to a final
judgment by the Indemnitee for claims or Legal Proceedings covered by such
Damages. Each Indemnitee further agrees that, in the event any Damages shall
have been previously paid by the Indemnitor and, thereafter, any insurance
proceeds or any proceeds from claims, cross-claims and counterclaims that are
actually received by the Indemnitee, then the Indemnitee shall, promptly after
receipt of such proceeds, reimburse the Indemnitor to the extent retention of
such proceeds by the Indemnitee should be duplicative in light of the prior
payment of the Damages.
(b) If the payment of the amount with respect to which any
claim is made under this Section 11 ("Indemnity Claim"), gives rise to a
currently realized Tax Benefit (as defined below) to the party making the claim,
the indemnity payment shall be reduced by the amount of the Tax Benefit
available to the party making the claim. To the extent such Indemnity Claim does
not give rise to a currently realized Tax Benefit, if the amount with respect to
which any Indemnity Claim is made gives rise to a subsequently realized Tax
Benefit to the party that made the claim, such party shall refund to the
indemnifying party the amount of such Tax Benefit when, as and if realized. For
the purposes of this Agreement, any subsequently realized Tax Benefit shall be
treated as though it were a reduction in the amount of the initial Indemnity
Claim, and the liabilities of the parties shall be redetermined as though both
occurred at or prior to the time of the indemnity payment. For purposes of this
subsection 11.5(b), a "Tax Benefit" means an amount by which the tax liability
of the party (or group of corporations including the party) is actually reduced
(by deduction, reduction of income or entitlement to refund or credit) plus any
related interest received from the relevant taxing authority. Where a party has
other losses, deductions, credits or items available to it, the Tax Benefit from
any losses, deductions, credits or items relating to the Indemnity Claim shall
be deemed to be realized last after any other losses, deductions, credits or
items are realized. For the purposes of this subsection 11.5(b), a Tax Benefit
is "currently realized" to the extent that such Tax Benefit will be actually
realized in the current taxable period or year or in any tax return with respect
thereto (including through a carryback to a prior taxable period) or in any
taxable period or year prior to the date of the Indemnity Claim. In the event
that there should be a determination disallowing the Tax Benefit, the
indemnifying party shall be liable to refund to the indemnified party the amount
of any related reduction previously allowed or payments previously made to the
indemnifying party pursuant to this subsection 11.5(b).
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<PAGE> 49
11.6 Non-Exclusive Remedy. The indemnification remedies provided in
this Article XI shall not be deemed to be exclusive. Accordingly, the exercise
by any Person of any of its rights under this Article XI shall not deemed to be
an election of remedies and shall not be deemed to prejudice, or to constitute
or operate as a waiver of, any other right or remedy that such Person may
entitled to exercise (whether under this Agreement, under any other contract,
under any law or otherwise). Notwithstanding the preceding two sentences of this
Section 11.6, the Indemnity Cap (except in the case of Damages resulting from a
breach of a representation and warranty contained in Sections 5.19 or
11.2(a)(iii)) shall act as a maximum amount of all Damages, whether pursuant to
Section 11.2, under contract or otherwise.
ARTICLE XII
MISCELLANEOUS
12.1 Termination. (a) This Agreement may be terminated and the
transactions contemplated hereby abandoned solely as follows:
(i) by Sellers' Representatives if Buyer has not notified
Sellers that the condition in Section 7.4 has been satisfied on or prior to the
date that is 10 days after the date hereof; or
(ii) by Sellers' Representatives (in the case of Sellers) or
Buyer upon notice if the Closing has not occurred by the Walk-away Date; or
(iii) by the express written agreement of Sellers'
Representatives (in the case of Sellers) and Buyer; or
(iv) by Buyer in the event that any condition set forth in
Article IX shall not be satisfied and shall not be reasonably capable of being
remedied prior to or on the Walk-away Date; or
(v) by Sellers' Representatives (in the case of Sellers) in
the event that any condition set forth in Article VIII shall not be satisfied
and shall not be reasonably capable of being remedied prior to or on the
Walk-away Date.
The "Walk-away Date" shall mean the date which is 45 days following the date
hereof; provided, however, that the Walk-away Date shall be extended by a
further 45 days to the extent required in connection with any
competition-related filing with the Mexican Federal Competition Commission.
(b) In the event of termination of this Agreement by any party
or parties entitled to terminate this Agreement pursuant to Section 12.1,
written notice thereof shall forthwith be given by the terminating party to the
other parties hereto, and this Agreement shall thereupon terminate and become
void and have no effect, and the transactions contemplated hereby shall be
abandoned without further action by the parties hereto; provided, however,
that the provisions of Sections 7.3(b), 7.4(b), 12.2 and 12.12 shall
survive the termination of this Agreement; provided,
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<PAGE> 50
further, that such termination shall not relieve any party hereto of any
liability for any breach of the surviving provisions of this Agreement.
12.2 Confidentiality. Except as otherwise set forth below or required
by Applicable Law, Buyer, Sellers and Holding Companies and their
representatives shall keep confidential until three years from the Closing all
aspects of the transactions contemplated hereby. Notwithstanding the foregoing,
Buyer and its Affiliates and Sellers, Holding Companies and their respective
Affiliates may disclose information concerning the transactions contemplated
hereby as necessary to satisfy any of the conditions set forth in Articles VIII
and IX. Buyer shall issue a press release and make a filing on Form 6-K with the
SEC, upon the execution of this Agreement. In addition, Buyer may file a copy of
this Agreement with the SEC and any other applicable Governmental Authority as
and if required by Applicable Laws. Before any public announcement is made with
respect to the transactions contemplated by this Agreement, to the extent
practicable, each party will first provide to the other parties the content of
all proposed disclosure, the reasons that such disclosure is required by law,
and the time and place that the disclosure will be made.
12.3 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any of the Sellers without the prior
written consent of Buyer, or by Buyer without the prior written consent of
Sellers' Representatives, except that Buyer may, without such consent, assign
the right to acquire the Purchased Capital Stock to any of its direct or
indirect subsidiaries; provided, that no such assignment shall relieve Buyer of
any of its obligations under this Agreement. Subject to the foregoing and except
for the promises in Article IV relating to Indemnity Parties, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other Person shall have any right,
benefit or obligation hereunder.
12.4 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to any other
party shall be in writing and delivered in person or by courier, telexed or by
facsimile transmission or mailed by certified or registered mail, postage
prepaid, return receipt requested (such mail notice to be effective on the date
such receipt is acknowledged), as follows:
If to Sellers or
Holding Companies: c/o Decompras.com, S.A. de C.V.
Corpus Christi, 2312
Col. Lomas de San Francisco
Monterrey, N.L.
Mexico 64710
Attention: Juan Carlos Garcia S.
Telecopier number: 011 (528) 346-6948; ext. 115
Confirmation number: 011 (528) 346-6948; ext. 117
44
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With copies to: Ventura Capital Privado S.A. de C.V.
Edificio Torrealta
Ave. Roble 300-Desp. 1505
66265 Gesza Garcie. N.L.
Attention: Adrian Garza de la Garza
Telecopier Number: 011 (528) 335-4175
Confirmation Number: 011 (528) 335-1012
Clifford Chance Rogers &
Wells LLP 200 Park Avenue
New York, New York 10166
U.S.A.
Attention: Alejandro E. Camacho, Esq.
Telecopier number: (212) 878-8375
Confirmation number: (212) 878-8434
If to Buyer: El Sitio, Inc.
Av. Ingeniero Huergo 1167
C1107AOL, Buenos Aires
Argentina
Attention: Daniel Rotsztain
Telecopier number: 011(54-11) 4339-3700
Confirmation number: 011 (54-11) 4339-3800
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
U.S.A.
Attention: Glenn M. Reiter, Esq. and
S. Todd Crider, Esq.
Telecopier number: (212) 455-2502
Confirmation number: (212) 455-2500
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.5 Governing Law. This Agreement shall be governed by, and construed
(and the rights of the parties determined) in accordance with, the laws of the
State of New York.
12.6 Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the then existing Rules of Conciliation and
Arbitration of the International Chamber of Commerce (the "ICC"). The arbitral
tribunal shall be composed of three arbitrators. Each party shall appoint one
arbitrator. If a party fails to appoint an arbitrator within thirty (30) days
after the date the claimant's Demand for Arbitration is communicated to the
other party (the "Notification Date"), the ICC shall make such appointment. The
two arbitrators thus appointed shall attempt to agree upon the appointment of a
third arbitrator to serve as chairperson of the arbitral tribunal. If such two
arbitrators fail to agree upon the appointment of such third arbitrator within
sixty (60) days after the Notification Date, the ICC shall make such
appointment. The place of arbitration shall be New York, New York. The arbitral
proceeding shall be conducted in the English language.
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The arbitral tribunal shall apply the laws of the State of New York. To the
extent they may validly so agree, the parties hereby exclude any right of appeal
to any court of the arbitration or concerning the arbitral award. Judgment upon
the arbitral award may be entered in any court having jurisdiction thereof or
having jurisdiction over any party or any party's assets. Notwithstanding the
foregoing, any party may seek a preliminary injunction or other preliminary
judicial relief if, in its reasonable, good faith judgment, such action is
necessary to avoid irreparable damage. Despite such action, such party shall
continue to participate in good faith in the procedures specified in this
Section 12.6. All applicable statutes of limitations shall be tolled while the
procedures specified in this Section 12.6 are pending, and the parties shall
take any and all actions required to effectuate such tolling.
12.7 Judgment Currency. Each party hereto agrees that, if a judgment or
order given or made by any court for the payment of any amount due to any other
party hereunder, which amount is expressed in currency (the "judgment currency")
other than the currency (the "denomination currency") in which such amount is
payable, the party making such payment shall indemnify the receiving party
against any deficiency arising or resulting from any variation in rates of
exchange between the date as of which the amount in the denomination currency is
notionally converted into the amount in the judgment currency for the purposes
of such judgment or order and the date of actual payment thereof. This indemnity
shall constitute a separate and independent obligation from the other
obligations contained in this Agreement, shall give rise to a separate and
independent cause of action, will apply irrespective of any indulgence granted
from time to time and shall continue in full force and effect notwithstanding
any judgment or order for a liquidated sum or sums in respect of any amounts so
due in respect hereof under any such judgment or order.
12.8 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties, except for the Letter
of Intent, which shall terminate on the Closing Date. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all parties. Any term of provision of this Agreement may be waived,
or the time for performance of which may be extended, if evidenced in writing by
the party or parties entitled to the benefit hereof. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
12.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
12.11 Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning of interpretation of this Agreement.
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12.12 Expenses. Except as provided in Article XI, Sellers, Holding
Companies, Target and Buyer shall each be liable for their own costs and
expenses incurred in connection with the negotiation, preparation, execution or
performance of this Agreement, including the fees and expenses of any financial,
accounting or legal advisors retained in connection herewith; provided, that
Sellers shall be liable for expenses incurred by or on behalf of Target or
Company prior to the Closing Date; and provided, further, that upon a failure by
Buyer to Close pursuant to Section 2.2 that is not attributable to a failure of
any of the conditions set forth in Article IX to be satisfied or waived prior to
the Walk-away Date, Buyer shall pay up to 50% of Sellers' expenses incurred in
connection with this Agreement up to U.S.$75,000.
12.13 Schedules and Exhibits. The Schedules and Exhibits referred to in
this Agreement shall be construed with and as an integral part of this Agreement
to the same extent as if the same had been set forth verbatim herein. Any matter
disclosed in any Schedule of the Sellers, Holding Companies and Target, on the
one hand, or of Buyer, on the other hand, shall be deemed to qualify each
representation and warranty of Sellers, Holding Companies, Target and Buyer, as
the case may be, notwithstanding the lack of a specific cross-reference, except
to the extent that its applicability to a particular representation, warranty,
agreement or condition is not reasonably apparent from the disclosure thereof.
12.14 Reasonable Consent Required. Where any provision of this
Agreement requires a party to obtain the consent, approval or other acquiescence
of any other Person, such consent, approval or other acquiescence shall not be
unreasonably conditioned, withheld or delayed by such other Person.
12.15 Governing Language. This Agreement and its schedules and exhibits
may be translated into Spanish. If any provision contained in the Spanish
version of this Agreement conflicts or is inconsistent with any provision of the
English version of this Agreement, then the provision contained in the English
version shall prevail.
12.16 Delegation to and Reliance on Sellers' Representatives. Sellers
and Holding Companies hereby delegate to Sellers' Representatives the authority
to provide notices and written instructions to Buyer and to act on behalf of the
Sellers and Holding Companies regarding any notices, written instructions or
actions required of Sellers or Holding Companies in connection with this
Agreement. Buyer is entitled to rely, and the Sellers and Holding Companies
acknowledge that Buyer shall rely, upon the notices, written instructions or
actions of Sellers' Representatives acting on behalf of Sellers or Holding
Companies.
12.17 Adherence to Agreement by Holding Companies. Notwithstanding any
provision of this Agreement to the contrary, Sellers, Target and Buyer hereby
agree that, upon Sellers' compliance with Section 7.14, Sellers shall cause each
of Holding Companies to execute and deliver counterparts to this Agreement, and
that upon such execution, each of Holding Companies shall be bound by and adhere
to this Agreement, with the same force and effect as if Holding Companies had
executed and delivered this Agreement on and as of the date hereof.
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<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BUYER:
EL SITIO, INC.
By: /s/ Daniel Rotsztain
----------------------------------
Name: Daniel Rotsztain
Title:
TARGET:
DECOMPRAS.COM, INC.
By: /s/ Juan Carlos Garcia
----------------------------------
Name: Juan Carlos Garcia
Title:
SELLERS:
JUAN CARLOS GARCIA SANCHEZ
By: /s/ Juan Carlos Garcia Sanchez
----------------------------------
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ADRIAN DE LA GARZA GARZA
By: /s/ Adrian de la Garza Garza
----------------------------------
HECTOR TASSINARI ELDRIDGE
By: /s/ Hector Tassinari Eldridge
----------------------------------
FERNANDO LOPEZ CASTRO
By: /s/ Fernando Lopez Castro
----------------------------------
ADRIAN GARZA DE LA GARZA
By: /s/ Adrian Garza de la Garza
----------------------------------
GRUPO CAPITAL PRIVADO S.A. DE C.V.
By: /s/ Gustavo Backhoff
---------------------------------
Name:
Title:
ABRIL PEREZ SAGAON
By: /s/ Abril Perez Sagaon
----------------------------------
OTILIO SAGASTEGUI HERNANDEZ
By: /s/ Otilio Sagastegui Hernandez
----------------------------------
GERARDO GARZA CASTILLO
By: /s/ Gerardo Garza Castillo
----------------------------------
FLORA GARZA BARRAGAN
By: /s/ Flora Garza Barragan
----------------------------------
JULIO ALBERTO GARCIA SANCHEZ
By: /s/ Julio Alberto Garcia Sanchez
----------------------------------
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MIGUEL ANGEL MARTINEZ HERRERA
By: /s/ Miguel Angel Martinez Herrera
----------------------------------
JOSE ACOSTA
By: /s/ Jose Acosta
----------------------------------
ENRIQUE ACEVEDO GUERRERO
By: /s/ Enrique Acevedo Guerrero
----------------------------------
KARLO ORTIZ PRADO
By: /s/ Karlo Ortiz Prado
----------------------------------
JOSE LUIS ZUNIGA
By: /s/ Jose Luis Zuniga
----------------------------------
JUAN MANUEL GONZALEZ NAVA
By: /s/ Juan Manuel Gonzalez Nava
----------------------------------
NESTOR DELGADO
By: /s/ Nestor Delgado
----------------------------------
LILIANA REYES CARRILLO
By: /s/ Liliana Reyes Carrillo
----------------------------------
CHERYL A. MARINO
By:
----------------------------------
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<PAGE> 57
ALEJANDRO PAREDES GUERRA
By: /s/ Alejandro Paredes Guerra
---------------------------------------
BERNARDO GARZA DE LA FUENTE
By: /s/ Bernardo Garza de la Fuente
------------------------------------
CARLOS A. GUAJARDO GONZALEZ
By: /s/ Carlos A. Guajardo Gonzalez
---------------------------------------
RODRIGO LOBO MORALES
By: /s/ Rodrigo Lobo Morales
---------------------------------------
MARIA DELFINA SALINAS DE ESTRADA
By: /s/ Maria Delfina Salinas de Estrada
---------------------------------------
JAVIER MOLINAR HORCASITAS
By: /s/ Javier Molinar Horcasitas
--------------------------------------
VICENTE ARIZTEGUI ANDREVE
By: /s/ Vicente Ariztegui Andreve
------------------------------------
DESARROLLO DINAMICO MEXICANO, S.A. DE C.V.
By: /s/ Alberto Martin
--------------------------------------
Name:
Title:
HENRY DAVIS SIGNORET
By: /s/ Henry Davis Signoret
---------------------------------------
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ANGEL LOSADA MORENO
By: /s/ Angel Losada Moreno
---------------------------------------
RAHUL DESAI
By: /s/ Rahul Desai
---------------------------------------
RAUL LOPEZ MARTINEZ
By: /s/ Raul Lopez Martinez
---------------------------------------
MARIO M. ROSATI
By: /s/ Mario M. Rosati
---------------------------------------
Name:
Title:
MARIO M. ROSATI
By: /s/ Mario M. Rosati
---------------------------------------
JOHN D. VILLARREAL
By: /s/ John D. Villarreal
---------------------------------------
MARTHA VALDERRAMA SANCHEZ
By: /s/ Martha Valderrama Sanchez
---------------------------------------
52
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HOLDING COMPANIES:
The undersigned hereby adhere to this
Agreement as of March ___, 2000
CORACIAS, B.V.
By:
---------------------------------------
Name:
Title:
BELAGUA, B.V.
By:
---------------------------------------
Name:
Title:
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<PAGE> 60
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
_______ __, 2000, by and among, (i) EL SITIO, INC., a British Virgin Islands
company (the "Company"), (ii) CORACIAS, B.V., a Netherlands company ("Holding
Company A"), (iii) BELAGUA, B.V., a Netherlands company ("Holding Company B"),
and (iv) the STOCKHOLDERS OF HOLDING COMPANY A and HOLDING COMPANY B as set
forth on Exhibit A hereto (collectively, the "Sellers").
WHEREAS, Sellers and Company have entered into a Purchase
Agreement dated as of March 10, 2000 (as such agreement may be amended from time
to time, the "Purchase Agreement"), pursuant to which Holding Company A and
Holding Company B shall receive an aggregate of 1,750,000 common shares (the
"Shares"), par value U.S.$0.01, of Company (the "Common Shares") and
U.S.$7,000,000 in cash in exchange for 100% of the capital stock of
DeCompras.com, Inc., a California corporation (the "Acquisition"); and
WHEREAS, it is a condition and inducement to Sellers'
willingness to consummate the Acquisition that Company execute and deliver this
Agreement.
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. For purposes of this Agreement:
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Exchange Act" shall mean the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Holder" shall mean any of Holding Company A, Holding Company
B or any Seller.
"Person" shall mean any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof.
"Registrable Securities" shall mean (i) any Common Shares
(including the Shares) held by any Holder and (ii) any Common Shares or any
security convertible, exchangeable or exercisable into Common Shares that may be
issued or distributed in respect thereof by way of share dividend, division,
combination or other distribution, recapitalization or reclassification;
provided, that the only Common Shares of the Holders that shall be considered
Registrable
1
<PAGE> 61
Shares are the Shares received in connection with the Acquisition and any Common
Shares or other security convertible, exchangeable or exercisable into Common
Shares which may be issued or distributed in respect of the Shares in accordance
with clause (ii) above. As to any particular Registrable Securities, once
issued, such Registrable Securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale by the Holder of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) such securities shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) or Regulation S under the
Securities Act, or (c) such securities shall have ceased to be outstanding.
"Securities Act" shall mean the U.S. Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
"Sellers' Representatives" shall mean Mr. Juan Carlos Garcia
S. and Adrian Garza de la Garza, acting jointly.
1.2 Other Defined Terms. (a) Other terms may be defined
elsewhere in the text of this Agreement and, unless otherwise indicated, shall
have such meaning throughout this Agreement.
1.3 Interpretation. As used in this Agreement, the following
conventions shall be applied in interpreting and construing the provisions of
this Agreement;
(i) the terms "includes" and "including" and similar terms
shall be deemed to be followed by the terms "without
limitation";
(ii) definitions contained in this Agreement apply to singular
as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms;
(iii) terms in the singular shall be held to include the
plural and vice versa, and words of one gender shall be held
to include the other gender as the context requires;
(iv) the terms "hereof", "herein," and "herewith" and terms of
similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections,
paragraphs, Schedules and Exhibits to this Agreement unless
otherwise specified;
(v) the term "or" shall not be exclusive; and
(vi) provisions shall apply, when appropriate, to successive
events and transactions.
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<PAGE> 62
1.4 Currency. All references to dollar amounts in this
Agreement are references to U.S. dollars unless otherwise stated.
ARTICLE II
PIGGYBACK REGISTRATION RIGHTS
2.1 Right to Include Registrable Securities. If Company at any
time after the first anniversary of the date hereof and prior to the second
anniversary of the date hereof proposes or is required to register Common Shares
under the Securities Act (other than (i) a registration on Form F-4, or any
successor or other forms promulgated for similar purposes and (ii) registrations
on such form or similar form(s) solely for registration of securities in
connection with an employee benefit plan or dividend reinvestment plan or a
merger, consolidation or acquisition), whether or not for sale for its own
account, in a manner that would permit registration of Registrable Securities
for sale to the public under the Securities Act, it shall, subject to the
remainder of this Section 2.1, give prompt written notice to all Holders of its
intention to do so and of such Holders' rights under this Article II. Upon the
written request of any such Holder made within 15 days after the receipt of any
such notice (which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder and the intended method of
distribution thereof), Company shall, subject to the remainder of this Section
2.1, use its best efforts to effect the registration under the Securities Act of
all Registrable Securities that Company has been duly requested to register by
the Holders thereof (together with the securities that Company at the time
proposes to register for its own account) to permit the sale or other
disposition by such Holders (in accordance with the intended method of
distribution thereof) of the Registrable Securities to be so registered (such
registration, a "Piggyback Registration"); provided, that (a) if, at any time
after giving written notice of its intention to register any Common Shares and
prior to the effective date of the registration statement filed in connection
with such registration, Company shall determine for any reason not to proceed
with or to delay the proposed registration of the securities to be sold by it,
Company may, at its election, give written notice of such determination to each
Holder and, thereupon, (i) in the case of a determination not to register, shall
be relieved of its obligation to register any Registrable Securities in
connection with such abandoned registration, without prejudice, however, to the
rights of Holders under this Section 2.1, and (ii) in the case of a
determination to delay such registration of its Common Shares, shall be
permitted to delay the registration of such Registrable Securities for the same
period as the delay in registering such other Common Shares; or (b) if such
registration involves an underwritten offering, all Holders requesting to be
included in Company's registration must sell their Registrable Securities to the
underwriters selected by Company on the same terms and conditions as apply to
Company, with such differences, including any with respect to indemnification
and liability insurance, as may be customary or appropriate in combined primary
and secondary offerings.
2.2 Withdrawal by Holder. If a registration requested pursuant
to Section 2.1 involves an underwritten public offering, any Holder requesting
to be included in such registration may elect to withdraw its request for
inclusion of its Registrable Securities in such
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registration by giving written notice to Company of its request to withdraw;
provided, however, that (i) such request must be made in writing prior to the
effective date of the registration statement filed in connection with such
registration and (ii) such withdrawal shall be irrevocable and, after making
such withdrawal, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such withdrawal was made.
2.3 Obligations of the Company. Whenever required under this
Article II to effect the registration of any Registrable Securities, the Company
shall use reasonable efforts to take the following actions (and subject, in each
case, to the Company's rights set forth in the proviso of Section 2.1):
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to sixty days or
until the distribution contemplated in the Registration Statement has been
completed; provided, however, that (i) such 60-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
securities of the Company; and (ii) in the case of any registrations of
Registrable Securities on Form F-3 that are intended to be offered on a
continuous or delayed basis, such 60-day period shall be extended, if necessary,
to keep the registration statement effective until all such Registrable
Securities are sold, provided that Rule 415, or any successor rule under the
Securities Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (A) includes any prospectus required by Section
10(a)(3) of the Securities Act or (B) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (A) and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such states or other jurisdictions in the United States as
shall be reasonably requested by the Holders; provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
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do business or to file a general consent to service of process in any such
states or other jurisdictions, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; and each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act 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 the light of the circumstances then
existing; and
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on the principal securities exchange on which similar
securities issued by the Company are then listed.
2.4 Expenses. Company shall pay all fees and expenses in
connection with each registration of Registrable Securities requested pursuant
to this Article II. Such fees and expenses shall include all qualification fees,
printers and accounting fees, the legal fees of counsel for the Company and the
reasonable legal fees and disbursements of one counsel for the requesting Holder
or Holders (such legal fees and disbursements to be in an amount not to exceed
U.S.$10,000 in the aggregate), but excluding, without limitation, (a) all filing
fees with the Commission, any stock exchange or the National Association of
Securities Dealers, Inc., and any underwriters' discounts or commissions
associated with any Registrable Securities and (b) underwriting commissions or
discounts, in each case attributable to the Registrable Securities of the
Holders registered pursuant to Section 2.1.
2.5 Priority in Incidental Registrations. If a registration
pursuant to this Article II involves an underwritten offering and the managing
underwriter advises Company in writing that, in its opinion, the number of
Registrable Securities requested to be included in such registration would be
likely to have an adverse effect on the price, timing or distribution of the
securities to be offered in such offering as contemplated by Company (other than
the Registrable Securities), then Company shall include in such registration (a)
first, 100% of the securities Company proposes to sell and (b) second, to the
extent of the amount of Registrable Securities requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, the amount of Registrable
Securities which the Holders and other Persons who have registration rights with
respect to Common Shares, have requested to be included in such registration,
such amount to be allocated pro rata among all requesting Holders and other
Persons on the basis of the relative amount of Registrable Securities then held
by each such Holder or such other Person provided, that any
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such amount thereby allocated to any such Holder that exceeds such Holder's
request shall be reallocated among the remaining requesting Holders in like
manner.
2.6 Limitations to Registration Rights. The Holders do not
have the right to demand or require that Company register Registrable Securities
of the Holders unless Company shall first propose or otherwise be required to
register its securities. Prior to exercising any Piggyback Registration, the
Holders exercising such right pursuant to Section 2.1 shall, in the aggregate,
seek the registration of Registrable Securities with a market value of no less
than U.S.$10,000,000. For purposes of this section "market value" shall be
calculated by reference to the average of the high and low sales prices per
share of the Common Shares on each of the 20 consecutive NASDAQ trading days
ending on the second trading day prior to such date of calculation. Each Holder
shall have the right to demand a Piggyback Registration only once pursuant to
this Agreement; provided, that if the proposed registration by Company shall be
canceled or postponed, such demand of registration by the Holder shall not be
counted.
ARTICLE III
OTHER AGREEMENTS
3.1 Rule 144. Company covenants that it shall file the reports
required to be filed by it under the Securities Act and the Exchange Act (or, if
Company is not required to file such reports, it shall, upon the request of any
Holder, make publicly available such information), and it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell shares of Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, Company shall deliver
to such Holder a written statement as to whether it has complied with such
requirements. Notwithstanding anything contained in this Article III, Company
may deregister under Section 12 of the Exchange Act if it then is permitted to
do so pursuant to the Exchange Act.
3.2 Selection of Counsel. In connection with any registration
of Registrable Securities pursuant to Article II hereof, the Holders of a
majority of the Registrable Securities covered by any such registration may
select one counsel to represent all Holders of Registrable Securities covered by
such registration.
3.3 Holdback Agreement. If any registration hereunder shall be
in connection with an underwritten public offering, each Holder agrees not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, within 7 days before,
or 90 days (or such other period as the managing underwriters shall reasonably
require) after, the effective date of such registration (except as part of such
registration), and Company hereby also so agrees and agrees to cause each other
holder of any equity security of Company, or of any security convertible,
exchangeable or exercisable into any
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Registrable Securities, purchased from Company (at any time other than in a
public offering) to so agree.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other U.S. federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (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, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 4.1(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder shall
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
U.S. federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent ( and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly
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for use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this Section 4.1(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 4.1(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this Section 4.1(b) exceed the net proceeds from the offering
received by such Holder.
4.2 Indemnification Procedures. Promptly after receipt by an
indemnified party under Section 4.1 of notice of the commencement of any action
(including any governmental action), such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party under this Section
4.2, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Article
IV, but the omission so to deliver written notice to the indemnifying party
shall not relieve it of any liability that it may have to any indemnified party
otherwise than under this Article IV.
4.3 Contribution. If the indemnification provided for in
Section 4.1 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Section 4.3 exceed the net proceeds from the offering received by
such Holder. The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
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4.4 Other. (a) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(b) The obligations of the Company and Holders under this
Article IV shall survive the completion of any offering of Registrable
Securities in a registration statement under Article II, and otherwise.
ARTICLE V
MISCELLANEOUS
5.1 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by any of the Sellers without the prior
written consent of Company, or by Company without the prior written consent of
Sellers' Representatives, except that Company may, without such consent, assign
the right to acquire the Purchased Shares to any of its direct or indirect
subsidiaries; provided, that no such assignment shall relieve Company of any of
its obligations under this Agreement. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other Person shall have any right,
benefit or obligation hereunder.
5.2 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and delivered in person or by courier, telexed
or by facsimile transmission or mailed by certified or registered mail, postage
prepaid, return receipt requested (such mail notice to be effective on the date
such receipt is acknowledged), as follows:
(a) if to Sellers or Holding c/o DeCompras.com, S.A. de C.V.
Company: Corpus Christi, 2312
Col. Lomas de San Francisco
Monterrey, N.L.
Mexico 64710
Attention: Juan Carlos Garcia S.
Telecopier number: 011 (528) 346-6948; ext. 115
Confirmation number: 011 (528) 346-6948; ext. 117
with copies to: Ventura Capital Privado
Edificio Torrealta
Ave. Roble 300-Desp. 1505
66265 Gesza Garcie. N.L.
Attention: Adrian Garza de la Garza
Telecopier Number: 011 (528) 335-4175
Confirmation Number: 011 (528) 335-1012
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Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
U.S.A.
Attention: Alejandro E. Camacho, Esq.
Telecopier number: (212) 878-8374
Confirmation number: (212) 878-8434
(b) if to Company: El Sitio, Inc.
Av. Ingeniero Huergo 1167
C1107AOL, Buenos Aires
Argentina
Attention: Daniel Rotsztain
Telecopier number: 011(54-11) 4339-3700
Confirmation number: 011 (54-11) 4339-3800
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
U.S.A.
Attention: Glenn M. Reiter, Esq. and
S. Todd Crider, Esq.
Telecopier number: (212) 455-2502
Confirmation number: (212) 455-2500
(c) if to any other Holder, to the address of such other
Holder as shown in the stock record books of Company, or to such other address
as any of the above shall have designated in writing to all of the other above
(or to such other place and with such other copies as either party may designate
as to itself by written notice to the others).
5.3 Governing Law. This Agreement shall be governed by, and
construed (and the rights of the parties determined) in accordance with, the law
of the State of New York.
5.4 Dispute Resolution. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the then existing Rules of Conciliation and
Arbitration of the International Chamber of Commerce (the "ICC"). The arbitral
tribunal shall be composed of three arbitrators. Each party shall appoint one
arbitrator. If a party fails to appoint an arbitrator within thirty (30) days
after the date the claimant's Demand for Arbitration is communicated to the
other party (the "Notification Date"), the ICC shall make such appointment. The
two arbitrators thus appointed shall attempt to agree upon the appointment of a
third arbitrator to serve as chairperson of the arbitral tribunal. If such two
arbitrators fail to agree upon the appointment of such third arbitrator within
sixty (60) days after the Notification Date, the ICC shall make such
appointment. The place of arbitration shall be New York, New York. The arbitral
proceeding shall be conducted in the English language. The arbitral tribunal
shall apply the laws of the State of New York. To the extent they may
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validly so agree, the parties hereby exclude any right of appeal to any court of
the arbitration or concerning the arbitral award. Judgment upon the arbitral
award may be entered in any court having jurisdiction thereof or having
jurisdiction over any party or any party's assets. Notwithstanding the
foregoing, any party may seek a preliminary injunction or other preliminary
judicial relief if, in its reasonable, good faith judgment, such action is
necessary to avoid irreparable damage. Despite such action, such party shall
continue to participate in good faith in the procedures specified in this
Section 5.4. All applicable statutes of limitations shall be tolled while the
procedures specified in this Section 5.4 are pending, and the parties shall take
any and all actions required to effectuate such tolling.
5.5 Judgment Currency. Each party hereto agrees that, if a
judgment or order given or made by any court for the payment of any amount due
to any other party hereunder, which amount is expressed in currency (the
"judgment currency") other than the currency (the "denomination currency") in
which such amount is payable, the party making such payment shall indemnify the
receiving party against any deficiency arising or resulting from any variation
in rates of exchange between the date as of which the amount in the denomination
currency is notionally converted into the amount in the judgment currency for
the purposes of such judgment or order and the date of actual payment thereof.
This indemnity shall constitute a separate and independent obligation from the
other obligations contained in this Agreement, shall give rise to a separate and
independent cause of action, will apply irrespective of any indulgence granted
from time to time and shall continue in full force and effect notwithstanding
any judgment or order for a liquidated sum or sums in respect of any amounts so
due in respect hereof under any such judgment or order.
5.6 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all parties. Any term of provision of this Agreement may be waived,
or the time for performance of which may be extended, if evidenced in writing by
the party or parties entitled to the benefit hereof. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided. Each Holder
of any Registrable Securities at the time or thereafter outstanding shall be
bound by any amendment authorized by this Section 5.6, whether or not such
Registrable Securities shall have been marked to indicate such amendment.
5.7 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
5.8 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be
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invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument.
5.9 Headings. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning of interpretation of this Agreement.
5.10 Expenses. Except as provided in Section 2.3, and except
as otherwise expressly provided herein, Sellers and Company shall each be liable
for its own costs and expenses incurred in connection with the negotiation,
preparation, execution or performance of this Agreement, including the fees and
expenses of any financial, accounting or legal advisors retained in connection
herewith.
5.11 Schedules and Exhibits. The Schedules and Exhibits
referred to in this Agreement shall be construed with and as an integral part of
this Agreement to the same extent as if the same had been set forth verbatim
herein. Any matter disclosed in any Schedule of the Holding Company and Sellers,
on the one hand, or of Buyer, on the other hand, shall be deemed to qualify each
representation and warranty of the Holding Company, the Sellers and Buyer, as
the case may be, notwithstanding the lack of a specific cross-reference, except
to the extent that its applicability to a particular representation, warranty,
agreement or condition is not reasonably apparent from the disclosure thereof.
5.12 Reasonable Consent Required. Where any provision of this
Agreement requires a party to obtain the consent, approval or other acquiescence
of any other Person, such consent, approval or other acquiescence shall not be
unreasonably conditioned, withheld or delayed by such other party.
5.13 Delegation to and Reliance on Sellers' Representatives.
The Sellers hereby delegate to Sellers' Representatives the authority to provide
notices and written instructions to Company and to act on behalf of the Sellers
regarding any notices, written instructions or actions required of Sellers in
connection with this Agreement. Company is entitled to rely, and the Sellers
acknowledge that Company shall rely, upon the notices, written instructions or
actions of Sellers' Representatives acting on behalf of Sellers.
5.14 No Recourse. Notwithstanding anything that may be
expressed or implied in this Agreement, Company and each Holder covenant, agree
and acknowledge that no recourse under this Agreement or any documents or
instruments delivered in connection with this Agreement or the Acquisition shall
be had against any current or future director, officer, employee, general or
limited partner, member, Affiliate or assignee of Sellers or of any of the
foregoing, whether by the enforcement of any assessment or by any legal or
equitable proceeding, or by virtue of any statute, regulation or other
applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by
any current or future officer, agent or employee of Sellers or any current or
future member of Seller or any current or future director, officer, employee,
partner, member, Affiliate or assignee of any of the foregoing, as such for any
obligation of Sellers under this Agreement or
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any documents or instruments delivered in connection with this Agreement or the
Acquisition for any claim based on, in respect of or by reason of such
obligations or their creation.
5.15 Further Assurances. At any time or from time to time
after the date hereof, the parties agree to cooperate with each other, and at
the request of any other party, to execute and deliver any further instruments
or documents and to take all such further action as the other party may
reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and to otherwise carry out the intent of the
parties hereunder.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed and delivered as of the date first written above.
By: EL SITIO, INC.
------------------------------------
Name:
Title:
By: CORACIAS, B.V.
------------------------------------
Name:
Title:
By: BELAGUA, B.V.
------------------------------------
Name:
Title:
SELLERS
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EXHIBIT J
ESCROW AGREEMENT
This ESCROW AGREEMENT, dated as of _______ __, 2000 (this
"Agreement"), by and among, (i) [EL SITIO, INC., a British Virgin Islands
company] ("Buyer"), (ii) CORACIAS, B.V., a Dutch company ("Holding Company A"),
(iii) BELAGUA, B.V., a Dutch company ("Holding Company B" and together with
Holding Company A, "Holding Companies"), (iv) the KEY EMPLOYEES of
DeCompras.com, Inc., as set forth in Exhibit A-2 hereto in their capacity as
employees (collectively, the "Key Employees") and (vi) [Name of Escrow Agent], a
New York banking corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Buyer, DeCompras.com, Inc., a California corporation
("DeCompras"), the stockholders of DeCompras, as set forth on Exhibit A-1 hereto
(collectively, "Sellers") and, by subsequent adherence thereto, Holding
Companies entered into that certain Purchase Agreement dated March 10, 2000 (the
"Purchase Agreement") providing for the purchase by Buyer (or one or more of its
direct or indirect wholly owned subsidiaries) from Sellers and Holding Companies
of all of the outstanding capital stock, of DeCompras; and
WHEREAS, the transactions contemplated by the Purchase
Agreement are closing as of the date hereof; and
WHEREAS, as contemplated by Section 3.3 of the Purchase
Agreement, Holding Companies shall deposit with the Escrow Agent 525,000 shares
of Common Shares of Buyer received by Holding Companies pursuant to the Purchase
Agreement (together with the Employee Escrow Shares (as defined below), the
"Escrow Shares"), as security for the payment of amounts as to which Buyer or
its affiliates may become entitled to pursuant to the indemnification
obligations of Sellers and Holding Companies set forth in the Purchase
Agreement; and
WHEREAS, the Key Employees shall cause Holding Company A to
deposit, and Holding Company A shall deposit, with the Escrow Agent [ ]
additional shares of Common Shares representing Employee Escrow Shares required
to be deposited as security for the payment of amounts as to which Buyer or its
affiliates may become entitled pursuant to provisions of the Employment
Agreements (as defined below) and Purchase Agreement pursuant to which the Key
Employees shall transfer certain common shares of Buyer upon certain material
breaches of their obligations (such provisions, the "Escrow Transfer
Provisions"; and each such transfer, a "transfer-back" ); and
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WHEREAS, to the extent not paid to Buyer or its designee in
accordance with this Agreement, the Common Shares shall be transferred or
released as provided herein to Holding Company A and/or Holding Company B, as
applicable.
NOW, THEREFORE, in consideration of these premises, the mutual
covenants contained herein and other good and valuable consideration, Buyer,
Sellers, Holding Companies and the Escrow Agent agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used herein, the following terms
shall have the meanings hereinafter set forth:
"Arbitral Order" shall have the meaning set forth in Section
4.4.
"Business Day" shall mean any day on which the Escrow Agent is
open for business.
"Buyer's Account" shall mean the account of Buyer specified in
Exhibit B hereto under the caption "Buyer's Account".
"Claim" shall mean any claim for indemnification asserted by
Buyer in a Claim Notice.
"Claim Notice" shall have the meaning set forth in Section
2.4.
"Closing" shall have the meaning set forth in the Purchase
Agreement.
"Common Shares" shall mean the common shares, par value $0.01
per share, of Buyer.
"Court Order" shall mean a final unappealable order, judgment,
writ or decree of any federal or state court of competent jurisdiction.
"Damages" shall have the meaning set forth in Section 11.2 of
the Purchase Agreement.
"De Minimis Threshold" shall mean the U.S.$50,000 minimum
threshold for Damages under Article XI established by Section 11.4 of the
Purchase Agreement.
"Employee Escrow Shares" shall mean, from the date hereof
until the First Termination Date, [ ] Common Shares received by Holding Company
A in connection with the Purchase Agreement (equivalent to 50% of the Common
Shares beneficially owned by the Key Employees) and, from
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the First Termination Date until the Second Termination Date, [ ] Common Shares
(equivalent to 25% of the Common Shares beneficially owned by the Key
Employees).
"Employment Agreements" shall mean the employment contracts
and confidentiality and non-competition agreements entered into by the Key
Employees pursuant to Section __ of the Purchase Agreement.
"Escrow Account" shall have the meaning set forth in Section
2.1.
"Escrow Agent" shall mean [name of escrow agent], so long as
it is acting as the Escrow Agent hereunder, and thereafter means the then-acting
Successor Escrow Agent.
"Escrow Shares" has the meaning set forth in the recitals of
this Agreement.
"Fair Market Value" shall mean, except as set forth in the
last sentence of this paragraph, the "Fair Market Value" per Common Share on any
date shall mean the last sale price on such day (or, if no sale took place such
day, the most recent day on which a sale did take place) as quoted on the Nasdaq
Stock Market's National Market ("Nasdaq"), or, if such Common Shares are not
quoted on Nasdaq or is not otherwise reported, then the last sale price on such
day on the principal domestic stock exchange on which such stock is then listed
or admitted to trading. If such Common Shares are neither quoted on Nasdaq nor
listed or admitted to trading on any domestic stock exchange, then the Fair
Market Value per Common Share on any date means on such date the fair market
value of the entire Common Shares equity interest of Buyer taken as a whole,
divided by the number of outstanding Common Shares on a fully diluted basis,
without premiums for control or discounts for minority interests or restrictions
on transfers.
"Financial Institution" shall mean any bank, trust company,
national banking association or other savings institution, incorporated under
the laws of the United States of America or any state thereof, each of which has
a reported capital, surplus and undivided profits of at least U.S.$100,000,000.
"First Termination Date" shall mean the first anniversary from
the date hereof or if such date is not a Business Day, the next Business Day.
"Holding Companies' Account" shall mean the accounts of
Holding Companies specified in Exhibit B hereto under the captions "Holding
Company A's Account" and "Holding Company B's Account".
"Investment Direction" shall have the meaning set forth in
Section 2.1.
"Joint Order" shall mean written instructions to the Escrow
Agent signed by a qualified representative of Buyer and Holding Companies, or
their respective successors.
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"Key Employees" shall have the meaning set forth in the
preamble.
"Losses" shall have the meaning set forth in Section 3.8.
"Objection Notice" shall have the meaning set forth in Section 2.3(b).
"Pending Claim" shall have the meaning set forth in Section
2.3(e).
"Permitted Investments" shall mean any of the investments
listed in Schedule 1 hereto.
"Person" shall mean any individual, business corporation,
municipal or not-for-profit corporation, trust, general or limited partnership,
joint venture, unincorporated association, joint stock company, or other legal
entity or organization of any kind, and any government, including any agency or
political subdivision of any government.
"Proportional Basis" shall mean the proportion of the Escrow
Shares deposited by each of Holding Company A and Holding Company B as reflected
in Exhibit D, as the same may be amended from time to time in accordance with
Section 2.2(b).
"Purchase Agreement" shall have the meaning set forth in the
recitals of this Agreement.
"Resignation Date" shall have the meaning set forth in Section
3.2.
"Resignation Notice" shall have the meaning set forth in
Section 3.2.
"Resigning Escrow Agent" shall have the meaning set forth in
Section 3.2.
"Second Termination Date" shall mean the second anniversary
from the date hereof or if such date is not a Business Day, the next Business
Day.
"Successor Escrow Agent" shall have the meaning set forth in
Section 3.2.
"Termination Date" shall have the meaning set forth in Section
2.4.
"Transfer" shall be construed broadly and shall include any
transfer by way of issuance, sale, participation, pledge, gift, bequeath,
intestate transfer, distribution, liquidation, or consolidation.
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ARTICLE II
PROVISIONS RELATING TO THE ESCROW DEPOSIT
Section 2.1 Receipt and Investment of Escrow Deposit. At the
Closing, Holding Companies shall deposit the Escrow Shares with the Escrow
Agent. The deposit of the Escrow Stock shall be accompanied by stock transfer
powers duly endorsed in blank by Sellers. Upon receipt from Holding Companies of
the Escrow Shares, the Escrow Agent shall promptly 1. notify Buyer and Holding
Companies in writing of the Escrow Agent's receipt of the Escrow Shares and 2.
deposit the Escrow Shares into the escrow account established by the Escrow
Agent hereunder (the "Escrow Account"). If any moneys shall at any time or from
time to time be deposited in the Escrow Account and not otherwise subject to
immediate distribution in accordance with the terms hereof, such moneys shall be
invested by Escrow Agent in Permitted Investments as the Escrow Agent shall be
instructed by Holding Companies from time to time, in the form of Exhibit C
hereto (an "Investment Direction"), with a simultaneous copy of such instruction
sent by Holding Companies to Buyer.
Section 2.2 Distribution of Earnings, Dividends and Other
Distributions; Adjustments; Liability for Taxes. (a) All dividends or other
amounts earned or received in respect of the Escrow Shares shall be paid to
Holding Company A and/or Holding Company B on a Proportional Basis by wire
transfer to Holding Companies' Account as of the first Business Day after
collection and for so long as amounts are held in the Escrow Accounts, and shall
not constitute a part of the Escrow Accounts (provided, that whenever this
Agreement requires a payment to Seller, such payment may be made to any
affiliate of Seller pursuant to a written instruction delivered by Seller to the
Escrow Agent specifying the account to which such payment shall be made and
specifying the relevant obligation that such payment shall satisfy).
Notwithstanding the foregoing, if there shall occur any subdivision or
combination of the Common Shares or any recapitalization or reorganization of
Buyer or any reclassification or change in the Common Shares or any merger,
consolidation, sale of all or substantially all assets, exchange or other
similar transaction involving Buyer pursuant to which other securities, money or
property are distributed in respect of, or in exchange for, the Common Shares,
such securities, money or property shall be delivered to the Escrow Agent with a
written instruction signed by Buyer that such securities, money or property
shall be deposited into the Escrow Accounts and shall not be paid or distributed
to Holding Companies (except pursuant to Section 2.5).
(b) Holding Companies shall provide Escrow Agent with prompt
notification of any change in the Proportional Basis attributable to (i) the
occurrence of the First Termination Date or (ii) the transfer of any deposited
Escrow Shares pursuant to the Escrow Transfer Provisions. The Escrow Agent shall
be entitled to rely upon the accuracy of Exhibit D in any distribution of Escrow
Shares or any other securities, money or property deposited into the Escrow
Account, whether pursuant to this Section 2.2 or Section 2.5.
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(c) Buyer and Holding Companies shall treat each Escrow
Account as a grantor trust for tax purposes, of which Holding Companies are the
grantor. Holding Companies shall pay all income, withholding and any other taxes
imposed on or measured by income that are attributable to income from the Escrow
Shares for the time it is held in the Escrow Account hereunder, and shall file
all tax and information returns applicable thereto.
Section 2.3 Grant of Security Interest. Each of Holding
Companies and Key Employees hereby grant Buyer a security interest in the Escrow
Shares and other deposits into the Escrow Account (including securities, money
or property included therein pursuant to the last sentence in Section 2.2(a))
(as such Escrow Shares may be reduced from time to time), but not in any amounts
or properties earned, received, dividended or distributed in respect of such
Escrow Shares (other than the amounts described in the last sentence in Section
2.2(a)), to secure the performance of (i) each and every indemnification
obligation of Holding Companies set forth in the Purchase Agreement and (ii) of
the Escrow Transfer Provisions. Said security interest shall be deemed perfected
by the possession of each Escrow Account on behalf of Buyer by the Escrow Agent
pursuant to this Agreement and shall have priority over all other liens, claims
and interests (including, without limitation, any liens, claims and interests
permitted to be created pursuant to Section 2.6) except those of the Escrow
Agent pursuant to Section 3.8. The Escrow Agent shall have no duty to file or
record any document in connection with the grant of a security interest
hereunder.
Section 2.4 Claim Notices. (a) Buyer shall give written notice
(a "Claim Notice"), of any claim in good faith that (x) Sellers and Holding
Companies are obligated to indemnify Buyer under the Purchase Agreement or (y)
any Key Employee is obligated to transfer his, her or its Escrow Shares pursuant
to the Escrow Transfer Provisions due to termination with cause. Each Claim
Notice shall be given by Buyer to the Holding Companies' Escrow Agent and the
affected Key Employee, if any, shall be signed by an officer of Buyer, shall be
delivered by certified mail, return receipt requested, to the address for each
thereof specified in or pursuant to Section 4.7, and shall in good faith:
(i) identify the provision(s) in the Purchase Agreement with
respect to which indemnification is claimed or in the
Employment Agreements with respect to which transfer-back is
claimed;
(ii) contain a reasonably detailed statement of the grounds
upon which indemnification or transfer-back is claimed;
(iii) if an indemnity claim under the Purchase Agreement,
state the amount of Damages claimed (which may in good faith
be estimated);
(iv) if an indemnity claim under the Purchase Agreement,
confirm that the Damages set forth in the Claim are in the
amount by which the aggregate amount of such Damages exceeds
the De Minimis Threshold;
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(v) if a claim relating to the Escrow Transfer Provisions
under the Employment Agreements, the name of the Key Employee
incurring such transfer-back;
(vi) state the number of Common Shares required, if any,
pursuant to the priorities set forth in Section 2.4(e), to be
delivered to satisfy such Claim or Claims; and
(vii) if an indemnity claim under the Purchase Agreement, and
to the extent required pursuant to clause (f) below, the Fair
Market Value (as of the date of the Claim Notice) of the
Common Shares on a per share basis;
provided, that so long as Holding Companies and the applicable
Key Employees, if any, are put on notice of a Claim pursuant to any Claim
Notice, the failure of such Claim Notice to specify any of the information set
forth in (i) through (vii) above shall not relieve Holding Companies or the Key
Employees of any of their obligations under this Agreement, the Purchase
Agreement or the Employment Agreements with respect to such Claim or prevent
Buyer from exercising its rights under this Agreement, the Purchase Agreement or
the Employment Agreements.
(b) If Holding Companies or the affected Key Employee, as
applicable, fail or fails to advise the Escrow Agent (with a copy to Buyer) in a
written notice (an "Objection Notice"), delivered within 30 days after receipt
of the Claim Notice, that Holding Companies or the affected Key Employee, as
applicable, object or objects in good faith to all or any part of the Claim or
Claims set forth in such Claim Notice, the Escrow Agent shall deliver to Buyer
(or its designee) an amount equal to the amount of indemnification claimed as
set forth in such Claim Notice; provided, however, that if the amount of
indemnification claimed (or any portion thereof) is an estimate, such amount
shall be paid to Buyer on such later date when the amount of such Claim (or such
portion thereof) becomes finally determined. Each Objection Notice shall be
delivered by Sellers' Representatives, Holding Companies or the affected Key
Employees, if any, to the Escrow Agent and Buyer, shall be signed by Sellers'
Representatives or the affected Key Employee, as applicable, shall be delivered
by certified mail, return receipt requested, to the address for each thereof
specified in or pursuant to Section 4.7 and shall in good faith:
(i) identify any Claim or Claims to which an objection is
being made;
(ii) if regarding an indemnity claim under the Purchase
Agreement, state the amount of any disagreement with the
Damages claimed (including any estimate thereof) and any
application of the De Minimis Threshold set forth in the Claim
Notice;
(iii) if regarding a claim pursuant to the Escrow Transfer
Provisions under the Employment Agreement, state the nature of
the disagreement with such Claim;
(iv) state the amount of any disagreement with the amount of
indemnification claimed (including any estimate thereof);
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(v) quantify any disagreement with the determination of the
Fair Market Value; and
(vi) state any other disagreement with any matter set forth in
such Claim Notice;
provided, that so long as Buyer is put on notice of an
objection to a Claim pursuant to any Objection Notice, the failure of such
Objection Notice to specify any of the information set forth in (i) through (vi)
above shall not cause Holding Companies or Key Employees to lose any of their
rights with respect to any objection under this Agreement, the Purchase
Agreement or the Employment Agreement, as applicable.
(c) If Holding Companies or the affected Key Employee, as
applicable, advise the Escrow Agent, in an Objection Notice, delivered within 30
days after receipt of the Claim Notice, that Holding Companies or the affected
Key Employee, as applicable, object in good faith to the entire amount of each
Claim set forth in such Claim Notice, the Escrow Agent shall make no payment or
delivery to Buyer (or its designee) for any such amount, except pursuant to a
Joint Order, Court Order or an Arbitral Order that resolves such Claim.
(d) If Holding Companies or the affected Key Employee, as
applicable, advise the Escrow Agent, in an Objection Notice delivered within 30
days after receipt of the Claim Notice, that Holding Companies or the affected
Key Employee, as applicable, object to only part of the amount of a Claim or
Claims set forth in such Claim Notice, the Escrow Agent shall (i) deliver to
Buyer (or its designee) an amount from the Escrow Shares equal to the amount of
such Claim as to which Holding Companies or the affected Key Employee, as
applicable, has no objection if such amount can be ascertained from such Claim
Notice and Objection Notice and (ii) make no payment or delivery to Buyer (or
its designee) for the balance of the amount of such Claim, except pursuant to a
Joint Order or an Arbitral Order which resolves the balance of the amount of
such Claim; provided, however, that if the portion of the amount referred to in
clause (i) of this sentence cannot be ascertained from such Claim Notice and
Objection Notice, and if Buyer requests Holding Companies or the affected Key
Employee, as applicable, to sign a Joint Order specifying an amount which
represents the lowest amount for which such undisputed portion could be
reasonably valued, Holding Companies or the affected Key Employee, as
applicable, shall not unreasonably refuse to sign such Joint Order.
(e) Any payments made to Buyer from the Escrow Account
pursuant to this Agreement shall be made only from the Escrow Shares and only in
the following order: (i) first, from any cash available in the Escrow Account,
if any, until such amounts shall have been reduced to zero and (ii) second, from
the Common Shares based on their cash value (as determined pursuant to clause
(g) below) until all Escrow Shares have been cancelled as provided below;
provided, that in the case of a claim relating to the Escrow Transfer Provisions
of the Employment Agreements, any payments shall be made from the Employee
Escrow Shares.
(f) All amounts paid to Buyer from the Escrow Shares (based on
the cash value pursuant to clause (g) below) to satisfy Claims shall be
delivered to Buyer (or its designee) (along with duly executed stock powers) for
cancellation at the office of the corporate secretary of Buyer and, to
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the extent of such cash value, all of Seller's right, title and interest in and
to such Common Shares shall be deemed to have been transferred to Buyer (or its
designee) upon such delivery. Buyer shall, upon receipt of the certificates
representing the applicable Escrow Shares, void such certificates and issue new
certificates representing the number of Common Shares to be conveyed to Buyer
(or its designee) based on the cash value of the Common Shares and the amount of
indemnification to be satisfied therewith, and promptly deliver to the Escrow
Agent a certificate or certificates representing the remainder of the Escrow
Shares.
(g) If Claims are to be satisfied by the delivery of Common
Shares, each Common Share shall be deemed to have a cash value equal to the Fair
Market Value as of the earlier of (A) the date such Common Shares is delivered
and (B) the Termination Date. If the determination of the Fair Market Value is
disputed and is not resolved through negotiations, the dispute with regard to
the Fair Market Value shall be submitted to an internationally recognized
investment banking firm reasonably agreed to by Buyer and Sellers'
Representatives or the affected Key Employee, as applicable (the "Final
Arbiter"), which firm shall make a final and binding determination as to the
Fair Market Value within 45 days after its appointment. The Final Arbiter shall
send its written determination of the Fair Market Value to Buyer, Sellers,
Holding Companies and the Escrow Agent, at which point the determination of the
Final Arbiter shall be final and binding on Buyer, Sellers and Holding
Companies. The fees and expenses of the Final Arbiter shall be borne equally by
Buyer, on the one hand, and Sellers and Holding Companies or the affected Key
Employee, as applicable, on the other hand.
(h) Buyer shall telecopy copies of all Claim Notices to
Sellers' Representatives and Sellers' Representatives and their counsel shall
telecopy copies of all Objection Notices to Buyer and its counsel, on the same
day on which they are sent to the Escrow Agent.
Section 2.5 Distribution Upon Termination Dates. (a) On the
First Termination Date, Escrow Agent shall distribute to Holding Companies, on a
Proportional Basis, the amount of Common Shares, money, other securities and
property by which the balance in the Escrow Account as of the First Termination
Date exceeds the sum of (i) the Employee Escrow Shares (as such number is
adjusted on the first anniversary of the date hereof), plus (ii) the amount, if
any, by which the aggregate amount of reasonable reserves for all
indemnification claimed under Pending Claims as of the Termination Date exceeds
the amount of the De Minimis Threshold remaining unused as of the Termination
Date. It is expressly understood that any amounts set forth above that are
deducted from the amount delivered to Seller shall first be deducted from the
cash deposited in the Escrow Amount, if any, second, from the number of Common
Shares and third, from the other securities or property, if any; provided, that,
in the case of such Common Shares, if Holding Companies have not yet objected to
the determination of Fair Market Value in an Objection Notice or if Holding
Companies have so objected but such dispute has not yet been resolved pursuant
to Section 2.3(g), then until such time as a Joint Order or an Arbiter Order has
been issued pursuant to Section 2.3(g), the amount to be so withheld shall be
based upon Buyer's determination in good faith of Fair Market Value as set forth
in the applicable Claim Notice.
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(b) On the Second Termination Date, Escrow Agent shall
distribute to Holding Companies, on a Proportional Basis, the amount of Common
Shares, money, other securities and property by which the balance in the Escrow
Account as of the Second Termination Date exceeds the amount, if any, by which
the aggregate amount of reasonable reserves for all indemnification claimed
under Pending Claims as of the Termination Date exceeds the amount of the De
Minimis Threshold remaining unused as of the Termination Date. It is expressly
understood that any amounts set forth above which are deducted from the amount
delivered to Seller shall first be deducted from the cash deposited in the
Escrow Amount, if any, second, from the number of Common Shares and third, from
the other securities or property, if any; provided, that, in the case of such
Common Shares, if Holding Companies have not yet objected to the determination
of Fair Market Value in an Objection Notice or if Holding Companies have so
objected but such dispute has not yet been resolved pursuant to Section 2.3(g),
then until such time as a Joint Order or an Arbiter Order has been issued
pursuant to Section 2.3(g), the amount to be so withheld shall be based upon
Buyer's determination in good faith of Fair Market Value as set forth in the
applicable Claim Notice.
(c) An amount equal to the aggregate amount of reasonable
reserves for all indemnification claimed under all Pending Claims shall continue
to be held by the Escrow Agent as long as, and to the extent that, such Pending
Claims have not been resolved by a Joint Order or a Court Order or, if
applicable, an Arbiter Order, and all the terms and provisions of this
Agreement, including, without limitation, Seller's right of substitution under
Section 2.3(h), shall continue to apply to such amount continued to be held by
the Escrow Agent. Whenever any Pending Claim is resolved by a Joint Order, a
Court Order or an Arbiter Order, the amount of such Pending Claim shall be
disposed of in accordance with such Joint Order, Court Order or Arbiter Order.
Upon a Joint Order, a Court Order or an Arbiter Order, amounts in the applicable
Escrow Account may be distributed at any time to Buyer or Holding Companies, or
both of them, as the case may be.
Section 2.6 Transfer Restrictions. For so long as any Escrow
Shares remain in the Escrow Account, none of Sellers and Holding Companies shall
Transfer the Escrow Shares except as otherwise permitted in the lock-up
agreements entered into pursuant to Section __ of the Purchase Agreement.
Section 2.7 Voting and Other Rights. During the time that the
Escrow Shares are deposited in the Escrow Account, each of Holding Companies (or
any of their permitted transferees pursuant to Section 2.6) shall be entitled
with respect to its Escrow Shares to exercise all rights, and be entitled to all
benefits, of a stockholder of Buyer (except as such rights may be limited by
Sections 2.2 of this Agreement), including, without limitation, in the case of
the Common Shares, all rights to vote on matters submitted to the holders of the
Common Shares. The Escrow Agent shall, at the written request from time to time
of Seller, execute and deliver appropriate proxies in respect to the Securities.
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ARTICLE III(1)
PROVISIONS RELATING TO THE ESCROW AGENT
[Subject to revision upon selection
of Escrow Agent]
Section 3.1 Appointment of Escrow Agent. Buyer, Sellers,
Holding Companies and the Key Employees hereby appoint [name of Bank], and [name
of Bank] hereby accepts appointment, as the initial Escrow Agent hereunder.
Section 3.2 Resignation of Escrow Agent. Any Escrow Agent (the
"Resigning Escrow Agent") may at any time, upon not less than 30 days' prior
written notice (the "Resignation Notice") to Buyer and Holding Companies,
resign, and be discharged of all of its duties under this Agreement, such notice
to specify the date when such resignation shall occur (the "Resignation Date").
Upon receipt of the Resignation Notice, Buyer and Holding Companies shall confer
in good faith and, having due regard to the proposed successor's experience,
ability and fees, shall 3. appoint a successor to the Resigning Escrow Agent (a
"Successor Escrow Agent") to act as the Escrow Agent hereunder, which Successor
Escrow Agent shall be a Financial Institution with offices in the United States
of America, and 4. notify the Resigning Escrow Agent of such appointment;
provided, however, that if Buyer and Holding Companies shall fail to mutually so
appoint a Successor Escrow Agent, the Resigning Escrow Agent may petition a
Court to appoint a Successor Escrow Agent hereunder. Notwithstanding the
Resignation Date set forth by the Resigning Escrow Agent in its Resignation
Notice, no such resignation shall become effective until a Successor Escrow
Agent shall have delivered to each of the Resigning Escrow Agent, Buyer and
Holding Companies a copy of the instrument under which it was appointed and an
executed counterpart of an instrument accepting its appointment and assuming all
of the Resigning Escrow Agent's obligations as the Escrow Agent hereunder,
except for obligations attributable to acts or omissions of the Resigning Escrow
Agent. On the first Business Day next following the later to occur of (A) the
Resignation Date and (B) the date of delivery to the Resigning Escrow Agent,
Buyer and Holding Companies of the instruments referred to in the next preceding
sentence, the Resigning Escrow Agent shall deliver to the Successor Escrow Agent
all assets then held by the Resigning Escrow Agent in the Escrow Account, its
records of all payments theretofore made to and from the Escrow Account (or
copies of such records), copies of all Claim Notices, Objection Notices and
other written notices given or received by the Escrow Agent pursuant to this
Agreement and all transmittal letters and other documents received or held by it
under this Agreement.
Section 3.3 Duties and Rights of Escrow Agent. (a) The duties
of the Escrow Agent are only such as are herein specifically provided, being
purely ministerial in nature, and no implied
- --------
(1) Note: Article III to be subject to revision upon selection of Escrow
Agent.
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covenants or obligations shall be inferred against it herein. The Escrow Agent
shall not be responsible for any recitals of fact in this Agreement or any
related agreement, including, but not limited to, the Purchase Agreement or
Employment Agreements, and shall not be subject to, nor obliged to, recognize
any other agreement between the other parties hereto even though reference
thereto may be made in this Agreement. The Escrow Agent shall incur no liability
whatever for any error in judgment or any act or omission to act except in the
case of its wilful misconduct or gross negligence.
(b)The Escrow Agent shall not be required to, and shall not,
expend or risk any of its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder.
Section 3.4 Reliance upon Counsel. If the Escrow Agent
believes it appropriate to do so, the Escrow Agent may consult with counsel
concerning any of the Escrow Agent's duties hereunder or any litigation or
problems relating to this Agreement, and the Escrow Agent shall be fully
protected in any action or omission to act taken in good faith in accordance
with such counsel's advice. The Escrow Agent may rely on its counsel as to the
"final unappealable" nature of any Court Order for purposes of this Agreement.
If any property subject hereto is at any time attached, garnished or levied
upon, under any court order, writ, judgment or decree, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, writ, judgment or decree, or in case any
court order, writ, judgment or decree shall be made or entered by any court
affecting such property, or any part thereof, then, in any of such events, the
Escrow Agent is authorized, in its sole discretion, to rely upon and comply with
any such court order, writ, judgment or decree, which it is advised by legal
counsel of its own choosing is binding upon it, and if it complies with any such
court order, writ, judgment or decree, it shall not be liable to Buyer or Seller
or to any other Person by reason of such compliance even though such court
order, writ, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
Section 3.5 Legal Proceedings. The Escrow Agent shall not be
required to defend any legal proceedings which may be instituted against it in
respect of this Agreement or any of the assets in the Escrow Account unless
required to do so by Buyer or Seller and indemnified to its reasonable
satisfaction by Buyer or Seller against the cost and expense thereof. The Escrow
Agent shall not be required to institute any legal proceedings of any kind, but
may, at its election, bring an interpleader action against Buyer and Seller in
any court, if the Escrow Agent deems such action necessary to resolve any
dispute as to its duties hereunder or the disposition of any of the assets in
the Escrow Account.
Section 3.6 Sufficiency of Documents. The Escrow Agent shall
have no responsibility for the form, genuineness, execution, value, validity or
sufficiency for any purpose of any securities, certificate, stock power,
telecopy, letter, instructions, notice, document or other item delivered to it
and reasonably believed by it to be genuine, and it shall be fully protected in
acting in accordance with any written instructions given to it hereunder in
accordance with the provisions hereof, or given jointly at any time by Buyer and
Sellers' Representatives and reasonably
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believed by it to have been signed by the proper party or parties. The Escrow
Agent shall not be obliged to inquire as to the form, manner of execution or
validity of any documents deposited or received by it pursuant to the provisions
of this Agreement, including, but not limited to, any instrument necessary for
the negotiation or transfer of any Permitted Investments, nor shall the Escrow
Agent be obliged to inquire as to the identity, authority or rights of the
Persons executing the same. The Escrow Agent shall not be responsible for the
acts or omissions of its nominees, correspondents, designees, subagents or
subcustodians appointed in good faith.
Section 3.7 Conflicting Demands. In case of conflicting
demands upon it or ambiguity or uncertainty, the Escrow Agent may withhold
performance of any action under this Agreement until such time as said
conflicting demands, ambiguity or uncertainty shall have been withdrawn or
resolved or the rights of the parties shall have been settled by court
adjudication or otherwise.
Section 3.8 Fees and Expenses of Escrow Agent and
Indemnification. (a) Buyer shall pay to the Escrow Agent (i) an initial fee
U.S.$1,500 on the date hereof, (ii) an annual administration fee of U.S.$5,000
on each anniversary of the date hereof so long as this Agreement has not been
terminated, (iii) a substitution fee of U.S.$250 for each substitution made by
the Escrow Agent under Section 2.3, (iv) any reasonable legal fees or expenses
incurred by the Escrow Agent in connection with the execution and performance of
its duties hereunder and (v) such other expenses (including any costs incurred
in connection with any purchase or sale of any security made by the Escrow
Agent) of the Escrow Agent which may be reasonably necessary to the performance
of its duties and obligations hereunder.
(b)Buyer and Seller, jointly and severally, shall be liable
for and shall reimburse and indemnify the Escrow Agent and hold the Escrow Agent
harmless from and against any and all claims, losses, liabilities, costs,
damages or expenses (including reasonable attorneys' fees and expenses)
(collectively, "Losses") arising out of or in connection with or related to this
Agreement or being Escrow Agent hereunder (including but not limited to Losses
incurred by the Escrow Agent in connection with its successful defense, in whole
or in part, of any claim of gross negligence or wilful misconduct on its part),
provided, however, that nothing contained herein shall require the Escrow Agent
to be indemnified for Losses caused by its gross negligence or wilful
misconduct. The provisions of this Section 3.8(b) shall survive termination of
this Agreement and the resignation or removal of the Escrow Agent.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.1 Assignment. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by any of the Sellers without
the prior written consent of Buyer, or by Buyer without the prior written
consent of Sellers' Representatives, except that Buyer may, without
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such consent, assign the right to Escrow Shares or other proceeds paid pursuant
hereto to any of its direct or indirect subsidiaries. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, and no other Person shall
have any right, benefit or obligation hereunder.
4.2 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and delivered in person or by courier, telexed
or by facsimile transmission or mailed by certified or registered mail, postage
prepaid, return receipt requested (such mail notice to be effective on the date
such receipt is acknowledged), as follows:
(a) if to Sellers or Holding c/o DeCompras.com, S.A. de C.V.
Companies: Corpus Christi, 2312
Col. Lomas de San Francisco
Monterrey, N.L.
Mexico 64710
Attention: Juan Carlos Garcia S.
Telecopier number: (528) 346-6948 (x115)
Confirmation number: (528) 346-6948 (x 117)
with copies to: Ventura Capital Privado
Edificio Torrealta
Ave. Roble 300-Desp. 1505
66265 Gesza Garcie, N.L.
Attention: Adrian Garza de la Garza
Telecopier Number: 011 (528) 335-4175
Confirmation Number: 011 (528) 335-1012
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
U.S.A.
Attention: Alejandro E. Camacho
Telecopier number: (212) 878-8375
Confirmation number: (212) 878-8434
(b) if to Buyer: El Sitio, Inc.
Av. Ingeniero Huergo 1167
C1107AOL, Buenos Aires
Argentina
Attention: Daniel Rotsztain
Telecopier number: 011(54-11) 4339-3700
Confirmation number: 011 (54-11) 4339-3800
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with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
U.S.A.
Attention: Glenn M. Reiter, Esq. and
S. Todd Crider, Esq.
Telecopier number: (212) 455-2502
Confirmation number: (212) 455-2500
4.3 Governing Law. This Agreement shall be governed by, and
construed (and the rights of the parties determined) in accordance with, the law
of the State of New York.
4.4 Dispute Resolution. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the then existing Rules of Conciliation and
Arbitration of the International Chamber of Commerce (the "ICC"). The arbitral
tribunal shall be composed of three arbitrators. Each party shall appoint one
arbitrator. If a party fails to appoint an arbitrator within thirty (30) days
after the date the claimant's Demand for Arbitration is communicated to the
other party (the "Notification Date"), the ICC shall make such appointment. The
two arbitrators thus appointed shall attempt to agree upon the appointment of a
third arbitrator to serve as chairperson of the arbitral tribunal. If such two
arbitrators fail to agree upon the appointment of such third arbitrator within
sixty (60) days after the Notification Date, the ICC shall make such
appointment. The place of arbitration shall be New York, New York. The arbitral
proceeding shall be conducted in the English language. The arbitral tribunal
shall apply the laws of the State of New York. To the extent they may validly so
agree, the parties hereby exclude any right of appeal to any court of the
arbitration or concerning the arbitral award. Upon reaching a decision, the
arbitral tribunal shall send written notification (the "Arbitral Order") to the
parties hereto, including the Escrow Agent. Judgment upon the arbitral award may
be entered in any court having jurisdiction thereof or having jurisdiction over
any party or any party's assets. Notwithstanding the foregoing, any party may
seek a preliminary injunction or other preliminary judicial relief if, in its
reasonable, good faith judgment, such action is necessary to avoid irreparable
damage. Despite such action, such party shall continue to participate in good
faith in the procedures specified in this Section 4.4. All applicable statutes
of limitations shall be tolled while the procedures specified in this Section
4.4 are pending, and the parties shall take any and all actions required to
effectuate such tolling.
4.5 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all parties. Any term of provision of this Agreement may be waived,
or the time for performance of which may be extended, if evidenced in writing by
the party or parties entitled to the benefit hereof. No waiver of any of the
provisions of this Agreement shall be deemed or
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shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
4.6 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
4.7 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
4.8 Headings. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning of interpretation of this Agreement.
4.9 Schedules and Exhibits. The Schedules and Exhibits
referred to in this Agreement shall be construed with and as an integral part of
this Agreement to the same extent as if the same had been set forth verbatim
herein.
4.10 Reasonable Consent Required. Where any provision of this
Agreement requires a party to obtain the consent, approval or other acquiescence
of any other Person, such consent, approval or other acquiescence shall not be
unreasonably conditioned, withheld or delayed by such other party.
4.11 Further Assurances. At any time or from time to time
after the date hereof, the parties agree to cooperate with each other, and at
the request of any other party, to execute and deliver any further instruments
or documents and to take all such further action as the other party may
reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and to otherwise carry out the intent of the
parties hereunder.
4.12 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
LAW, THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed and delivered as of the date first written above.
EL SITIO, INC.
By: _______________________________
Name:
Title:
CORACIAS, B.V.
By: _______________________________
Name:
Title:
BELAGUA, B.V.
By: ______________________________
Name:
Title:
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EXHIBIT K-1
<TABLE>
<CAPTION>
P A G A R E PROMISSORY NOTE
----------- ---------------
E.U.A. $1'000,000.00 Dolares U.S.A. $1,000,000.00 Dollars
<S> <C>
DE COMPRAS.COM, S.A. DE C.V. (la "SUSCRIPTORA") DE COMPRAS.COM, S.A. DE C.V. (the "MAKER")
representada por el Sr. Adrian de la Garza Garza, represented by Mr. Adrian de la Garza Garza,
por este PAGARE incondicionalmente promete pagar hereby unconditionally promises to pay to the
a la orden de EL SITIO, INC. ("EL SITIO"), la order of EL SITIO, INC. ("EL SITIO"), the
suma principal de EUA$1'000,000.00 Dolares (Un principal sum of US$1,000,000 Dollars (One
Millon de Dolares 00/100 moneda de curso legal de Million Dollars 00/100 lawful currency of the
los Estados Unidos de America), de conformidad United States of America), in accordance with the
con los terminos que se establecen a terms hereinafter set forth.
continuacion.
La suma principal de este PAGARE sera pagadera el The principal amount of this PROMISSORY NOTE
dia 13 de marzo de 2001 (la "Fecha de shall be payable on March 13, 2001 (the "Maturity
Vencimiento"). Date").
La SUSCRIPTORA promete pagar intereses ordinarios The MAKER promises to pay ordinary interest on
sobre el saldo principal de este PAGARE a partir the unpaid principal balance hereof as from the
de la fecha de suscripcion de este PAGARE hasta e date of execution of this PROMISSORY NOTE until
incluyendo la fecha de pago total de la suma and including the date full payment of the
principal del mismo a satisfaccion plena de EL principal amount thereof is made at EL SITIO's
SITIO, a una tasa de interes anual fija de 8% complete satisfaction, at a fixed rate of 8%
(ocho por ciento). (eight percent) per annum.
Dichos intereses sobre el saldo insoluto del All such interest on the outstanding amount of
principal seran pagaderos en forma mensual, the principal amount shall be payable on a
dentro de los cinco (5) dias naturales de cada monthly basis, in arrears, within the first five
mes, mientras cualquier cantidad de principal sea (5) calendar days of each month so long as any
debida a favor de EL SITIO. El primer pago de amount of principal hereunder is outstanding in
intereses ordinarios se efectuara dentro de los favor of EL SITIO. The first payment of ordinary
primeros cinco (5) dias naturales del mes de interest shall be made within the first five (5)
abril de 2000, y debera incluir intereses calendar days of the month of April 2000, and
ordinarios desde la fecha de suscripcion de este shall include ordinary interest from the date
pagare y hasta el ultimo dia del mes en que se hereof and until the last day of the month in
suscribe este pagare. Conjuntamente con el pago which this PROMISSORY NOTE is executed. Together
del principal, se debera pagar cualquier interes with payment of the principal amount hereunder,
ordinario que se deba hasta esa fecha. any ordinary interest owed until such date shall
be paid.
</TABLE>
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<TABLE>
<S> <C>
En el caso de que la SUSCRIPTORA no pagase In the event the MAKER shall fail to pay any
cualesquiera pagos periodicos o la suma principal installment or the principal amount due
sobre este PAGARE a su vencimiento, y no obstante hereunder, and without prejudice to all rights
los derechos y recursos que tenga la SUSCRIPTORA and remedies of the MAKER hereunder, the MAKER
de acuerdo al presente, la SUSCRIPTORA pagara a shall pay in to EL SITIO, in lieu of the ordinary
EL SITIO, en lugar de la tasa de interes interest rate, penalty interest on any
ordinaria, intereses moratorios sobre la cantidad outstanding amount, at a per annum rate equal to
adeudada, a una tasa de interes anual igual al the result of multiplying the ordinary interest
resultado de multiplicar la tasa de interes rate times one point five (1.5) (" Default
ordinaria por uno punto cinco (1.5) ("Tasa Rate"). Interest at the Default Rate shall
Moratoria"). El interes a la Tasa Moratoria se accrue on a daily basis until full payment of the
devengara diariamente, hasta que el pago debido amount due is made to EL SITIO's satisfaction;
sea pagado en su totalidad, a satisfaccion de EL provided however, that the Default Rate shall
SITIO, en el entendido, sin embargo, que la Tasa not exceed the maximum allowed by applicable law.
Moratoria no debera exceder el monto maximo
permitido por la legislacion aplicable.
No obstante lo anterior o cualquier otra Notwithstanding the foregoing or any other
disposicion contenida en el presente Pagare, nada provision contained in this Promissory Note,
de lo contenido en este titulo autorizara o nothing herein contained shall authorize or
permitira la exigibilidad o el pago de intereses permit exaction or payment of interest by the
por parte de la SUSCRIPTORA cuando los mismos MAKER where the same would be unlawful or
serian ilegales o prohibidos por la ley o prohibited by any applicable law or would violate
violarian las disposiciones sobre usura the applicable usury law of any competent
aplicables de cualquier jurisdiccion competente jurisdiction hereof. In any such event, this
bajo el presente. En cualquiera de dichos casos, Promissory Note shall automatically be deemed
este Pagare se considerara automaticamente amended to permit interest charged at an amount
modificado a fin de permitir cargos por intereses equal to, but not greater than, the maximum
en una cantidad igual a, pero no mayor a, la permitted by law.
maxima permitida por la ley.
Adicionalmente, el incumplimiento en efectuar el In addition, the failure to make a punctual
pago puntual y en su totalidad cuando sea debido, payment in its totality when due of interest
de cualquier suma de intereses conforme a este under this PROMISSORY NOTE, shall be sufficient
PAGARE, sera causa suficiente para acelerar la cause for accelerating the stated maturity of
fecha de vencimiento del mismo, y el pago total this PROMISSORY NOTE, and the full payment
de este PAGARE sera entonces debido y pagadero de thereof shall become due and payable immediately.
inmediato.
</TABLE>
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<TABLE>
<S> <C>
Los intereses a que se refiere este PAGARE se Interest hereunder shall be computed on the basis
computaran sobre la base de un ano de trescientos of a year of three hundred and sixty (360) days
sesenta (360) dias por el numero de dias for the number of calendar days elapsed.
calendario transcurridos.
La suma principal de este PAGARE y los intereses The principal amount hereof and interest thereon
correspondientes al mismo se pagaran a EL SITIO shall be payable to EL SITIO at: Citibank NA, 111
en Citibank NA, 111 Wall Street, 21st Floor, New Wall Street, 21st Floor, New York, NY, United
York, NY, United States of America, ABA: States of America, ABA: 021000089, account
021000089, account number 3618-3355, Estados number 3618-3355, for deposit on the account
Unidos de America, para deposito en la cuenta indicated by EL SITIO or at such other place or
indicada por EL SITIO, o en otro lugar o cuenta bank account outside of the territory of the
bancaria fuera del territorio de los Estados United Mexican States that EL SITIO or the holder
Unidos Mexicanos que EL SITIO o el legitimo hereof may notify in writing to the MAKER with
tenedor del presente PAGARE notifiquen por fifteen (15) calendar days in advance, in
escrito a la SUSCRIPTORA con quince (15) dias Dollars, lawful currency of the United States of
naturales de anticipacion, en Dolares, moneda de America ("DOLLARS"), in immediately available
curso legal de los Estados Unidos de America funds.
("DOLARES"), en fondos inmediatamente
disponibles.
Si, cualquier pago conforme al presente es hecho If, any payment due hereunder is made to EL SITIO
a EL SITIO en una moneda (la "OTRA MONEDA") in a currency (the "OTHER CURRENCY") other than
distinta a dolares, moneda de los Estados Unidos dollars, currency of the United States of America
de America ("DOLARES EUA"), por cualquier razon ("U.S. DOLLARS"), for any reason whatsoever
(incluyendo, sin limitacion, como resultado de (including, without limitation, as a result of a
una sentencia en contra de la SUSCRIPTORA o la judgment against the MAKER or the liquidation of
liquidacion de los activos de la SUSCRIPTORA), the MAKER's assets), then, to the extent that
entonces, en la medida en que dicho pago (o, en such payment (or, in the case of a liquidation,
caso de una liquidacion, el valor a la ultima the value as of the latest date for the
fecha para la determinacion de pasivos permitida determination of liabilities permitted by
por la ley aplicable) sea inferior a la cantidad applicable law) falls short of the applicable
aplicable que sea requerida a ser pagada conforme amount which is required to be paid under this
a este PAGARE basado en el tipo de cambio para la PROMISSORY NOTE based upon the rate of exchange
Otra Moneda, la SUSCRIPTORA, como una obligacion for the Other Currency, the MAKER shall, as a
separada e independiente, indemnizara en su separate and independent obligation, fully
totalidad a EL SITIO por la cantidad deficiente. indemnify EL SITIO against the amount of the
Para los efectos de este parrafo, el termino shortfall. For the purposes of this paragraph,
"tipo de cambio" significa el tipo de cambio al the term "rate of exchange" means the rate at
cual which EL SITIO is able at 11:00 a.m. (New York
City time)
</TABLE>
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<TABLE>
<S> <C>
EL SITIO puede a las 11:00 a.m. (hora de la on the relevant date to purchase U.S. Dollars
ciudad de Nueva York) en la fecha correspondiente in New York City with the Other Currency.
comprar Dolares EUA en la ciudad de Nueva York
con la Otra Moneda.
El importe principal de este PAGARE y los The principal amount of this PROMISSORY NOTE and
intereses sobre el mismo seran pagados por la the interest thereon shall be paid by the MAKER
SUSCRIPTORA libres y sin deduccion alguna por free and clear and without deduction of any and
concepto de cualesquiera impuestos, tributos, all present or future taxes, levies, imposts,
contribuciones, deducciones, cargos, retenciones, deductions, charges, withholdings, any interest,
cualesquiera intereses, recargos, multas, surcharges, fines, penalties, or other fiscal
sanciones y otros gravamenes fiscales presentes o assessments of any kind whatsoever with respect
futuros de cualquier clase respecto de los thereto.
mismos.
Si en cualquier tiempo, cualquier pago recibido o If, at any time, any payment received or
que EL SITIO vaya a recibir (incluyendo, sin receivable by EL SITIO (including, without
limitar, cualquier cantidad que deba ser retenida limitation, any amount required to be held by the
por la SUSCRIPTORA), esta sujeta a cualquier MAKER), is subject to any deduction or
deduccion o retencion en los Estados Unidos withholding in the United Mexican States, then
Mexicanos, entonces la cantidad de dicho pago the amount of such payment shall be increased to
debera incrementarse a un monto (el "PAGO an amount (the "GROSSED-UP PAYMENT") which (upon
INCREMENTADO") el cual (una vez que se le subtraction of the amount of any and all taxes or
descuenten cualquier y todos los impuestos other charges required to be paid by, or withheld
aplicables o cualquier otro cargo requerido, o from payment to EL SITIO with respect to the
retenido del pago a EL SITIO con respecto al Pago Grossed-up Payment) shall be equal to the amount
Incrementado) debera ser equivalente a la that would have been obtained by EL SITIO if the
cantidad que debio haber sido recibida por EL payment had not been taxable to EL SITIO. The
SITIO si el pago no hubiera sido sujeto a MAKER shall forward to EL SITIO within thirty
impuestos a cargo de EL SITIO. La SUSCRIPTORA (30) days after such deduction or withholding is
debera entregar a EL SITIO dentro de los treinta made, official receipts or other official
(30) dias siguientes en que se efectue dicha documentation acceptable to EL SITIO evidencing
deduccion o retencion, los recibos oficiales u payment of such deduction or withholding to the
otra documentacion oficial aceptable a EL SITIO, competent Mexican authorities.
que compruebe el pago de dicha deduccion o
retencion a las autoridades mexicanas
competentes.
</TABLE>
4
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<TABLE>
<S> <C>
En cualquier caso en que un abono de intereses o Whenever any installment of interest or principal
de principal conforme al presente sea debido en hereunder is due on a day other than a Business
un dia distinto a un Dia Habil, dicho abono sera Day, such installment shall become due and
exigible y pagadero en el Dia Habil siguiente, y payable on the following Business Day, and such
dicha extension de tiempo sera incluida en el extension of time shall be included in the
calculo de pago de intereses. computation of payment of interest.
Segun se utiliza en este PAGARE, el termino "Dia As used in this PROMISSORY NOTE, the term
Habil" significa el dia del ano en que los bancos "Business Day" means a day of the year on which
en el Estado de New York, Estados Unidos de the banks in the State of New York, United States
America, no sean requeridos o estan autorizados of America are not required or authorized to
a cerrar. close.
El presente PAGARE se considerara suscrito This PROMISSORY NOTE shall be deemed to be made
conforme a las leyes del Estado de Nueva York, under the laws of the State of New York, United
Estados Unidos de America, y para todos los States of America, and for all purposes shall
efectos se interpretara de conformidad con las be construed in accordance with the laws of such
leyes de dicho Estado; en el entendido, sin State; provided, however, that for any legal
embargo, que para cualquier accion o action or proceeding brought with respect to this
procedimiento legal instituido en relacion con PROMISSORY NOTE in the courts of the United
este PAGARE en los tribunales de los Estados Mexican States, or any political subdivision
Unidos Mexicanos, o cualquier subdivision thereof, this PROMISSORY NOTE shall be deemed to
politica del mismo, este PAGARE se considerara be made under the laws of the United Mexican
suscrito conforme a las leyes de los Estados States and for such purposes shall be construed
Unidos Mexicanos y para dichos efectos sera in accordance with the laws of the United Mexican
interpretado de conformidad con las leyes de los States.
Estados Unidos Mexicanos.
Para cualquier accion o procedimiento derivado de In any action or proceeding arising out of or
o relativo al presente PAGARE, la SUSCRIPTORA y relating to this PROMISSORY NOTE, the MAKER and
cualquier otro firmante del mismo, se someten any signatories thereof, hereby explicitly submit
expresamente a la jurisdiccion de los tribunales themselves to the jurisdiction of the competent
competentes del Distrito Federal, Mexico, o los courts of the Federal District, Mexico, or the
tribunales federales o locales del Estado de competent federal or local courts of the State of
Nueva York, Estados Unidos de America, a la New York, United States of America, at the
eleccion del tenedor del presente, y renuncian election of the holder hereof, wherefore they
expresamente por lo tanto, a cualquier otra waive expressly any other jurisdiction to which
jurisdiccion a la que pudieren tener derecho, they might have a right, including but not
incluyendo pero no limitado a, jurisdiccion limited to, jurisdiction by reason of their
</TABLE>
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<TABLE>
<S> <C>
por razon de sus domicilios presentes o futuros o por present or future domiciles or by reason of the
razon de lugar de pago de este PAGARE o por place of payment of this PROMISSORY NOTE or by
cualquier otra razon. any other reason.
La SUSCRIPTORA en este acto incondicionalmente The MAKER hereby unconditionally waives to any
renuncia a cualquier derecho a un juicio por right to a jury trial of any claim or right of
jurado de cualquier reclamacion o derecho de action based upon or arising out, directly or
accion basado en o derivado de, directa o indirectly, this PROMISSORY NOTE, any dealings
indirectamente, este PAGARE, cualesquiera between the MAKER and EL SITIO relating to the
negociaciones entre la SUSCRIPTORA y EL SITIO subject matter of this transaction or any related
relacionadas con el objeto materia de esta transactions, and/or the relationship that is
transaccion o cualquiera transacciones being established between the MAKER and EL SITIO.
relacionadas, y/o la relacion que se establece The scope of this waiver is intended to be all
entre la SUSCRIPTORA y EL SITIO. La amplitud de encompassing of any and all disputes that may be
esta renuncia tiene la intencion de abarcar filed in any court (including without limitation,
cualesquiera y todas las disputas que puedan ser contract claims, tort claims, breach of duty
presentadas en cualquier tribunal (incluyendo sin claims, and all other common law and statutory
limitacion, reclamaciones contractuales, claims). This waiver is irrevocable meaning that
reclama-ciones extracontractuales, reclamaciones it may not be modified either orally or in
por incumplimiento de un deber, y todas las demas writing, and the waiver shall apply to any
reclamaciones de derecho comun y reclamaciones subsequent amendments, renewals, supplements or
legales). Esta renuncia es irrevocable modifications to this PROMISSORY NOTE, and
entendiendose que no puede ser modificada ya sea related documents, or to any other documents or
verbalmente o por escrito, y la renuncia sera agreements relating to this transaction or any
aplicable a modificaciones, renovaciones o related transaction.
suplementos subsecuentes de este PAGARE, y
documentos relacionados, o a cualesquiera otros
documentos o acuerdos relacionados con esta
transaccion o cualquier transaccion relacionada.
El presente PAGARE se suscribe en ingles y en This PROMISSORY NOTE is executed in an English
espanol, siendo ambas versiones obligatorias para and a Spanish version, both of which shall bind
la SUSCRIPTORA y para cualquier otro firmante del the MAKER and any other signatories thereof, and
mismo, y constituyen uno y el mismo PAGARE; en constitute one and the same PROMISSORY NOTE;
el entendido, sin embargo, que en caso de duda provided, however, that in case of doubt as to
respecto de la correcta interpretacion de este the proper interpretation and construction of
PAGARE, el texto en ingles prevalecera en todos this PROMISSORY NOTE, the English text shall be
los casos, excepto que el texto en espanol controlling in all cases, except that the Spanish
prevalecera en cualquier accion o text shall be controlling in any legal
</TABLE>
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<TABLE>
<S> <C>
procedimiento legal instituido en relacion action or proceeding brought with respect to
con este PAGARE en los tribunales de los this PROMISSORY NOTE in the courts of the
Estados Unidos Mexicanos o cualquier United Mexican States or any political
subdivision politica de dicho pais. subdivision thereof.
En caso de incumplimiento en el pago Upon default in the prompt and full payment
oportuno y puntual de cualquier abono de of any installment of principal and/or of
principal y/o de intereses bajo este PAGARE, interest on this PROMISSORY NOTE, the entire
la suma principal total insoluta del mismo e unpaid principal hereof and interest
intereses sobre la misma, incluyendo thereon, including penalty interest, to the
intereses moratorios, seran inmediatamente date of payment shall immediately become due
exigibles y pagaderos a la opcion y a and payable at the option and upon the
requerimiento del tenedor de este PAGARE. demand of the holder hereof.
La SUSCRIPTORA en este acto renuncia a The MAKER hereby waives any requirement of
cualquier requerimiento para cualquier any diligence, presentment, demand, protest
diligencia, presentacion, demanda, protesto or notice of nonpayment or dishonor with
o aviso de falta de pago o deshonra de este respect to this PROMISSORY NOTE.
PAGARE.
La omision en el ejercicio por el tenedor The failure of the holder hereof to exercise
del presente de cualquiera de sus derechos any of its rights hereunder in any instance
conforme al mismo en cualquier instancia, no shall not constitute a waiver thereof in
constituira una renuncia a tales derechos en that or any other instance.
dicha o en cualquier otra instancia.
El presente PAGARE podra ser transmitido o This PROMISSORY NOTE may be transferred or
negociado mediante endoso sin limitacion negotiated by means of an endorsement,
alguna. without limitation whatsoever.
Este PAGARE se suscribe en la Ciudad de This PROMISSORY NOTE is executed in Buenos
Buenos Aires, Argentina, el 13 de marzo del Aires, Argentina, on March 13, 2000.
2000.
</TABLE>
DE COMPRAS.COM, S.A. DE C.V.
Por/By: Mr._____________________________
Puesto/Title:Attorney-in-fact/ Apoderado
7
<PAGE> 98
EXHIBIT K-2
<TABLE>
<CAPTION>
P A G A R E PROMISSORY NOTE
----------- ---------------
E.U.A. $2'000,000.00 Dolares U.S.A. $2,000,000.00 Dollars
<S> <C>
DE COMPRAS.COM, S.A. DE C.V. (la "SUSCRIPTORA") DE COMPRAS.COM, S.A. DE C.V. (the "MAKER")
representada por el Sr. represented by Mr. ____________________, hereby
__________________________, por este PAGARE unconditionally promises to pay to the order of
incondicionalmente promete pagar a la orden de EL EL SITIO, INC. ("EL SITIO"), the principal sum of
SITIO, INC. ("EL SITIO"), la suma principal de US$2,000,000 Dollars (Two Million Dollars 00/100
EUA$2'000,000.00 Dolares (Dos Millones de Dolares lawful currency of the United States of America),
00/100 moneda de curso legal de los Estados in accordance with the terms hereinafter set
Unidos de America), de conformidad con los forth.
terminos que se establecen a continuacion.
La suma principal de este PAGARE sera pagadera el The principal amount of this PROMISSORY NOTE
dia ___ de marzo de 2001 (la "Fecha de shall be payable on March __, 2001 (the "Maturity
Vencimiento"). Date").
La SUSCRIPTORA promete pagar intereses ordinarios The MAKER promises to pay ordinary interest on
sobre el saldo principal de este PAGARE a partir the unpaid principal balance hereof as from the
de la fecha de suscripcion de este PAGARE hasta e date of execution of this PROMISSORY NOTE until
incluyendo la fecha de pago total de la suma and including the date full payment of the
principal del mismo a satisfaccion plena de EL principal amount thereof is made at EL SITIO's
SITIO, a una tasa de interes anual fija de 8% complete satisfaction, at a fixed rate of 8%
(ocho por ciento). (eight percent) per annum.
Dichos intereses sobre el saldo insoluto del All such interest on the outstanding amount of
principal seran pagaderos en forma mensual, the principal amount shall be payable on a
dentro de los cinco (5) dias naturales de cada monthly basis, in arrears, within the first five
mes, mientras cualquier cantidad de principal sea (5) calendar days of each month so long as any
debida a favor de EL SITIO. El primer pago de amount of principal hereunder is outstanding in
intereses ordinarios se efectuara dentro de los favor of EL SITIO. The first payment of ordinary
primeros cinco (5) dias naturales del mes de interest shall be made within the first five (5)
abril de 2000, y debera incluir intereses calendar days of the month of April 2000, and
ordinarios desde la fecha de suscripcion de este shall include ordinary interest from the date
pagare y hasta el ultimo dia del mes en que se hereof and until the last day of the month in
suscribe este pagare. Conjuntamente con el pago which this PROMISSORY NOTE is executed. Together
del principal, se debera pagar cualquier interes with payment of the principal amount hereunder,
ordinario que se deba hasta esa fecha. any ordinary interest owed until such date shall
be paid.
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En el caso de que la SUSCRIPTORA no pagase In the event the MAKER shall fail to pay any
cualesquiera pagos periodicos o la suma principal installment or the principal amount due
sobre este PAGARE a su vencimiento, y no obstante hereunder, and without prejudice to all rights
los derechos y recursos que tenga la SUSCRIPTORA and remedies of the MAKER hereunder, the MAKER
de acuerdo al presente, la SUSCRIPTORA pagara a shall pay in to EL SITIO, in lieu of the ordinary
EL SITIO, en lugar de la tasa de interes interest rate, penalty interest on any
ordinaria, intereses moratorios sobre la cantidad outstanding amount, at a per annum rate equal to
adeudada, a una tasa de interes anual igual al the result of multiplying the ordinary interest
resultado de multiplicar la tasa de interes rate times one point five (1.5) (" Default
ordinaria por uno punto cinco (1.5) ("Tasa Rate"). Interest at the Default Rate shall
Moratoria"). El interes a la Tasa Moratoria se accrue on a daily basis until full payment of the
devengara diariamente, hasta que el pago debido amount due is made to EL SITIO's satisfaction;
sea pagado en su totalidad, a satisfaccion de EL provided however, that the Default Rate shall
SITIO, en el entendido, sin embargo, que la Tasa not exceed the maximum allowed by applicable law.
Moratoria no debera exceder el monto maximo
permitido por la legislacion aplicable.
No obstante lo anterior o cualquier otra Notwithstanding the foregoing or any other
disposicion contenida en el presente Pagare, nada provision contained in this Promissory Note,
de lo contenido en este titulo autorizara o nothing herein contained shall authorize or
permitira la exigibilidad o el pago de intereses permit exaction or payment of interest by the
por parte de la SUSCRIPTORA cuando los mismos MAKER where the same would be unlawful or
serian ilegales o prohibidos por la ley o prohibited by any applicable law or would violate
violarian las disposiciones sobre usura the applicable usury law of any competent
aplicables de cualquier jurisdiccion competente jurisdiction hereof. In any such event, this
bajo el presente. En cualquiera de dichos casos, Promissory Note shall automatically be deemed
este Pagare se considerara automaticamente amended to permit interest charged at an amount
modificado a fin de permitir cargos por intereses equal to, but not greater than, the maximum
en una cantidad igual a, pero no mayor a, la permitted by law.
maxima permitida por la ley.
Adicionalmente, el incumplimiento en efectuar el In addition, the failure to make a punctual
pago puntual y en su totalidad cuando sea debido, payment in its totality when due of interest
de cualquier suma de intereses conforme a este under this PROMISSORY NOTE, shall be sufficient
PAGARE, sera causa suficiente para acelerar la cause for accelerating the stated maturity of
fecha de vencimiento del mismo, y el pago total this PROMISSORY NOTE, and the full payment
de este PAGARE sera entonces debido y pagadero de thereof shall become due and payable immediately.
inmediato.
</TABLE>
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Los intereses a que se refiere este PAGARE se Interest hereunder shall be computed on the basis
computaran sobre la base de un ano de trescientos of a year of three hundred and sixty (360) days
sesenta (360) dias por el numero de dias for the number of calendar days elapsed.
calendario transcurridos.
La suma principal de este PAGARE y los intereses The principal amount hereof and interest thereon
correspondientes al mismo se pagaran a EL SITIO shall be payable to EL SITIO at: Citibank NA, 111
en Citibank NA, 111 Wall Street, 21st Floor, New Wall Street, 21st Floor, New York, NY, United
York, NY, United States of America, ABA: States of America, ABA: 021000089, account
021000089, account number 3618-3355, Estados number 3618-3355, for deposit on the account
Unidos de America, para deposito en la cuenta indicated by EL SITIO or at such other place or
indicada por EL SITIO, o en otro lugar o cuenta bank account outside of the territory of the
bancaria fuera del territorio de los Estados United Mexican States that EL SITIO or the holder
Unidos Mexicanos que EL SITIO o el legitimo hereof may notify in writing to the MAKER with
tenedor del presente PAGARE notifiquen por fifteen (15) calendar days in advance, in
escrito a la SUSCRIPTORA con quince (15) dias Dollars, lawful currency of the United States of
naturales de anticipacion, en Dolares, moneda de America ("DOLLARS"), in immediately available
curso legal de los Estados Unidos de America funds.
("DOLARES"), en fondos inmediatamente
disponibles.
Si, cualquier pago conforme al presente es hecho If, any payment due hereunder is made to EL SITIO
a EL SITIO en una moneda (la "OTRA MONEDA") in a currency (the "OTHER CURRENCY") other than
distinta a dolares, moneda de los Estados Unidos dollars, currency of the United States of America
de America ("DOLARES EUA"), por cualquier razon ("U.S. DOLLARS"), for any reason whatsoever
(incluyendo, sin limitacion, como resultado de (including, without limitation, as a result of a
una sentencia en contra de la SUSCRIPTORA o la judgment against the MAKER or the liquidation of
liquidacion de los activos de la SUSCRIPTORA), the MAKER's assets), then, to the extent that
entonces, en la medida en que dicho pago (o, en such payment (or, in the case of a liquidation,
caso de una liquidacion, el valor a la ultima the value as of the latest date for the
fecha para la determinacion de pasivos permitida determination of liabilities permitted by
por la ley aplicable) sea inferior a la cantidad applicable law) falls short of the applicable
aplicable que sea requerida a ser pagada conforme amount which is required to be paid under this
a este PAGARE basado en el tipo de cambio para la PROMISSORY NOTE based upon the rate of exchange
Otra Moneda, la SUSCRIPTORA, como una obligacion for the Other Currency, the MAKER shall, as a
separada e independiente, indemnizara en su separate and independent obligation, fully
totalidad a EL SITIO por la cantidad deficiente. indemnify EL SITIO against the amount of the
Para los efectos de este parrafo, el termino shortfall. For the purposes of this paragraph,
"tipo de the term "rate of exchange" means the rate at
which EL SITIO
</TABLE>
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<TABLE>
<S> <C>
cambio" significa el tipo de cambio al
cual EL SITIO puede a las 11:00 a.m. (hora de la is able at 11:00 a.m. (New York
ciudad de Nueva York) en la fecha correspondiente City time) on the relevant date to purchase U.S.
comprar Dolares EUA en la ciudad de Nueva York Dollars in New York City with the Other Currency.
con la Otra Moneda.
El importe principal de este PAGARE y los The principal amount of this PROMISSORY NOTE and
intereses sobre el mismo seran pagados por la the interest thereon shall be paid by the MAKER
SUSCRIPTORA libres y sin deduccion alguna por free and clear and without deduction of any and
concepto de cualesquiera impuestos, tributos, all present or future taxes, levies, imposts,
contribuciones, deducciones, cargos, retenciones, deductions, charges, withholdings, any interest,
cualesquiera intereses, recargos, multas, surcharges, fines, penalties, or other fiscal
sanciones y otros gravamenes fiscales presentes o assessments of any kind whatsoever with respect
futuros de cualquier clase respecto de los thereto.
mismos.
Si en cualquier tiempo, cualquier pago recibido o If, at any time, any payment received or
que EL SITIO vaya a recibir (incluyendo, sin receivable by EL SITIO (including, without
limitar, cualquier cantidad que deba ser retenida limitation, any amount required to be held by the
por la SUSCRIPTORA), esta sujeta a cualquier MAKER), is subject to any deduction or
deduccion o retencion en los Estados Unidos withholding in the United Mexican States, then
Mexicanos, entonces la cantidad de dicho pago the amount of such payment shall be increased to
debera incrementarse a un monto (el "PAGO an amount (the "GROSSED-UP PAYMENT") which (upon
INCREMENTADO") el cual (una vez que se le subtraction of the amount of any and all taxes or
descuenten cualquier y todos los impuestos other charges required to be paid by, or withheld
aplicables o cualquier otro cargo requerido, o from payment to EL SITIO with respect to the
retenido del pago a EL SITIO con respecto al Pago Grossed-up Payment) shall be equal to the amount
Incrementado) debera ser equivalente a la that would have been obtained by EL SITIO if the
cantidad que debio haber sido recibida por EL payment had not been taxable to EL SITIO. The
SITIO si el pago no hubiera sido sujeto a MAKER shall forward to EL SITIO within thirty
impuestos a cargo de EL SITIO. La SUSCRIPTORA (30) days after such deduction or withholding is
debera entregar a EL SITIO dentro de los treinta made, official receipts or other official
(30) dias siguientes en que se efectue dicha documentation acceptable to EL SITIO evidencing
deduccion o retencion, los recibos oficiales u payment of such deduction or withholding to the
otra documentacion oficial aceptable a EL SITIO, competent Mexican authorities.
que compruebe el pago de dicha deduccion o
retencion a las autoridades mexicanas
competentes.
</TABLE>
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En cualquier caso en que un abono de intereses o Whenever any installment of interest or principal
de principal conforme al presente sea debido en hereunder is due on a day other than a Business
un dia distinto a un Dia Habil, dicho abono sera Day, such installment shall become due and
exigible y pagadero en el Dia Habil siguiente, y payable on the following Business Day, and such
dicha extension de tiempo sera incluida en el extension of time shall be included in the
calculo de pago de intereses. computation of payment of interest.
Segun se utiliza en este PAGARE, el termino "Dia As used in this PROMISSORY NOTE, the term
Habil" significa el dia del ano en que los bancos "Business Day" means a day of the year on which
en el Estado de New York, Estados Unidos de the banks in the State of New York, United States
America, no sean requeridos o estan autorizados a of America are not required or authorized to
cerrar. close.
El presente PAGARE se considerara suscrito This PROMISSORY NOTE shall be deemed to be made
conforme a las leyes del Estado de Nueva York, under the laws of the State of New York, United
Estados Unidos de America, y para todos los States of America, and for all purposes shall
efectos se interpretara de conformidad con las be construed in accordance with the laws of such
leyes de dicho Estado; en el entendido, sin State; provided, however, that for any legal
embargo, que para cualquier accion o action or proceeding brought with respect to this
procedimiento legal instituido en relacion con PROMISSORY NOTE in the courts of the United
este PAGARE en los tribunales de los Estados Mexican States, or any political subdivision
Unidos Mexicanos, o cualquier subdivision thereof, this PROMISSORY NOTE shall be deemed to
politica del mismo, este PAGARE se considerara be made under the laws of the United Mexican
suscrito conforme a las leyes de los Estados States and for such purposes shall be construed
Unidos Mexicanos y para dichos efectos sera in accordance with the laws of the United Mexican
interpretado de conformidad con las leyes de los States.
Estados Unidos Mexicanos.
Para cualquier accion o procedimiento derivado de In any action or proceeding arising out of or
o relativo al presente PAGARE, la SUSCRIPTORA y relating to this PROMISSORY NOTE, the MAKER and
cualquier otro firmante del mismo, se someten any signatories thereof, hereby explicitly submit
expresamente a la jurisdiccion de los tribunales themselves to the jurisdiction of the competent
competentes del Distrito Federal, Mexico, o los courts of the Federal District, Mexico, or the
tribunales federales o locales del Estado de competent federal or local courts of the State of
Nueva York, Estados Unidos de America, a la New York, United States of America, at the
eleccion del tenedor del presente, y renuncian election of the holder hereof, wherefore they
expresamente por lo tanto, a cualquier otra waive expressly any other jurisdiction to which
jurisdiccion they might have a right, including but
</TABLE>
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<TABLE>
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a la que pudieren tener derecho, not limited to, jurisdiction by reason of their
incluyendo pero no limitado a, jurisdiccion por present or future domiciles or by reason of the
razon de sus domicilios presentes o futuros o por place of payment of this PROMISSORY NOTE or by
razon de lugar de pago de este PAGARE o por any other reason.
cualquier otra razon.
La SUSCRIPTORA en este acto incondicionalmente The MAKER hereby unconditionally waives to any
renuncia a cualquier derecho a un juicio por right to a jury trial of any claim or right of
jurado de cualquier reclamacion o derecho de action based upon or arising out, directly or
accion basado en o derivado de, directa o indirectly, this PROMISSORY NOTE, any dealings
indirectamente, este PAGARE, cualesquiera between the MAKER and EL SITIO relating to the
negociaciones entre la SUSCRIPTORA y EL SITIO subject matter of this transaction or any related
relacionadas con el objeto materia de esta transactions, and/or the relationship that is
transaccion o cualquiera transacciones being established between the MAKER and EL SITIO.
relacionadas, y/o la relacion que se establece The scope of this waiver is intended to be all
entre la SUSCRIPTORA y EL SITIO. La amplitud de encompassing of any and all disputes that may be
esta renuncia tiene la intencion de abarcar filed in any court (including without limitation,
cualesquiera y todas las disputas que puedan ser contract claims, tort claims, breach of duty
presentadas en cualquier tribunal (incluyendo sin claims, and all other common law and statutory
limitacion, reclamaciones contractuales, claims). This waiver is irrevocable meaning that
reclama-ciones extracontractuales, reclamaciones it may not be modified either orally or in
por incumplimiento de un deber, y todas las demas writing, and the waiver shall apply to any
reclamaciones de derecho comun y reclamaciones subsequent amendments, renewals, supplements or
legales). Esta renuncia es irrevocable modifications to this PROMISSORY NOTE, and
entendiendose que no puede ser modificada ya sea related documents, or to any other documents or
verbalmente o por escrito, y la renuncia sera agreements relating to this transaction or any
aplicable a modificaciones, renovaciones o related transaction.
suplementos subsecuentes de este PAGARE, y
documentos relacionados, o a cualesquiera otros
documentos o acuerdos relacionados con esta
transaccion o cualquier transaccion relacionada.
El presente PAGARE se suscribe en ingles y en This PROMISSORY NOTE is executed in an English
espanol, siendo ambas versiones obligatorias para and a Spanish version, both of which shall bind
la SUSCRIPTORA y para cualquier otro firmante del the MAKER and any other signatories thereof, and
mismo, y constituyen uno y el mismo PAGARE; en constitute one and the same PROMISSORY NOTE;
el entendido, sin embargo, que en caso de duda provided, however, that in case of doubt as to
respecto de la correcta interpretacion de este the proper interpretation and construction of
PAGARE, el texto en ingles prevalecera en this PROMISSORY NOTE, the English text shall
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todos los casos, excepto que el texto en espanol be controlling in all cases, except that the Spanish
prevalecera en cualquier accion o procedimiento text shall be controlling in any legal action or
legal instituido en relacion con este PAGARE en proceeding brought with respect to this
los tribunales de los Estados Unidos Mexicanos o PROMISSORY NOTE in the courts of the United
cualquier subdivision politica de dicho pais. Mexican States or any political subdivision
thereof.
Upon default in the prompt and full payment of
En caso de incumplimiento en el pago oportuno y any installment of principal and/or of interest
puntual de cualquier abono de principal y/o de on this PROMISSORY NOTE, the entire unpaid
intereses bajo este PAGARE, la suma principal principal hereof and interest thereon, including total
insoluta del mismo e intereses sobre la penalty interest, to the date of payment shall
misma, incluyendo intereses moratorios, seran immediately become due and payable at the option
inmediatamente exigibles y pagaderos a la opcion and upon the demand of the holder hereof.
y a requerimiento del tenedor de este PAGARE.
La SUSCRIPTORA en este acto renuncia a cualquier The MAKER hereby waives any requirement of any
requerimiento para cualquier diligencia, diligence, presentment, demand, protest or notice
presentacion, demanda, protesto o aviso de falta of nonpayment or dishonor with respect to this
de pago o deshonra de este PAGARE. PROMISSORY NOTE.
La omision en el ejercicio por el tenedor del The failure of the holder hereof to exercise any
presente de cualquiera de sus derechos conforme of its rights hereunder in any instance shall not
al mismo en cualquier instancia, no constituira constitute a waiver thereof in that or any other
una renuncia a tales derechos en dicha o en instance.
cualquier otra instancia.
El presente PAGARE podra ser transmitido o This PROMISSORY NOTE may be transferred or
negociado mediante endoso sin limitacion alguna. negotiated by means of an endorsement, without
limitation whatsoever.
Este PAGARE se suscribe en la Ciudad de Buenos This PROMISSORY NOTE is executed in Aires, Argentina,
el __ de marzo del 2000. Buenos Aires, Argentina, on March __, 2000.
</TABLE>
DE COMPRAS.COM, S.A. DE C.V.
Por/By: Mr.________________________
Puesto/Title:Attorney-in-fact/
Apoderado
14
<PAGE> 1
EXHIBIT 10.27
LETTER AGREEMENT
This Letter Agreement, dated as of February 17, 2000, evidences the
undersigneds' desire to enter into a two-year strategic alliance (the
"Alliance") among Iberoamerican Media Holdings Chile S.A., a Chilean company,
and/or its affiliates ("Iberoamerican"), Red de Television Chilevision S.A., a
Chilean company, and/or its affiliates ("Chilevision" and together with
Iberoamerican, "IRC") and El Sitio, Inc., a British Virgin Islands company,
and/or its affiliates ("El Sitio"). The Alliance shall commence on the date
hereof. It is the intent of the undersigned to negotiate and execute a final
definitive agreement that will incorporate the terms contained herein and such
other terms and conditions as the parties hereto shall mutually agree to
include, on or before March 15, 2000 (the "Agreement"). This Letter Agreement
is, and shall remain a binding agreement, inuring to the benefit of all parties,
until such time as the parties hereto execute the Agreement. The essential terms
and conditions are as follows:
1. Purpose. The purpose of this Letter Agreement and the
Agreement shall be as follows:
a. El Sitio shall assist IRC in the development of Web Sites (the
"Site(s)") for (i) several radio stations that are owned
and/or managed by Iberoamerican, including, but not limited,
to: "Rock & Pop," "Corazon," "Pudahuel," "Music One," "FM
Dos," "FM Hit," "Futuro" and "Aurora" and (ii) four additional
Web Sites for broadcast television stations managed by
Chilevision, known as "Chilevision." To the extent
Iberoamerican acquires additional radio stations after the
date of this Letter Agreement and during the term of the
Agreement, such stations shall be included as part of this
Letter Agreement and the Agreement (the current and future
radio and television stations hereinafter collectively
referred to as the "IRC Network").
b. Iberoamerican shall provide El Sitio with administrative,
accounting, legal (excluding litigation services, licenses
referred to in Section 4(b) below and copyrighting and
licensing referred to in Section 4(c)), human resource,
payroll and collection services; provided, however, that such
services will be limited to El Sitio's operations in Chile,
including, without limitation, with respect to the El Sitio
Site in Chile (the "ESC Site"). In accordance with this Letter
Agreement, IRC shall provide local content for the ESC Site.
2. IRC's Responsibilities. IRC shall have the following
obligations and responsibilities:
a. IRC shall use commercially reasonable efforts to
provide El Sitio with IRC's proprietary programming,
promotions, celebrities, local news and other
similarly situated content and materials (including
any similar content of any third party to which IRC
has the right to sublicense such content to El Sitio)
(the "IRC Content") for the development and
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<PAGE> 2
promotion of the ESC Site to the extent such
programming, promotions, celebrities, local news and
other materials are available for use on the Site(s)
and to which IRC has the right to provide such IRC
Content to El Sitio. IRC shall not provide IRC
Content to any other Internet portal, site, network
or Internet service provider. In the event El Sitio
wishes to publicly perform any musical works or sound
recordings contained within the IRC Content on the
ESC Site, El Sitio will have to obtain a separate
license from IRC for such musical works and sound
recordings.
b. Subject to the provisions of Section 2.a above, IRC
shall cause its employees to provide IRC Content to
El Sitio on a timely basis for the development and
maintenance of the Site(s).
c. Throughout the term of this Letter Agreement and the
Agreement, any new stations developed or acquired by
IRC shall become subject to the terms hereof and of
the Agreement. In the event IRC develops or acquires
additional radio stations, or in the event that any
such station is sold or dissolved, the parties shall
in good faith adjust on an equitable basis the
compensation provided for in section 5 below.
d. Iberoamerican shall serve as the exclusive sales
agent for marketing and selling the advertising for
the Site(s) and the ESC Site within the Republic of
Chile, provided that El Sitio will have the right, in
its sole discretion, to object to the delivery of
reasonably objectionable advertisements on the ESC
Site which could damage El Sitio's image (e.g., guns
and pornography). Notwithstanding the foregoing, El
Sitio shall have the right to market and sell
advertising for the Site(s) and the ESC Site outside
the Republic of Chile. IRC shall be solely
responsible for establishing rate cards for the sale
of advertising on the Site(s), and El Sitio shall be
solely responsible for establishing rate cards for
advertising on the ESC Site. Iberoamerican shall not,
without the prior approval of El Sitio, make
discounts from the ESC Site rate cards or accept
barter arrangements with respect to advertising on
the ESC Site.
e. Iberoamerican shall provide El Sitio with office
space for the operation of El Sitio in Chile, the
location and size of which to be mutually agreed upon
by Iberoamerican and El Sitio, and which shall
measure approximately 110 square meters by 170 square
meters. Iberoamerican shall also provide office
furniture and equipment as deemed reasonably
necessary in the judgment of both parties.
f. Iberoamerican shall be solely in charge of all
billing and collection related to the sale of
advertising within the Republic of Chile and
generated from the Site(s) and the ESC Site;
provided, however, that said billing and collection
shall be made on behalf of El Sitio.
g. Iberoamerican shall be El Sitio's exclusive provider
of administrative, accounting, legal (excluding
litigation services, licenses referred to in
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<PAGE> 3
Section 4(b) below and copyrighting and licensing
referred to in Section 4(c)), human resource, payroll
and collection services in the Republic of Chile;
provided, however, that such exclusive services will
be limited those services related to El Sitio's
operations in Chile, including, without limitation,
the ESC Site.
h. IRC shall hire personnel necessary for the provision
and updating of the IRC Content for the Sites, as IRC
reasonably determines.
3. El Sitio's Responsibilities. El Sitio shall have the following
obligations and responsibilities:
a. El Sitio shall not design any World Wide Web pages
for any competitor of IRC in the Republic of Chile.
b. Within sixty (60) days after the execution of this
Letter Agreement, El Sitio shall establish a Chilean
entity for the purposes of fulfilling its obligations
under this Letter Agreement and the Agreement. El
Sitio agrees to maintain corporate control of such
Chilean entity at all times during the term of the
Letter Agreement and the Agreement.
c. El Sitio shall be responsible for the development of
the Sites for each radio station of the IRC Network.
El Sitio's services hereunder will include web
design, hosting, housing and maintenance services.
Furthermore, El Sitio shall develop the ESC Site to
host local content in the Republic of Chile
(including IRC Content, El Sitio's global content and
other content) and with a focus on serving users
within the Republic of Chile. El Sitio will design
each Site to have links to and from the ESC Site.
Each Site shall be developed in such a manner that
they retain the "look and feel" of the radio stations
in the IRC Network while at the same time meeting the
standards and practices of El Sitio. Each Site shall
contain a border linking the Site(s) to the ESC Site
and other El Sitio properties. The "look and feel" of
the Site(s), as well as the borders, shall be
preapproved by IRC, which approval shall not be
unreasonably withheld, prior to the Launch Date, as
defined below. The ESC Site shall maintain the "look
and feel" of El Sitio properties. El Sitio shall host
the Site(s) on its servers and El Sitio shall use
commercially reasonable efforts to provide a level of
server capacity necessary for the effective operation
of the Site(s). El Sitio shall also provide mailbox
and e-mail features to the visitors of the Site(s).
All visitors to the Site(s) shall be deemed
registered users of and traffic for El Sitio. The
Parties agree that the Sites shall be the property of
IRC and the ESC Site shall be the property of El
Sitio. El Sitio shall use commercially reasonable
efforts to provide the support necessary for IRC to
audit traffic associated with the Site(s) (for
example, third party audits by entities such as
Double Click, I/PRO Nielsen or some other similarly
situated entity), the timeliness and accuracy of
which shall be the sole responsibility of such
third-party provider.
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<PAGE> 4
d. El Sitio shall use its best efforts to have the
Site(s), including the ESC Site, on-line and
operational on or before April 1, 2000 (the "Launch
Date").
e. El Sitio shall be responsible for hiring all
personnel necessary for the operation of El Sitio in
Chile. El Sitio shall be responsible for all expenses
incident to the office space provided by
Iberoamerican in Chile, including, but not limited
to, utilities, communications, electricity and other
similar expenses. El Sitio shall be responsible for
purchasing and maintaining the computers and
equipment necessary to perform the services
contemplated in this Letter Agreement and the
Agreement.
4. Other Agreements. The parties shall have the following
obligations and responsibilities:
a. With respect to the IRC Content, IRC shall be
responsible for developing materials for inclusion
into the Site(s). The parties shall cooperate with
each other in order to effectuate the transmission of
IRC Content into the Site(s) and the ESC Site. The
frequency and nature of updates to IRC Content by
IRC, as it relates to each Site hereunder, shall be
agreed upon by the parties in accordance with
commercially reasonable standards.
b. Each party shall be responsible for obtaining all
licenses and satisfying any and all other legal
requirements (including any costs associated
therewith) necessary to operate within their
respective jurisdictions.
c. Each party shall be responsible for copyrighting and
licensing their respective content (including any
costs associated therewith). The parties agree that
their respective trademarks and service marks (the
"Marks") shall remain the property of each party and
that no ownership rights to any such property shall
be transferred to the other party under this Letter
Agreement or the Agreement. All of the IRC Content
developed by IRC on the Site(s) shall be the property
of IRC. Each party grants to the other a
non-exclusive license to use such party's content,
trademarks or other properties throughout the term of
the Agreement, solely for use with respect to the
Site(s) and the ESC Site; provided, however, that
none of the parties shall use the others'
intellectual property in any way which could harm or
impair the value thereof. In addition, each party
shall use all reasonable skill and care in the
provision of any services pursuant to its use of
another party's Marks; shall comply with applicable
laws and regulations; and shall provide such services
at the standard of quality commensurate with those
provided by the party that owns the Mark in question.
At any time, a party may request information from
another party in order to verify such other party's
proper use of the party's Marks; provided, however,
that such party shall maintain all such information
received in strict confidence, shall not disclose any
such information to any other party and shall use
such information solely for the purposes of
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<PAGE> 5
any such verification. The use of intellectual
property shall be consistent with the terms of this
Letter Agreement and the Agreement.
d. IRC and El Sitio shall work together on a good-faith
basis to develop a marketing campaign for the Site(s)
and the ESC Site, with the objective of increasing
traffic to the Site(s) and the ESC Site.
5. Compensation & Revenue Sharing. Iberoamerican and El Sitio
shall share in the net revenues collected on advertising sold within the Site(s)
and the ESC Site, calculated after subtracting (i) commercially reasonable sales
commissions (which shall not exceed 15%) actually incurred, (ii) commercially
reasonable advertising commissions (which shall not exceed 15%), to the extent
that such commissions are actually incurred to a third party not affiliated with
or employed by Iberoamerican, and (iii) taxes paid to any governmental authority
(hereinafter referred to as "Net Advertising Revenues"). Iberoamerican and El
Sitio shall share in the Net Advertising Revenues that Iberoamerican has
collected from clients, with 70 percent to be allocated to Iberoamerican and 30
percent to be allocated to El Sitio. Notwithstanding the foregoing,
Iberoamerican guarantees that El Sitio's share of Net Advertising Revenues for
year one and year two of this Letter Agreement and the Agreement shall not be
less than Three Hundred Thousand Dollars ($300,000.00 U.S.) and Six Hundred
Thousand Dollars ($600,000.00 U.S.), respectively (the "Guaranty Amounts"). In
the event El Sitio's share of Net Advertising Revenue shall be less than the
Guaranty Amounts, Iberoamerican shall pay El Sitio the difference in cash (or in
such other manner as mutually agreed upon by the parties at the end of the
relevant period).
In the event Iberoamerican sells advertising for other El Sitio sites,
Iberoamerican shall be entitled to and receive a commission of twenty-five
percent (25%) of all Net Advertising Revenues with respect to such advertising.
In the event El Sitio sells advertising for the Site(s), El Sitio shall receive
a commission of twenty-five percent (25%) of all Net Advertising Revenues with
respect to such advertising. All payments required hereunder shall be paid on a
quarterly basis. To ensure compliance with the terms of the Agreement, IRC shall
have the right, at its own expense, to direct an audit of all of the accounting
and sales books and records of El Sitio which are relevant to the Agreement;
provided, however, that IRC shall only be permitted to conduct such audits
during El Sitio's regular business hours and at a frequency no greater than once
per year during the Agreement and this Letter Agreement.
As partial consideration for the relationship established hereby,
thirty days following the execution of the Agreement El Sitio shall issue and
deliver to Iberoamerican One Million and 00/100 Dollars ($1,000,000 U.S.) Class
B preferred shares of El Sitio, with a value per share of $9.00, and shall issue
to Chilevision Five Hundred Thousand and 00/100 ($500,000 U.S.) with a value per
share of $9.00, provided that El Sitio had obtained the necessary waiver from
Credit Suisse First Boston Corporation, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc. and Wit Capital
Corporation, if applicable, for such issuance. El Sitio shall do its best
efforts to obtain from Credit Suisse First Boston Corporation, Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney
Inc. and Wit Capital Corporation, if necessary for purpose of the foregoing, a
waiver for the issuance of the Class B preferred shares herein referred during
the "lock up" period currently applicable with respect to the issuance of
capital stock by El Sitio resulting from El Sitio's initial public offering of
common stock. The Class B preferred shares of El Sitio granted herein to IRC
shall be "restricted stock" as defined in Rule 144 (d) under the Securities Act
of 1933, as
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<PAGE> 6
amended (the "Securities Act") and cannot be disposed of by IRC for a period of
twelve (12) months after the date hereof or otherwise as required by U.S.
securities laws.
Iberoamerican shall pay El Sitio the amount of Twenty Thousand and
00/100 Dollars ($20,000.00 U.S.) per month for the web design and support
services contemplated in Section 3(c) herein. El Sitio shall pay Iberoamerican
the amount of Twenty Thousand and No/100 ($20,000.00 U.S.) on a monthly basis
for provision of the office space and administrative, marketing and legal
support as contemplated in Sections 2(e), (f) and (g) herein.
6. Confidentiality. IRC and El Sitio each agree to treat as
confidential and proprietary all information disclosed to each other in
connection with this Letter Agreement and the Agreement. Both parties shall use
commercially reasonable efforts to protect the confidentiality of any
proprietary information disclosed to the party by the other party. The parties
acknowledge that the documents and discussions may contain or have involved
customer or client records, processes, marketing plans, business ideas,
financial data, prices, advertising, future plans and any other information
which are valuable, special and unique assets. At no time during or after the
term of this Letter Agreement or the Agreement will any party use personally or
for profit any confidential or proprietary information of another party. Except
as required by law or legal process, no party shall disclose to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, any confidential or proprietary information of another party.
7. Expenses. Each party will bear its own expenses in connection
with the preparation of this Letter Agreement and the Agreement; provided,
however, that any party instituting legal proceedings to enforce any provision
hereof (including those that survive termination of this letter agreement) or to
remedy any breach hereof, shall be entitled to recover reasonable attorney's
fees incurred in connection therewith, if that instituting party is successful
in any such proceedings.
8. Public Announcements. No party hereto will make any public
announcement or issue any press release or disclose to any other person (except
as otherwise provided herein) any information regarding this transaction, this
Letter Agreement, the Agreement or the subject matter hereof, without the prior
written consent of each other party hereto, unless otherwise required by law. El
Sitio shall however have the right to disclose the transactions contemplated
hereby and by the Agreement in any offering statement(s) or presentations to
third parties incident to its share offerings.
9. General.
a. Affiliates; Assignment and Amendments. Each party
agrees to cause its affiliates to take any action
necessary to permit such party to meet its
obligations hereunder. None of the parties to this
Letter Agreement shall assign its rights or
obligations hereunder without the prior written
consent of the other parties. No amendment,
modification or discharge of this Letter Agreement
shall be valid or binding unless agreed to in writing
by all of the parties hereto.
b. Governing Law and Submission to Jurisdiction. Without
regard to its principles of conflicts of laws, the
laws of the State of New York shall
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<PAGE> 7
govern and control the validity, interpretation,
performance and enforcement of this Agreement. To the
extent permitted by law, the parties agree that all
actions or proceedings arising in connection with
this Agreement shall be tried and determined only in
the state and federal courts in the County of New
York, State of New York, United States of America,
and each party hereby submits to jurisdiction of the
state and federal courts located in the County of New
York, State of New York, United States of America.
c. Notices. Unless otherwise provided herein, all
notices, requests, consents and other communications
hereunder to any party shall be deemed to be
sufficient if contained in a written instrument
delivered in person or duly sent by first class,
registered, certified or overnight mail, postage
prepaid, or telecopied with a confirmation copy by
regular mail, or telecopied, as the case may be, to
such party at the address or telecopier number
provided herein, subject to written change by such
party:
(1) If to El Sitio:
Avenida Ing. Huergo
1167 Buenos Aires, Argentina
Attention: Walter Forwood
Guillermo Bellati
Telecopier: (011)(5411) 4339-3750
(2) If to Iberoamerican:
Eleodoro Yanez 1783
Comuna de Providencia
Santiago, Chile
Attention:Gerencia General
Telecopier: (562) 381-2026
(3) If to Chilevision:
Inez Mate Urrejola 0825
Santiago, Chile
Attention:Gerencia General
Telecopier:(562) 252-5109
d. Severability. Any provision of this Letter Agreement
that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in
any other jurisdiction.
[The rest of this page has been intentionally left blank]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto, each being duly empowered and
authorized to do so, have duly executed this Agreement as of the date first
above written.
EL SITIO, INC.
By: /s/ Walter Forwood
---------------------
Name:
Title:
RED DE TELEVISION
CHILEVISION S.A.
By: /s/ Jaime Vega
---------------------
Name:
Title:
IBEROAMERICAN RADIO
HOLDINGS CHILE S.A.
By: /s/ Jaime Vega
---------------------
Name:
Title:
8
<PAGE> 1
Exhibit 10.28
NONCOMPETE AGREEMENT
By and between EL SITIO, hereinafter "El Sitio", domiciled at
______________, ___________________, ___________, herein represented by
_________, in his capacity as __________, party of the first part, and
______________, hereinafter the "EMPLOYEE", party of the second part, it is
hereby agreed to execute this Agreement according to the following terms and
conditions:
FIRST CLAUSE.
For purposes of this Agreement, the following expressions will
have the following meanings:
THE "GROUP" will mean EL SITIO, INC (a British Virgin Islands
international business company) and the Group Companies.
THE "GROUP COMPANIES" will mean any legal person which directly
or indirectly controls, or is subject to the common control of, or is controlled
by, EL SITIO, INC. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under the common control of") will
mean the direct or indirect possession of the power of forming the social will
and directing and instructing the direction of the administration or policies,
be it through the ownership of securities or other participation, whether
contractual or otherwise.
SECOND CLAUSE.
2.1 The EMPLOYEE hereby undertakes that, neither directly nor
indirectly during his or her Employment nor during the twelve months following
the termination of the relationship, without the prior written consent of El
Sitio's Board of Directors (such consent may not be unreasonably denied), be it
personally or through its EMPLOYEES or agents or by any other manner and be it
in its name or in the name of any other person, firm, company or other
organization:
a) will he or she be employed or engaged or in any other
manner interested in the business of developing, selling,
supplying, or otherwise operating in competition with El
Sitio, be it as EMPLOYEE or occupied or in other manner
interested in the business to develop, including any
activity related to future projects and/or activities
developed and/or programmed by El Sitio and known by the
EMPLOYEE;
b) will he or she require, offer and/or request business from
any Client, Supplier and/or Partner of El Sitio if such
requirement, offer or request is made with respect to the
products or services that constitute El Sitio's
activities;
<PAGE> 2
c) will he or she require or make required or induce any
EMPLOYEE from El Sitio to terminate his or her employment
or the provision of services to El Sitio, whether such
person hereby breaches a contract or not;
d) will he or she employ or in any other manner engage any
EMPLOYEE from El Sitio in the business of developing,
selling, supplying or in any other manner engaging in the
operation of the products and services that constitute El
Sitio's activities;
2.2 Clause 2.1 will also apply to each Group Company, to which
respect the EMPLOYEE, during his or her performance for El Sitio, or in view of
having rendered services to, or having been appointed in such Group Company:
(a) would have known about its commercial secrets or
Confidential Information; or
(b) had personal treatment with his or her Clients, or
(c) directly or indirectly supervised those EMPLOYEES who had
personal contact with his or her Clients, but in a way
that any reference to El Sitio in Clause 2.1. to these
effects is considered as referred to the Group Companies.
The obligations assumed by the EMPLOYEE according to
Clause 2.2 will constitute, with respect to each of the
said Group Companies, a separate and different commitment,
as well as the validity and applicability of the
commitments in favor of El Sitio or any other Group
Company.
2.3 The EMPLOYEE shall at any time and with respect to El Sitio
abstain from:
(a) during his or her Employment or following the Date of
Termination, performing any commerce or business or
associating with any person, firm or company involved in
any commerce or business using the name of El Sitio or of
any other Group Company;
(b) following termination of the Employment, in the course of
any commerce or business, invoking, declaring or in any
other manner indicating the existence of a real connection
with El Sitio or with any Group Company, or with the
purpose of effecting or retaining any business, invoking,
declaring or in any other manner indicating the existence
of a prior connection with El Sitio or any Group Company
in detriment thereof.
2.4 Clauses 2.1 to 2.3 will be applicable irrespective of the
manner in which the Employment is concluded, be it or not that such termination
is related to or results from a non-compliance with this Agreement by the
EMPLOYEE or El Sitio.
<PAGE> 3
2.5 As restrictions to this Clause 2 (on which the EMPLOYEE has
had the opportunity to get advice, which is herein declared) are considered by
the Parties as reasonable in all circumstances, it is hereby agreed that if any
of such restrictions per se, or all of them as a whole, are considered as going
beyond any reasonable circumstances for the protection of legitimate interests
of El Sitio or of any Group Company, but are considered as reasonable if part or
parts of their expressions are removed, the restriction or restrictions in
question will be applied with such removal(s) if necessary to make them valid
and applicable.
THIRD CLAUSE: RESPONSIBILITY.
In case the EMPLOYEE does not comply, whether acting and/or
omitting to act, with any of the obligations assumed in this Agreement, he will
be responsible for all damages his acting and/or omitting to act may cause to El
Sitio and/or to any of the Group Companies, irrespective of the application of
any other penalty agreed by the Parties.
FOURTH CLAUSE: INTERPRETATION.
Any reference to El Sitio in all Clauses of this Agreement will
be applied to EL SITIO INC. and to the other Group Companies.
FIFTH CLAUSE: PRIOR AGREEMENTS.
This Agreement will substitute any prior agreement or commitment,
be it written, oral or implied, related to the EMPLOYEE's non-compete
obligation.
SIXTH CLAUSE: DOMICILES.
6.1. The Parties hereby fix their domiciles: El Sitio at the
place mentioned in the heading of these presents and the EMPLOYEE at the place
indicated at the end, where all judicial and extrajudicial citations and/or
notifications served by each other will be valid.
6.2. The Parties undertake to serve notice of any eventual change
of domicile. Notifications served to the domiciles by choice fixed in these
presents will remain valid and produce all effects until any change is notified.
In view of the provisions set forth in this Agreement, the
Parties do hereby undertake to comply with the commitments assumed in good faith
and loyalty by signing two (2) counterparts hereof of the same document and to
only one effect, in __________.
__________________
By El Sitio
Name: ____________
Capacity:
EMPLOYEE
Name:
