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Filed Pursuant to Rule 424 (b)(3)
File No: 333-42176
(FIRSTCOM LOGO) July 27, 2000
Dear Fellow Shareholder:
We cordially invite you to attend a special meeting of our shareholders, at
The Waldorf Astoria, 301 Park Avenue and 50th Street, New York, New York, at
10:00 a.m., local time, on August 28, 2000 to vote on the proposed merger of
FirstCom and AT&T Latin America.
If the merger is approved, you will receive one share of AT&T Latin America
Class A common stock for each FirstCom common share you own and one share of
AT&T Latin America Series A convertible preferred stock for each FirstCom Series
A convertible preferred share you own. On a fully-diluted basis, our
shareholders will own about 34% of AT&T Latin America's common stock as a result
of the merger. AT&T Corp. will own about 59% of AT&T Latin America's common
stock, in the form of Class B common stock, which will not be publicly traded.
We cannot complete the merger unless holders of a majority of our shares
vote to approve and adopt the merger agreement. Your vote is very important.
Please sign, date and mail the proxy card in the enclosed envelope to ensure
that your vote is represented at the special meeting.
This proxy statement/prospectus explains the terms of the proposed merger.
PLEASE CAREFULLY REVIEW AND CONSIDER ALL OF THIS INFORMATION, INCLUDING THE
MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROXY
STATEMENT/PROSPECTUS, BEFORE VOTING.
Our board of directors determined that the merger is advisable and in the
best interests of FirstCom and its shareholders. Accordingly, our board of
directors unanimously approved the merger and the merger agreement and
unanimously recommends that our shareholders vote "FOR" approval of the merger
and the merger agreement.
Sincerely yours,
/s/ Patricio E. Northland
Patricio E. Northland
Chairman of the Board, President
and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus, dated July 27, was first mailed
to FirstCom's shareholders on or about July 28, 2000.
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NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 28, 2000
---------------------
To the shareholders of FirstCom Corporation:
We are holding a special meeting of shareholders of FirstCom Corporation at
The Waldorf Astoria, 301 Park Avenue and 50th Street, New York, New York, at
10:00 a.m., local time, on August 28, 2000, for the following purposes:
1. To consider and vote upon a proposal to approve the merger and the
merger agreement among FirstCom, AT&T Corp., AT&T Latin America Corp. and
Frantis, Inc., the shell subsidiary AT&T Latin America created for the
merger. The merger agreement provides for the merger of FirstCom with and
into Frantis.
2. To transact such other business as may properly be brought before
the special meeting.
A copy of the merger agreement is attached as Annex A to the proxy
statement/prospectus accompanying this notice.
Only shareholders of record on July 12, 2000 are entitled to notice of and
to vote at the special meeting. We will make a list of shareholders entitled to
vote at the special meeting. This list will be available for examination at our
executive offices during regular business hours beginning on August 7, 2000 and
at the special meeting.
A form of proxy and a proxy statement/prospectus containing more detailed
information about the merger accompanies this notice.
OUR BOARD OF DIRECTORS RECOMMENDS UNANIMOUSLY THAT YOU VOTE "FOR" APPROVAL
OF THE MERGER AND THE MERGER AGREEMENT.
You are cordially invited to attend the special meeting in person. If you
attend the special meeting, you may revoke your proxy and vote in person. Your
proxy may be revoked at any time before it is voted.
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY
FIRSTCOM'S BOARD OF DIRECTORS. AN ADDRESSED RETURN ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE.
By order of the board of directors,
/s/ Patricio E. Northland
Patricio E. Northland
Chairman of the Board
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about FirstCom from documents that FirstCom has filed with the SEC but have not
been included in or delivered with this proxy statement/prospectus. If you write
or call FirstCom, it will send you these documents, excluding exhibits unless
the exhibit is specifically incorporated by reference as an exhibit in this
proxy statement/prospectus, without charge. You can contact FirstCom at:
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 459-6300
Attn: General Counsel
PLEASE REQUEST DOCUMENTS BY AUGUST 21, 2000 TO RECEIVE THEM BEFORE THE
SPECIAL MEETING. IF YOU REQUEST ANY INCORPORATED DOCUMENTS, FIRSTCOM WILL MAIL
THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY PROMPT MEANS, BY THE NEXT
BUSINESS DAY AFTER FIRSTCOM RECEIVES YOUR REQUEST.
See "Where You Can Find More Information" on page 135 for more information
about FirstCom and the documents referred to in this document.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
The Merger................................................ 4
FirstCom Options and Warrants.......................... 4
Determination of FirstCom's Board of Directors......... 4
Opinion of FirstCom's Financial Advisor................ 4
Required Vote of FirstCom Shareholders................. 5
Material U.S. Federal Income Tax Consequences.......... 5
Accounting Treatment................................... 5
Conditions to Completion of the Merger................. 5
Termination of the Merger Agreement.................... 5
Interests of Members of FirstCom's Board of Directors
and Management in the Merger.......................... 6
SELECTED FINANCIAL INFORMATION.............................. 7
Selected Historical Financial Information of AT&T Latin
America, Netstream and FirstCom........................ 8
AT&T Latin America..................................... 8
Netstream.............................................. 9
FirstCom............................................... 10
Selected AT&T Latin America Unaudited Pro Forma Combined
Financial Information.................................. 11
AT&T Latin America Unaudited Pro Forma................. 12
Selected Operating Information of AT&T Latin America,
Netstream and FirstCom................................. 13
Comparative Share Data.................................... 15
Market Price of FirstCom Common Shares.................... 16
RISK FACTORS................................................ 17
Risks Relating to the Merger.............................. 17
Industry and Business Risks............................... 18
FORWARD-LOOKING STATEMENTS.................................. 27
THE SPECIAL MEETING......................................... 28
Matters to be Considered at the FirstCom Special
Meeting................................................ 28
Votes Required for Approval............................... 28
How Shares Will be Voted at the Special Meeting........... 28
How to Revoke a Proxy..................................... 29
Solicitation of Proxies................................... 29
THE MERGER.................................................. 30
General................................................... 30
Background of the Merger.................................. 30
Reasons for the Merger; Recommendation of FirstCom's Board
of Directors........................................... 34
Opinion of FirstCom's Financial Advisor................... 36
Introduction of Financial Analyses..................... 38
FirstCom Analysis...................................... 39
Netstream Analysis..................................... 40
Relative Contribution Analysis......................... 41
Other Factors.......................................... 41
Voting Agreements......................................... 43
Interests of Certain Persons in the Merger................ 43
AT&T Latin America Common Stock to be Received by
FirstCom's Directors and Executive Officers........... 44
Insurance.............................................. 45
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Nasdaq National Market Listing of AT&T Latin America
Shares of Class A Common Stock......................... 45
Accounting Treatment...................................... 46
Material U.S. Federal Income Tax Consequences............. 46
Regulatory Matters........................................ 47
U.S. Antitrust Laws.................................... 47
Federal Communications Commission...................... 47
Foreign Regulatory Matters............................. 47
Federal Securities Law Consequences....................... 48
FirstCom's 14% Senior Notes............................... 48
Rights of Dissenting Shareholders......................... 48
THE MERGER AGREEMENT........................................ 49
Timing of the Merger...................................... 49
Merger Consideration...................................... 49
Treatment of FirstCom Options and Warrants................ 49
Exchange Procedures....................................... 49
Representations and Warranties............................ 50
Representations and Warranties by FirstCom............. 50
Representations and Warranties by AT&T Corp............ 51
Covenants................................................. 52
No Solicitation of Transactions by FirstCom............ 52
Board's Covenant to Recommend the Merger............... 53
Conduct of Business Pending the Merger................. 53
AT&T Corp.'s Ownership of AT&T Latin America........... 55
Conduct of the Business of AT&T Latin America and
Netstream............................................. 55
Insurance.............................................. 55
Conditions to Completion of the Merger.................... 56
Conditions to Completion of the Merger of All Parties
to the Merger Agreement............................... 56
Additional Conditions to AT&T and AT&T Latin America's
Completion of the Merger.............................. 56
Additional Conditions to FirstCom's Completion of the
Merger................................................ 56
Termination of the Merger Agreement....................... 57
Termination Fees.......................................... 58
Other Fees and Expenses................................... 58
Assignment, Amendment and Waiver.......................... 59
OTHER MATERIAL AGREEMENTS AND ARRANGEMENTS.................. 60
Regional Vehicle Agreement with AT&T Corp................. 60
AT&T Latin America's Region............................ 60
AT&T Latin America Services............................ 60
Competition by AT&T Corp............................... 63
AT&T Latin America's Relationship with Concert and
Related Restrictions on AT&T Latin America's
Business.............................................. 65
Commercial Arrangements with AT&T Global Network Services
and AT&T Corp.......................................... 66
Service Mark License Agreement with AT&T Corp............. 67
Service Marks.......................................... 67
Brand Fee.............................................. 67
Term; Termination...................................... 67
Credit Facility........................................... 68
AT&T Latin America Shareholders' Agreement with SL
Participacoes.......................................... 68
Registration Rights.................................... 68
Sale of Shares; Participation Rights................... 68
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
AT&T Latin America Shareholders' Agreement with Keytech
Shareholders........................................... 69
Registration Rights.................................... 69
Sale of Shares......................................... 69
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 70
Notes to Unaudited Pro Forma Combined Financial
Information............................................ 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AT&T LATIN AMERICA........... 81
Company Overview.......................................... 81
Results of Operations -- AT&T Latin America............... 82
Liquidity and Capital Resources -- AT&T Latin America..... 84
THE COMPANIES............................................... 87
Competitive Strengths..................................... 88
Growth Strategy........................................... 90
Description of AT&T Latin America......................... 91
Networks............................................... 92
Services............................................... 94
Customers.............................................. 94
Sales, Marketing and Customer Service.................. 95
Competition............................................ 96
Regulation and Licenses................................ 98
Employees.............................................. 99
Legal Matters.......................................... 99
Management and Governance of AT&T Latin America........... 99
Directors and Executive Officers....................... 99
Proposed Composition of AT&T Latin America's
Committees............................................ 102
Compensation of AT&T Latin America's Named Executive
Officers.............................................. 102
Long-Term Incentive Plan.................................. 102
Certain Relationships and Related Transactions............ 107
Ownership of AT&T Corp. Securities........................ 108
Principal Stockholders of AT&T Latin America.............. 108
Description of FirstCom................................... 109
INDUSTRY OVERVIEW........................................... 112
General................................................... 112
Industry Trends........................................... 112
Argentina................................................. 113
Brazil.................................................... 114
Chile..................................................... 115
Colombia.................................................. 116
Peru...................................................... 117
DESCRIPTION OF AT&T LATIN AMERICA'S CAPITAL STOCK........... 119
Authorized Capital Stock.................................. 119
Common Stock.............................................. 119
Voting Rights.......................................... 119
Dividends.............................................. 119
Issuance of Shares of Class B Common Stock, Options or
Warrants.............................................. 119
Merger or Consolidation................................ 120
Conversion of Class B Shares........................... 120
Liquidation............................................ 120
Preemptive Rights; Redemption.......................... 120
</TABLE>
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<TABLE>
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<S> <C>
Nasdaq Listing......................................... 120
Material United States Federal Tax Considerations for
Non-U.S. Holders...................................... 120
Income Tax................................................ 121
Dividends.............................................. 121
Disposition of Common Stock............................ 121
Estate Tax............................................. 122
Backup Withholding and Information Reporting........... 122
Preferred Stock........................................... 122
Generally.............................................. 122
Series A Convertible Preferred Stock................... 123
15% Series B Preferred Stock........................... 124
Provisions of AT&T Latin America's Certificate of
Incorporation and Bylaws That Could Delay, Defer or
Prevent Changes of Control............................. 125
Other Provisions of AT&T Latin America's Certificate of
Incorporation and Bylaws............................... 126
Board of Directors; Disinterested Directors............ 126
Board Policy........................................... 126
Transactions with AT&T Corp. Affiliates................ 127
COMPARISON OF RIGHTS OF FIRSTCOM SHAREHOLDERS AND AT&T LATIN
AMERICA STOCKHOLDERS...................................... 128
Voting Rights; Quorum..................................... 128
Number and Election of Directors.......................... 128
Indemnification........................................... 129
Voting Rights on Business Combinations; Transactions with
Interested Stockholders................................ 130
Right to Call Special Meetings............................ 130
Shareholder Action by Written Consent..................... 131
Amendment of Articles/Certificate of Incorporation and
Bylaws................................................. 131
Dissenters' Rights........................................ 131
Payment of Dividends...................................... 132
Shareholder Rights Plan................................... 133
LEGAL MATTERS............................................... 133
EXPERTS..................................................... 133
WHERE YOU CAN FIND MORE INFORMATION......................... 135
ANNEXES
Annex A Agreement and Plan of Merger dated November 1, 1999,
as amended
Annex B Opinion of CIBC World Markets Corp.
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES MERGING?
A: AT&T Latin America and FirstCom believe that by combining they can develop a
company that will be a leader in providing data, Internet and other
broadband communications services to business customers in Latin America.
They believe that significant shareholder value will be created if that
objective is achieved.
Q: WHAT WILL FIRSTCOM'S SHAREHOLDERS RECEIVE IN THE MERGER?
A: Holders of FirstCom common shares will receive one share of Class A common
stock of AT&T Latin America for each share of FirstCom common stock they
own. Holders of FirstCom Series A convertible preferred shares will receive
one share of Series A convertible preferred stock of AT&T Latin America for
each FirstCom Series A convertible preferred share they own.
Q: WHAT ARE THE DIFFERENCES BETWEEN THE SHARES OF CLASS A AND CLASS B COMMON
STOCK OF AT&T LATIN AMERICA?
A: The shares of Class A common stock have one vote per share and the shares of
Class B common stock have ten votes per share. Upon completion of the
merger, the Class A shares will trade on the Nasdaq National Market under
the symbol "ATTL." The Class B shares will not be publicly listed or traded.
The Class A and Class B shares will have the same economic rights per share,
including with respect to participation in earnings of AT&T Latin America
and any future dividends.
Q: WHEN DO THE PARTIES EXPECT TO COMPLETE THE MERGER?
A: AT&T Latin America and FirstCom hope to complete the merger as soon as
possible after the FirstCom special shareholders' meeting on August 28,
2000, if FirstCom's shareholders approve the merger. However, there are a
number of other conditions to the merger, and AT&T Latin America and
FirstCom cannot predict if or when all of those conditions will be
satisfied. Either AT&T Corp. or FirstCom may terminate the merger agreement
if the merger is not completed by August 31, 2000.
Q: WHAT DO I NEED TO DO TO VOTE ON THE MERGER PROPOSAL?
A: After reviewing this document, you should mark your vote on your proxy card
and then sign and mail the card in the enclosed return envelope as soon as
possible so that the proxy holder may vote your shares at the FirstCom
shareholders' meeting.
Q: HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A: If you sign and send in your proxy card but do not mark your vote, FirstCom
will count your proxy as a vote "FOR" the merger.
Q: WHAT WILL HAPPEN IF I DO NOT VOTE BY PROXY?
A: If you are a FirstCom shareholder and you fail to return your proxy card, it
will have the same effect as voting "AGAINST" the merger, unless you then
vote your shares in person in favor of the merger at the FirstCom
shareholders' meeting.
<PAGE> 9
Q: CAN I VOTE MY SHARES IN PERSON?
A: Yes. You may attend the FirstCom shareholders' meeting and vote your shares
in person, rather than signing and mailing your proxy card. The meeting will
occur at 10:00 a.m. local time on August 28, 2000 at:
The Waldorf Astoria
301 Park Avenue and 50th Street
New York, New York
Q: CAN I REVOKE MY PROXY AND CHANGE MY VOTE?
A: Yes. You may revoke your proxy on or before the day of the FirstCom
shareholders' meeting by delivering a duly executed revocation or a proxy
dated after the initial proxy to:
FirstCom Corporation
220 Alhambra Circle, Suite 910
Coral Gables, Florida 33134
Attention: General Counsel.
At that time, you can either change your vote or attend the shareholders'
meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker on how to
vote. Your broker will send you information about how you can instruct your
broker to vote. Your broker cannot vote your shares without instructions
from you.
Q: WILL I HAVE ANY "DISSENTERS' RIGHTS" IF I VOTE AGAINST THE MERGER?
A: No.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, you will receive written instructions on how
to exchange your stock certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger, or if you would like additional
copies of this document, you should contact FirstCom's proxy solicitation
agent as follows:
Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072
1-888-560-9340
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<PAGE> 10
SUMMARY
FirstCom proposes that it merge into a wholly-owned subsidiary of AT&T
Latin America.
THE COMPANIES
AT&T Latin America Corp.
2333 Ponce de Leon Blvd.
Coral Gables, Florida 33134
(305) 774-2040
AT&T Corp. created AT&T Latin America Corp. in October 1999 to be a leading
provider of broadband communications services to business customers in the
countries in South America and the Caribbean, plus Panama, but excluding
Venezuela and Cuba. Broadband communications services are communications
services that are delivered over high-speed, high-capacity transmission systems.
AT&T Latin America's focus is on providing business customers with data,
Internet, voice, video conferencing and electronic commerce services.
AT&T Latin America currently operates in Brazil, where in December 1999 it
acquired Netstream Telecom Ltda., a facilities-based communications carrier.
AT&T Latin America today owns and operates high-speed fiber optic networks in
Sao Paulo, Rio de Janeiro, Belo Horizonte and Barueri/Alphaville, an industrial
suburb of Sao Paulo. Fiber optic networks use laser-generated light pulses to
transmit information in digital format through cables containing glass fibers.
AT&T Latin America continues to expand its existing networks and has plans to
begin building additional networks in the Brazilian cities of Brasilia,
Campinas, Curitiba, Porto Alegre and Salvador during 2000. Because AT&T Latin
America's operations were only recently developed, they have not yet resulted in
material revenues. The Brazilian communications market is dominated by incumbent
providers.
AT&T Latin America also began limited operations in Argentina following its
acquisition of Keytech LD, S.A. in June 2000. Keytech LD is a development stage
broadband communications company in Argentina with limited assets that include
signal transmission switching equipment and licenses to provide communications
services in Argentina. Keytech currently serves a small number of customers by
reselling services from other communications providers.
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 459-6300
FirstCom provides broadband communications services primarily to business
customers in four major metropolitan business centers: Santiago, Chile;
Lima/Callao, Peru; and Bogota and Cali, Colombia. FirstCom primarily targets
business customers, communications carriers and high volume users. It offers a
wide range of broadband communications services including data, voice, video,
audio and Internet access. Specific service offerings vary depending on the
concessions FirstCom holds in each particular country, as well as local laws and
regulations and the infrastructure in each country.
Until November 1996, FirstCom was a development stage company whose
activities primarily consisted of the acquisition of licenses, concessions and
rights-of-way in selected Latin American communications markets. Since that
time, it has focused on the development and operation of high-capacity fiber
optic networks in Latin American business centers. FirstCom currently operates
its own fiber optic networks in Santiago, Chile, Lima/Callao, Peru, and Bogota
and Cali, Colombia.
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THE MERGER
As a result of the merger, the voting capital stock of AT&T Latin America
will be owned as follows:
<TABLE>
<CAPTION>
FULLY-DILUTED ACTUAL FULLY-DILUTED ACTUAL
ECONOMIC ECONOMIC VOTING VOTING
INTEREST INTEREST INTEREST INTEREST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Former shareholders of FirstCom.......................... 34% 29% 5% 4%
AT&T Corp................................................ 59% 63% 93% 94%
SL Participacoes (an affiliate of Promon and former owner
of Netstream).......................................... 7% 7% 1% 1%
Former shareholders of Keytech LD........................ * 1% * *
</TABLE>
* Less than 1%.
The percentages indicated in the table above assume the merger will be
completed on August 31, 2000. Also, the fully-diluted percentages reflect the
fully-diluted capitalization of AT&T Latin America, which includes:
- shares of common stock of AT&T Latin America that are issued and
outstanding when the merger is completed; and
- shares of common stock that AT&T Latin America will be required to issue
after completion of the merger upon the exercise of outstanding options
and warrants to acquire shares of AT&T Latin America or the conversion of
shares of convertible preferred stock.
The actual percentages are based on the number of outstanding FirstCom
common shares and Series A convertible preferred shares as of June 30, 2000. The
actual percentages as of the merger will depend on the number of FirstCom
options and warrants that are exercised between June 30, 2000 and the date of
the merger.
FIRSTCOM OPTIONS AND WARRANTS. When the merger is completed, outstanding
options and warrants to acquire the common stock of FirstCom will convert
automatically into options and warrants to purchase shares of Class A common
stock of AT&T Latin America. These new options and warrants will be for the same
number of shares of AT&T Latin America and be exercisable at the same prices as
the former options and warrants of FirstCom.
DETERMINATION OF FIRSTCOM'S BOARD OF DIRECTORS. The FirstCom board of
directors determined that the merger is advisable and in the best interests of
FirstCom and its shareholders. Accordingly, the FirstCom board of directors
unanimously approved the merger and the merger agreement. The FirstCom board of
directors unanimously recommends that FirstCom shareholders vote "FOR" approval
and adoption of the merger agreement and the merger.
OPINION OF FIRSTCOM'S FINANCIAL ADVISOR. In connection with the merger,
CIBC World Markets Corp., FirstCom's financial advisor, gave FirstCom's board of
directors an opinion as to the fairness, from a financial point of view, to the
holders of FirstCom common shares of the 34% fully-diluted equity ownership that
FirstCom's shareholders will receive in AT&T Latin America upon completion of
the merger. The opinion of CIBC World Markets does not address the fairness,
from a financial point of view, of the consideration to be received in the
merger by the holders of FirstCom's Series A convertible preferred shares. The
full text of the written opinion of CIBC World Markets, dated November 1, 1999,
is attached to this proxy statement/prospectus as Annex B. You are encouraged to
read this opinion carefully in its entirety for a description of the assumptions
made, matters considered and limitations on the review undertaken. THE OPINION
OF CIBC WORLD MARKETS DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS
TO ANY MATTER RELATING TO THE PROPOSED MERGER.
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REQUIRED VOTE OF FIRSTCOM SHAREHOLDERS. FirstCom cannot complete the
merger unless holders of a majority of the outstanding FirstCom common shares
and Series A convertible preferred shares, voting together as a single class, as
well as holders of seventy-five percent of the outstanding FirstCom Series A
convertible preferred shares, voting as a separate class, approve the merger.
Each FirstCom common share and Series A convertible preferred share is entitled
to one vote on the merger proposal. If all of the holders of Series A
convertible preferred shares convert those shares into FirstCom common shares
prior to the shareholders' meeting, the holders of a majority of the aggregate
number of outstanding FirstCom common shares and Series A convertible preferred
shares, voting together as a single class, would be necessary to approve the
merger. There would no longer be a separate class vote of the Series A
convertible preferred shares at that meeting.
The holders of approximately 22% of the outstanding voting capital stock of
FirstCom have agreed to vote all of their shares in favor of the merger.
Included in this percentage are all of the holders of FirstCom's Series A
convertible preferred shares as well as four common shareholders. The agreement
by the holders of Series A convertible preferred shares applies both to their
vote with the common shareholders and, if required, to their vote as a separate
class.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES. AT&T Latin America and
FirstCom have structured the merger as a "reorganization" for federal income tax
purposes so that FirstCom's shareholders will not recognize any taxable gain or
loss as a result of the merger. Each of AT&T Latin America and FirstCom have
received an opinion from its legal counsel to the effect that:
- the merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; and
- AT&T Latin America, FirstCom and the shell subsidiary created by AT&T
Latin America for the merger will each be a party to that reorganization
within the meaning of Section 368(b) of the Internal Revenue Code.
These opinions assume that factual representations made by the parties, which
will be reconfirmed prior to the merger, are true and correct. You should
consult your own tax advisor regarding the specific tax consequences to you in
light of your particular circumstances.
ACCOUNTING TREATMENT. AT&T Latin America intends to account for the merger
under the purchase method of accounting for financial reporting purposes. It
will make a determination of the fair value of FirstCom's assets and liabilities
in order to allocate the purchase price to the assets acquired and liabilities
assumed in accordance with U.S. generally accepted accounting principles, known
as GAAP. AT&T Latin America will record as goodwill and amortize over a 20-year
period any excess of the purchase price over the fair value of the assets and
liabilities of FirstCom.
CONDITIONS TO COMPLETION OF THE MERGER. Completion of the merger will
depend on the completion of customary conditions, such as shareholder approval,
as well as other conditions negotiated by the parties. The conditions negotiated
by the parties include launch of a tender offer and completion of a consent
solicitation by FirstCom for its 14% senior notes due 2007, receipt by AT&T
Latin America of a $100 million revolving credit facility from AT&T Corp. or one
of its subsidiaries and AT&T Corp. and AT&T Latin America entering into a
service mark license agreement and regional vehicle agreement. In addition, each
of FirstCom and AT&T Latin America must receive from its counsel reconfirmation
at the time of the merger of its counsel's opinion referred to above.
FirstCom is permitted, but does not intend, to waive one or more of its
conditions to completion of the merger. FirstCom will not waive any material
condition, such as the receipt of the tax opinion described above, without first
recirculating revised proxy materials and resoliciting the vote of its
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<PAGE> 13
stockholders. For more information, see "The Merger Agreement -- Conditions to
Completion of the Merger" on p. 56.
TERMINATION OF THE MERGER AGREEMENT. The merger agreement may be
terminated if FirstCom's shareholders do not approve the merger agreement. It
may also be terminated in the context of an alternative transaction or if there
is a material adverse change with respect to Netstream or FirstCom. The merger
agreement generally requires FirstCom to pay to AT&T Corp. a $10 million
termination fee, plus up to $1 million of expenses. For information about other
termination events, see "The Merger Agreement -- Termination of the Merger
Agreement" on p. 57.
INTERESTS OF MEMBERS OF FIRSTCOM'S BOARD OF DIRECTORS AND MANAGEMENT IN THE
MERGER. Some of the directors and members of FirstCom's senior management who
are also shareholders of FirstCom have interests in the merger that differ from,
or are in addition to, your interests. Those interests include becoming an
officer or a director of AT&T Latin America and being entitled to the
continuation of their current indemnification arrangements. You should be aware
of these interests because they may conflict with your interests.
As a condition to the merger, AT&T Latin America will appoint Patricio E.
Northland to AT&T Latin America's board of directors and employ Mr. Northland as
president and chief executive officer of AT&T Latin America upon completion of
the merger. AT&T Corp. has also indicated that Mr. Northland will be chairman of
the board of AT&T Latin America after the merger. Employment arrangements with
Mr. Northland include significant incentives in the form of awards of restricted
shares of FirstCom common stock and options to acquire shares of FirstCom common
stock. Upon completion of the merger, these options will convert automatically
into options to acquire shares of Class A common stock of AT&T Latin America.
The FirstCom board of directors was aware of these interests and concluded that
these interests did not detract from the fairness of the merger to the FirstCom
shareholders.
6
<PAGE> 14
SELECTED FINANCIAL INFORMATION
Set forth below is selected historical and pro forma financial information
relating to AT&T Latin America, Netstream and FirstCom.
You should also refer to the financial information about AT&T Latin
America, Netstream and FirstCom included in this proxy statement/prospectus in
"Unaudited Pro Forma Combined Financial Information," the historical financial
statements of AT&T Latin America and Netstream included in this proxy
statement/prospectus and the historical financial statements of FirstCom
incorporated by reference in this proxy statement/prospectus.
The information for AT&T Latin America has been derived from:
- AT&T Latin America's audited consolidated financial statements as of
December 31, 1999 and for the period from inception (October 13, 1999)
through December 31, 1999; and
- AT&T Latin America's unaudited interim consolidated financial statements
as of and for the three-month period ended March 31, 2000.
The information for Netstream has been derived from:
- Netstream's audited financial statements as of and for the eleven months
ended December 31, 1998; and
- Netstream's audited financial statements as of and for the nine months
ended September 30, 1999.
The information for FirstCom has been derived from:
- FirstCom's audited annual consolidated financial statements as of and for
the years ended December 31, 1998 and 1999; and
- FirstCom's unaudited interim consolidated financial statements as of and
for the three-month period ended March 31, 2000.
Selected financial information of FirstCom as of and for the years ended
December 31, 1995, 1996 and 1997 is provided in the Annual Report on Form
10-K/A, Amendment No. 2, of FirstCom, which is incorporated by reference in this
proxy statement/prospectus.
7
<PAGE> 15
SELECTED HISTORICAL FINANCIAL INFORMATION OF AT&T LATIN AMERICA, NETSTREAM AND
FIRSTCOM
AT&T LATIN AMERICA
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(OCTOBER 13, 1999) THREE MONTHS ENDED
THROUGH MARCH 31, 2000
DECEMBER 31, 1999 (UNAUDITED)
--------------------- ------------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Statement of operations and other data
Net revenue............................................. $ 802 $ 4,364
Gross profit (loss)..................................... (63) (2,557)
Operating loss.......................................... (3,934) (12,949)
Net loss................................................ (4,124) (11,217)
Net loss per share...................................... (103.10) (280.43)
Weighted average shares outstanding..................... 40,000 40,000
Depreciation & amortization............................. 1,707 6,160
Capital expenditures.................................... 9,276 19,903
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
AS OF 2000
DECEMBER 31, 1999 (UNAUDITED)
-------------------- ------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
Balance sheet data
Property, plant & equipment, net........................ $ 68,269 $ 86,051
Total assets............................................ 384,428 384,238
Long term debt (including capital leases)............... 383 411
Total liabilities....................................... 10,634 22,438
Shareholders' equity.................................... 373,794 361,800
Other financial data
EBITDA (A).............................................. (2,227) (6,789)
Cash flow data:
Net cash flow provided by operating activities.......... 17 155
Net cash flow used in investing activities.............. (353,787) (25,869)
Net cash flow provided by financing activities.......... 377,490 1,770
</TABLE>
(A) EBITDA as used in this proxy statement/prospectus is operating profit (loss)
plus the sum of depreciation and amortization and is presented because AT&T
Latin America believes that EBITDA provides useful information regarding
AT&T Latin America's ability to service its debt. EBITDA should not be
considered in isolation or as a substitute for the consolidated income
statements or the consolidated statements of changes in financial position
prepared in accordance with U.S. GAAP or as a measure of profitability or
liquidity. EBITDA is not (i) a measure determined under U.S. GAAP, (ii) an
alternative to U.S. GAAP operating income (loss) and net income (loss), or
(iii) a measure of liquidity or cash flows as determined under U.S. GAAP.
EBITDA does not represent discretionary funds. As a result, EBITDA, as
calculated by AT&T Latin America, may not be comparable to similarly titled
measures reported by other companies.
8
<PAGE> 16
NETSTREAM
<TABLE>
<CAPTION>
NINE MONTHS
ELEVEN MONTHS ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- ------------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT
QUOTA AND PER QUOTA DATA)
<S> <C> <C>
Statement of operations and other data
Net revenue.............................................. $ -- $ 395
Gross profit (loss)...................................... -- (1,373)
Operating loss........................................... (3,848) (12,575)
Net loss................................................. (3,442) (12,001)
Net loss per quota (A)................................... (2.72) (5.13)
Weighted average quotas outstanding (A).................. 1,264,127 2,339,183
Depreciation & amortization.............................. -- 1,511
Capital expenditures..................................... 12,212 36,783
Balance sheet data
Property, plant & equipment, net......................... $ 12,212 $ 47,484
Total assets............................................. 12,980 49,793
Long term debt (including capital leases)................ 457 375
Total liabilities........................................ 14,475 33,814
Quotaholders' equity interest (A)........................ (1,495) 15,979
Other financial data
EBITDA (B)............................................... (3,848) (11,064)
Cash flow data:
Net cash flow (used in) provided by operating
activities............................................ (7) 27
Net cash flow provided by investing activities........... 9 --
Net cash flow provided by financing activities........... -- --
</TABLE>
(A) As a Brazilian limited liability company (sociedade de responsabilidade
limitada), Netstream's capital is represented by quotas rather than shares
of capital stock.
(B) EBITDA as used in this proxy statement/prospectus is operating profit (loss)
plus the sum of depreciation and amortization and is presented because AT&T
Latin America believes that EBITDA provides useful information regarding
Netstream's ability to service its debt. EBITDA should not be considered in
isolation or as a substitute for the consolidated income statements or the
consolidated statements of changes in financial position prepared in
accordance with U.S. GAAP or as a measure of profitability or liquidity.
EBITDA is not (i) a measure determined under U.S. GAAP, (ii) an alternative
to U.S. GAAP operating income (loss) and net income (loss), or (iii) a
measure of liquidity or cash flows as determined under U.S. GAAP. EBITDA
does not represent discretionary funds. As a result, EBITDA, as calculated
by Netstream, may not be comparable to similarly titled measures reported by
other companies.
9
<PAGE> 17
FIRSTCOM
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, 2000
1998 1999 (UNAUDITED)
------------ ------------ ---------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Statement of operations data
Net revenue......................................... $ 18,142 $ 38,356 $ 11,750
Gross profit (loss)................................. 4,063 16,351 6,441
Operating loss (A).................................. (10,642) (20,919) (12,745)
Net loss (A)........................................ (25,322) (41,472) (17,954)
Net loss per share.................................. (1.33) (1.94) (0.61)
Weighted average shares outstanding................. 19,084,300 21,354,012 29,660,707
Depreciation & amortization......................... 2,237 10,211 2,936
Capital expenditures................................ 34,674 33,124 9,346
Balance sheet data
Property, plant & equipment, net.................... $ 45,901 $ 92,469 $ 99,143
Total assets........................................ 154,844 172,110 193,495
Long term debt (including capital leases) and
redeemable preferred stock....................... 133,913 149,109 151,158
Total liabilities................................... 148,670 166,078 175,373
Shareholders' equity (deficit)...................... 6,174 (8,700) 2,966
Other financial data
EBITDA (A) (B)...................................... (8,405) (10,708) (9,809)
Cash flow data:
Net cash flow used in operating activities.......... (28,389) (31,941) (6,927)
Net cash flow provided by (used in) investing
activities....................................... 2,227 (15,948) (8,807)
Net cash flow provided by financing activities...... 20,118 51,983 29,639
</TABLE>
(A) These amounts reflect a non-recurring expense of $6,137 for the three months
ended March 31, 2000 and $1,008 for the year ended December 31, 1999 for
merger expenses relating to the proposed merger with AT&T Latin America.
(B) EBITDA as used in this proxy statement/prospectus is operating profit (loss)
plus the sum of depreciation and amortization and is presented because
FirstCom believes that EBITDA provides useful information regarding
FirstCom's ability to service its debt. EBITDA should not be considered in
isolation or as a substitute for the consolidated income statements or the
consolidated statements of changes in financial position prepared in
accordance with U.S. GAAP or as a measure of profitability or liquidity.
EBITDA is not (i) a measure determined under U.S. GAAP, (ii) an alternative
to U.S. GAAP operating income (loss) and net income (loss), or (iii) a
measure of liquidity or cash flows as determined under U.S. GAAP. EBITDA
does not represent discretionary funds. As a result, EBITDA, as calculated
by FirstCom, may not be comparable to similarly titled measures reported by
other companies.
10
<PAGE> 18
SELECTED AT&T LATIN AMERICA UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
AT&T Latin America and FirstCom also present below selected unaudited pro
forma combined financial information of AT&T Latin America to assist you in
evaluating the merger. This information shows what the results of operations and
financial position of AT&T Latin America might have been assuming that the
Netstream acquisition and the merger occurred on January 1, 1999 for statement
of operations purposes and on March 31, 2000 for balance sheet purposes.
This information is derived from the unaudited pro forma combined financial
information, and reflects the adjustments described in the notes contained in
this proxy statement/prospectus in the section entitled "Unaudited Pro Forma
Combined Financial Information." You should refer to that section for more
information.
The unaudited pro forma combined financial information does not purport to
present the results of operations of AT&T Latin America had the assumed
transactions occurred on the dates, or at the beginning of the periods, for
which such transactions are being given pro forma effect. Nor is the unaudited
pro forma combined financial information necessarily indicative of the results
of operations which may be achieved in the future. Assuming completion of the
merger, the actual financial position and results of operations of AT&T Latin
America will differ, perhaps significantly, from the pro forma amounts reflected
herein because of a variety of factors, including access to additional
information, changes in value not currently identified and changes in operating
results between the dates of the unaudited pro forma financial information and
the date on which the Netstream acquisition and the merger took place.
11
<PAGE> 19
AT&T LATIN AMERICA UNAUDITED PRO FORMA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, 2000
DECEMBER 31, 1999 (UNAUDITED)
-------------------- ---------------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Statement of operations and other data
Net revenue................................................ $ 40,349 $ 16,114
Gross profit............................................... 12,303 3,884
Operating loss............................................. (86,735) (32,981)
Net loss attributable to common stockholders............... (112,092) (38,273)
Net loss per share......................................... (0.99) (0.34)
Weighted average shares outstanding........................ 113,469,672 113,469,672
Depreciation & amortization................................ 61,805 16,133
Capital expenditures....................................... 94,341 31,165
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
2000
(UNAUDITED)
-----------
<S> <C> <C>
Balance sheet data
Property, plant & equipment, net.......................... $ 165,251
Goodwill and other intangible assets...................... 768,138
Total assets.............................................. 1,045,857
Long term debt (including capital leases) and redeemable
preferred stock........................................ 212,908
Total liabilities......................................... 55,419
Shareholders' equity...................................... 780,505
</TABLE>
12
<PAGE> 20
SELECTED OPERATING INFORMATION OF AT&T LATIN AMERICA, NETSTREAM AND FIRSTCOM
AT&T Latin America and FirstCom present below some operating statistics of
AT&T Latin America and FirstCom, as well as AT&T Latin America on a pro forma
combined basis with FirstCom as of March 31, 2000. A brief description of some
of these measurements follows:
Network route kilometers. Network route kilometers are the total number of
kilometers of cable installed in a network. Network route kilometers include
cable laid as a backbone for the network, cable from the backbone to a building
and cable within a building to reach the customers' hardware at its premises. A
measurement in route kilometers does not take account of the number of fibers in
the various fiber optic cables that make up the network.
Total fiber kilometers. Total fiber kilometers are network route
kilometers multiplied by the number of strands of fiber in each of the cables
that make up the network. By counting strands of fiber, a measurement in fiber
kilometers indicates the maximum capacity of a network. For example, one route
kilometer of 144-strand fiber optic backbone cable would count as 144 fiber
kilometers, while one kilometer of 12-strand building access cable would count
as only 12 fiber kilometers.
Buildings connected. Buildings connected refers to the number of
buildings, each identified by a unique street address, that are connected to a
network.
Voice grade equivalent circuits. The number of voice grade equivalent
circuits relates to the transmission capacity of lines. These circuits are
measured in terms of their ability to transmit the equivalent 64 kilobits of
information per second, the number needed for one voice call. A bit is the
smallest unit of information a computer can process and is the basic measurement
unit of data communications. If two sites are connected with a 256 kilobits
link, there would be four voice grade equivalent circuits.
Permanent virtual circuits sold. A permanent virtual circuit represents a
data connection, typically between two locations such as a customer's
headquarters and an off-site branch or other entity. AT&T Latin America and
FirstCom connect customers to their networks by deploying a port connection
within or near to the customer's premises. Each port can accommodate several
permanent virtual circuits. As a customer increases its usage of services, the
customer will obtain additional available transmission capacity, on the same
installed port.
Number of dedicated data and Internet customers. The number of customers
represents the number of billable customers for data or Internet services.
Employees. The number of employees excludes third-party contractor
employees and agents.
13
<PAGE> 21
AT&T LATIN AMERICA PRO FORMA COMBINED
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
AT&T
AT&T LATIN AMERICA
LATIN AMERICA FIRSTCOM PRO FORMA
BRAZIL CHILE COLOMBIA PERU COMBINED
------------- ------ -------- ------ -------------
<S> <C> <C> <C> <C> <C>
Network route kilometers
Metropolitan.............................. 335 306 815 1,228 2,684
Domestic (long-haul)...................... 0 0 0 0 0
Total............................. 335 306 815 1,228 2,684
Total fiber kilometers............ 32,461 4,743 17,996 31,236 86,436
Number of buildings connected............... 601 225 734 681 2,241
Number of voice grade equivalent circuits... 14,218 35,115 10,770 10,683 70,786
Number of permanent virtual circuits sold... 1,652 1,089 1,314 847 4,902
Number of dedicated data and Internet
customers................................. 623 699 181 582 -
Number of employees......................... 193 276 164 284 917
</TABLE>
14
<PAGE> 22
COMPARATIVE SHARE DATA
The following table sets forth certain earnings, dividends and book value
per share for AT&T Latin America and FirstCom on a historical basis and pro
forma basis.
You should read this information in conjunction with the "Selected
Financial Information" and the respective audited consolidated financial
statements (and related notes) of AT&T Latin America and FirstCom incorporated
by reference or appearing elsewhere in this proxy statement/prospectus.
The FirstCom pro forma equivalent per share amounts are calculated by
multiplying the assumed exchange ratio of one share of AT&T Latin America common
stock for each share of FirstCom common stock by the pro forma per share values
of AT&T Latin America for the relevant period.
This information is not necessarily indicative of the results of future
operations of the combined company or the actual results that would have
occurred had the merger been consummated prior to the periods indicated.
AT&T LATIN AMERICA
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1999 2000
---------------- ------------------
<S> <C> <C>
Book value per share of AT&T Latin America common stock:
Historical............................................. $ 9,344.85 $ 9,045.00
Pro forma.............................................. 7.14 6.88
Cash dividends declared: 0 0
Net loss attributable to common stockholders (per share):
Historical............................................. (103.10) (280.43)
Pro forma.............................................. (0.99) (0.34)
</TABLE>
FIRSTCOM
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
---------------- ----------------
<S> <C> <C>
Book value per share of FirstCom common stock:
Historical............................................. $(0.27) $ 0.10
Equivalent pro forma................................... 7.14 6.88
Cash dividends declared: 0 0
Net loss attributable to holders of common and Series A
convertible preferred shares (per share):
Historical............................................. (1.94) (0.61)
Equivalent pro forma................................... (0.99) (0.34)
</TABLE>
15
<PAGE> 23
MARKET PRICE OF FIRSTCOM COMMON SHARES
The following table shows the range of the high and low closing prices of
FirstCom common shares, as reported by Nasdaq for the periods presented.
FirstCom has never paid any cash dividends on its common shares.
<TABLE>
<CAPTION>
FIRSTCOM COMMON
SHARES
HIGH LOW
------- -------
(IN U.S. DOLLARS PER
SHARE)
<S> <C> <C>
2000
Third Quarter (through July 14)........................... $17.56 $15.19
Second Quarter............................................ 32.12 11.19
First Quarter............................................. 37.94 29.38
1999
Fourth Quarter............................................ 42.00 9.38
Fourth Quarter (through October 29)(1).................... 12.44 9.38
Third Quarter............................................. 11.12 7.69
Second Quarter............................................ 9.12 2.75
First Quarter............................................. 3.16 2.16
1998
Fourth Quarter............................................ 2.62 0.75
Third Quarter............................................. 2.87 1.00
Second Quarter............................................ 2.62 1.66
First Quarter............................................. 2.69 1.66
1997
Fourth Quarter............................................ 4.00 1.56
Third Quarter............................................. 3.44 2.06
Second Quarter............................................ 3.25 1.44
First Quarter............................................. 3.50 1.88
</TABLE>
---------------
(1) October 29, 1999 was the last trading day before the signing of the merger
agreement.
16
<PAGE> 24
RISK FACTORS
In deciding whether to vote in favor of the merger, you should consider the
following factors that could affect the value of an investment in AT&T Latin
America. You also should consider the other information included in this
document.
RISKS RELATING TO THE MERGER
IF AT&T LATIN AMERICA DOES NOT INTEGRATE SUCCESSFULLY WITH FIRSTCOM, ITS
ANTICIPATED GROWTH AND INCREASE IN REVENUES MAY NOT BE REALIZED, AND OPERATING
COSTS MAY BE GREATER THAN EXPECTED.
If AT&T Latin America does not integrate successfully its various
operations, its anticipated growth and increase in revenues may not be realized,
and operating costs may be greater than expected. Integration of the operations
of AT&T Latin America and FirstCom may be difficult because it will involve
changes affecting the employees, management and operations of both companies.
Future acquisitions, which are part of AT&T Latin America's growth strategy,
could further complicate the integration process.
AT&T CORP.'S VOTING CONTROL OVER AT&T LATIN AMERICA AFTER THE MERGER COULD CAUSE
AT&T LATIN AMERICA TO TAKE ACTIONS BENEFICIAL TO AT&T CORP. THAT ARE NOT IN THE
BEST INTERESTS OF AT&T LATIN AMERICA OR ITS STOCKHOLDERS.
After the merger, AT&T Corp. will control indirectly approximately 94% of
the voting power in AT&T Latin America. It will be able to control the election
of the members of the board of directors and the outcome of substantially all
matters submitted to a vote of AT&T Latin America's stockholders. AT&T Corp.'s
voting control may continue in the future through its ownership of the high vote
AT&T Latin America Class B common stock even if AT&T Corp. no longer owns a
majority economic interest in AT&T Latin America.
AT&T Corp. may have interests that differ from yours which may give it an
incentive to cause AT&T Latin America to take actions beneficial to AT&T Corp.
that are not necessarily in the best interests of AT&T Latin America or its
stockholders. AT&T Corp. and companies in which it owns equity interests, some
of which are larger than its equity interest in AT&T Latin America, will have
commercial arrangements with AT&T Latin America. A subsidiary of AT&T Corp. will
also be a creditor of AT&T Latin America with respect to a $100 million
revolving credit facility and will own all of the 15% Series B preferred stock
of AT&T Latin America.
AT&T CORP.'S VOTING CONTROL AND SOME OF THE PROVISIONS OF AT&T LATIN AMERICA'S
CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY, DEFER OR PREVENT A CHANGE IN
CONTROL OF AT&T LATIN AMERICA THAT MIGHT BE OTHERWISE BENEFICIAL TO AT&T LATIN
AMERICA'S STOCKHOLDERS.
AT&T Corp.'s voting control and some of the provisions of AT&T Latin
America's certificate of incorporation and bylaws may delay, defer or prevent a
change of control of AT&T Latin America that might be otherwise beneficial to
AT&T Latin America's stockholders. Those provisions are described in this proxy
statement/prospectus under the heading "Provisions of AT&T Latin America's
Certificate of Incorporation and Bylaws That Could Delay, Defer or Prevent
Change of Control." This may adversely affect the prevailing market price of the
Class A shares if viewed as discouraging takeover attempts in the future.
17
<PAGE> 25
AT&T CORP. MAY COMPETE WITH AT&T LATIN AMERICA IN PROVIDING VARIOUS SERVICES,
WHICH COULD ADVERSELY AFFECT AT&T LATIN AMERICA'S ABILITY TO GAIN MARKET SHARE
AND ATTRACT AND RETAIN CUSTOMERS.
AT&T Corp. may compete with AT&T Latin America in providing all services
AT&T Latin America may provide except long distance, toll-free, local voice
delivered through fixed lines, dedicated lines, Internet access and a number of
data services. Those services are described in this proxy statement/prospectus
under the heading "Regional Vehicle Agreement with AT&T Corp." The restrictions
on competition do not apply to Concert, subsidiaries of AT&T Corp. related to
the Liberty Media group, the AT&T Global Network Services business and the
businesses AT&T Corp. is acquiring through its acquisition of MediaOne.
Competition from AT&T Corp. and its affiliates could adversely affect AT&T Latin
America's ability to gain market share and attract and retain customers.
TERMINATION OF AT&T LATIN AMERICA'S BRAND LICENSE AGREEMENT WITH AT&T CORP.
WOULD RESULT IN THE LOSS OF THE USE OF THE WELL-KNOWN AT&T BRAND, WHICH WOULD
ADVERSELY AFFECT AT&T LATIN AMERICA'S ABILITY TO MAINTAIN AND EXPAND ITS
CUSTOMER BASE AND GENERATE REVENUES.
AT&T Corp. may terminate its brand license with AT&T Latin America if AT&T
Corp. no longer has voting control of AT&T Latin America or if AT&T Latin
America misuses the marks or otherwise materially breaches its obligations under
the brand license agreement and is not able to correct the breach in a timely
fashion. Loss of the AT&T brand would detract from AT&T Latin America's ability
to gain market share, and could result in increased marketing costs associated
with developing market recognition for a different brand name. These effects
would adversely affect its ability to attract and retain customers and generate
revenues.
YOU MAY NOT BE ABLE TO VALUE READILY THE SHARES OF AT&T LATIN AMERICA COMMON
STOCK YOU WILL RECEIVE IN THE MERGER BECAUSE THE SHARES HAVE NO PRIOR TRADING
MARKET.
Although there is an established trading market for FirstCom's shares,
shares of AT&T Latin America's Class A common stock are not yet publicly traded.
Because the Class A shares will not trade publicly until after completion of the
merger, FirstCom shareholders will not know the level of liquidity that will
develop for these shares. This will make it difficult to determine the value of
AT&T Latin America's Class A shares.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF AT&T LATIN AMERICA COULD CAUSE THE
MARKET PRICE OF ITS SHARES TO DECLINE.
The sale of a substantial number of AT&T Latin America's shares of Class A
common stock or the perception that such a sale might occur could put downward
pressure on the market price of the Class A common stock. There could be
substantial sales in connection with acquisitions and upon the exercise of
outstanding warrants and options. Also, AT&T Latin America expects to make a
substantial equity offering shortly after the merger to raise funds to implement
its growth strategy. Whether AT&T Latin America makes an equity offering and
what its terms might be will depend on prevailing market conditions.
INDUSTRY AND BUSINESS RISKS
AT&T LATIN AMERICA HAS HAD OPERATING LOSSES AND MAY NEVER HAVE PROFITABLE
OPERATIONS, WHICH WOULD ADVERSELY AFFECT ITS ABILITY TO FINANCE FUTURE
OPERATIONS AND MAKE SUITABLE ACQUISITIONS.
FirstCom and Netstream have had significant losses and negative cash flow
from operations since their inception. On a pro forma basis, giving effect to
the merger as if it had been completed on
18
<PAGE> 26
January 1, 1999, AT&T Latin America and its subsidiaries had a loss from
operations of approximately $86.7 million in 1999 and $33.0 million in the first
quarter of 2000 and a net loss attributable to common stockholders of
approximately $112.1 million in 1999 and $38.3 million in the first quarter of
2000.
AT&T Latin America expects to continue to incur significant operating
losses and have negative cash flow from operations for at least the next several
years. This could result in AT&T Latin America being unable to achieve or
sustain profitable operations, finance future operations or make suitable
acquisitions.
AT&T LATIN AMERICA'S LIMITED OPERATING HISTORY MAY MAKE IT DIFFICULT TO EVALUATE
ITS PERFORMANCE AFTER THE MERGER.
Prospective investors have only limited historical information about the
operations that AT&T Latin America will have after the merger to use in
evaluating its performance. Until the Netstream acquisition in December 1999,
AT&T Latin America had no material assets, liabilities or operations. Netstream
itself began commercial operations on a limited scale in November 1998. Although
FirstCom began operations in 1994 in Chile, it acquired its Peruvian operations
in May 1996 and its Colombian operations in February 1999. In addition, Keytech
LD, which AT&T Latin America acquired in June 2000, is a development stage
broadband communications company in Argentina with limited assets and a limited
operating history consisting of reselling other carriers' services to a few
customers.
IF AT&T LATIN AMERICA FAILS TO RAISE THE NECESSARY FUNDS FOR ITS CAPITAL
EXPENDITURE PROGRAMS AND TO FUND OPERATING LOSSES, IT WILL BE DIFFICULT TO
IMPLEMENT ITS GROWTH STRATEGY.
AT&T Latin America has substantial cash requirements. AT&T Latin America
estimates that it will have cash requirements of approximately $725 million
during 2000 and the first half of 2001. AT&T Latin America and FirstCom had
spent an aggregate of $40 million of that amount through March 31, 2000. The
remaining amount will be needed to develop and expand its communications
networks and services and fund working capital needs, operating losses and debt
services obligations. AT&T Latin America expects that its funding needs to
implement its growth strategy will continue at a somewhat higher level from
mid-2001 through the end of 2002. Moreover, AT&T Latin America could require
additional funding if operating losses are greater than anticipated or it takes
advantage of acquisition or other expansion opportunities using cash.
AT&T Latin America is not sure it will be able to raise sufficient funds on
acceptable terms or at all. Failure to raise sufficient funds could affect its
ability to meet its debt service and other obligations and would affect its
ability to carry out its growth strategy. If AT&T Latin America does not obtain
additional financing by the end of the third quarter of 2000, it will have to
postpone most of its capital expenditures until financing is obtained. This
would detract from its time to market and its ability to pursue its growth
strategy.
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AT&T LATIN AMERICA WILL HAVE SIGNIFICANT DEBT AND PREFERRED DIVIDEND OBLIGATIONS
THAT COULD ADVERSELY AFFECT ITS ABILITY TO MAKE CAPITAL EXPENDITURES, OBTAIN
ADDITIONAL FINANCING, MAKE SUITABLE ACQUISITIONS AND REACT TO COMPETITIVE AND
OTHER CHANGES.
AT&T Latin America will have significant amounts of debt and preferred
stock, and therefore substantial debt service and preferred dividend
obligations. Having a high level of debt and preferred dividend obligations
imposes risks such as the following:
- AT&T Latin America may have difficulty in obtaining additional financing
for working capital, capital expenditures, acquisitions or general
corporate purposes;
- AT&T Latin America's substantial cash requirements to service debt and
pay preferred dividends will reduce amounts available for capital
expenditures and other purposes;
- the failure to generate sufficient cash flow or obtain sufficient cash
from its subsidiaries could result in a default on its debt; and
- AT&T Latin America's high debt level may increase its vulnerability to
adverse changes in its business and economic conditions, as well as limit
its ability to react to competitive changes.
AT&T Latin America, on a pro forma basis giving effect to the acquisition
of Netstream and FirstCom, have had operating results that failed by a
substantial amount to cover fixed charges. AT&T Latin America does not expect to
have sufficient cash flow to cover its fixed charges for at least the next
several years.
If AT&T Latin America fails to meet its debt or preferred dividend
obligations, it may have to modify its growth plans, restructure or refinance
its indebtedness or seek additional capital, which may not be available on
reasonable terms or at all. Its ability to meet its obligations depends on
factors affecting its business and operations, many of which are beyond AT&T
Latin America's control. They include such things as economic conditions in
Latin America, the entry of new competitors and technological change.
LIMITS ON THE ABILITY OF AT&T LATIN AMERICA'S SUBSIDIARIES TO MAKE FUNDS
AVAILABLE TO PAY DEBT AND OTHER OBLIGATIONS COULD ADVERSELY AFFECT AT&T LATIN
AMERICA'S BUSINESS AND FINANCIAL STANDING.
AT&T Latin America's only significant assets that generate cash are its
direct and indirect interests in its operating subsidiaries. These subsidiaries
may not be able to make funds available to enable AT&T Latin America to meet its
obligations in which case its business and financial standing would be adversely
affected. The ability of AT&T Latin America's subsidiaries to make funds
available to AT&T Latin America will depend on their earnings, business and tax
considerations and legal restrictions, such as local legal restrictions relating
to foreign payments and repatriation of capital, as well as their agreements
with lenders.
ACQUISITIONS COULD RESULT IN SHAREHOLDER DILUTION, ADDITIONAL LIABILITIES,
INCREASED AMORTIZATION EXPENSES, DIFFICULTIES IN INTEGRATING NEW BUSINESSES AND
DIVERSION OF MANAGEMENT'S ATTENTION.
Acquisitions are an important part of our growth strategy. However,
acquisitions could result in one or more of the following:
- dilutive issuances of equity securities;
- additional debt and contingent liabilities;
- increased amortization expenses related to goodwill and other intangible
assets;
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- difficulties in assimilating the operations, technologies, services and
products of the acquired companies; and
- the diversion of management's attention from other business activities.
AT&T LATIN AMERICA MAY NOT BE ABLE TO COMPLETE THE ACQUISITIONS NECESSARY TO
IMPLEMENT ITS GROWTH STRATEGY.
AT&T Latin America's growth will depend in part on whether it can identify
suitable acquisition candidates and complete acquisitions at attractive prices
and on satisfactory terms. Completing acquisitions may require approval from
regulatory authorities and other third parties. AT&T Latin America has no
commitments or agreements for any acquisitions. AT&T Latin America is not
certain that it will be able to successfully complete acquisitions. An inability
to make suitable acquisitions would make it more difficult for AT&T Latin
America to implement its growth strategy.
AT&T LATIN AMERICA MAY HAVE DELAYS OR UNANTICIPATED EXPENSES IN CONSTRUCTING ITS
NETWORKS THAT PUT IT AT A COMPETITIVE DISADVANTAGE.
AT&T Latin America's substantial construction of additions to its networks
and new network systems involves material risks. Failure to complete
construction on a timely basis could adversely affect AT&T Latin America's
ability to attract and retain customers, as well as its contracts, franchises
and licenses. In addition, this type of construction project is subject to cost
overruns and delays beyond AT&T Latin America's control. Increased expenses due
to construction difficulties could adversely affect AT&T Latin America's
financial results. Delays such as those caused by government entities, financing
problems and catastrophic occurrences are not unusual and may be common. Delays
can also arise from design changes and material or equipment shortages or delays
in delivery. Services to buildings can also be delayed if the operating
companies or their subcontractors have difficulty in obtaining easements from
third parties.
AT&T LATIN AMERICA NEEDS TO ATTRACT NEW CUSTOMERS AND THERE MUST BE SUBSTANTIAL
GROWTH IN THE OVERALL LEVEL OF DEMAND IN LATIN AMERICA FOR SERVICES IF AT&T
LATIN AMERICA IS TO GENERATE PROFITS.
AT&T Latin America's success will depend heavily on the extent to which
prospective subscribers use its data, Internet and other broadband services.
Attracting new customers is particularly important to AT&T Latin America's
growth strategy because FirstCom and AT&T Latin America have only limited
operating histories. In addition, for AT&T Latin America to succeed, the overall
level of demand for this type of services by businesses in its existing markets
must increase significantly. Also, there must be strong demand for services that
AT&T Latin America introduces in the future.
AT&T Latin America cannot be sure what the future demand for these services
will be, particularly since the demand will depend to a significant extent on
factors beyond its control. Those factors include business, economic, regulatory
and competitive factors in the markets in which it operates. Insufficient demand
for its services will adversely affect AT&T Latin America's business and results
of operations.
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INCREASING COMPETITION IN THE COMMUNICATIONS INDUSTRY IN LATIN AMERICA AND AT&T
LATIN AMERICA'S LIMITED COMPETITIVE STANDING AND SIZE COULD ADVERSELY AFFECT ITS
ABILITY TO GENERATE REVENUES, GAIN SIGNIFICANT MARKET SHARE AND ATTRACT NEW
CUSTOMERS FROM EXISTING PROVIDERS.
The communications industry in Latin America is becoming increasingly
competitive due in part to recent privatizations, deregulation and a related
increase in the number and size of new competitors. Moreover, because FirstCom
and AT&T Latin America have a limited operating history, they have a limited
competitive standing. This is particularly so in Brazil where Netstream began
selling services in November 1998. In addition, AT&T Latin America only began
limited operations in Argentina when it completed its acquisition of Keytech LD
in June 2000.
AT&T Latin America will compete with several other service providers in
each of its markets. Competitors include global alliances of some of the world's
largest communications carriers, incumbent communications providers with large
customer bases, wireless telephone companies and satellite-based communications
carriers. Other existing and potential competitors include cable television
companies, railway companies, utilities and other entities with rights-of-way
and large end users which have private networks. Competition has been
intensifying and AT&T Latin America believes it is likely to continue to
intensify as the number of new market entrants increases.
As a result, AT&T Latin America may not be able to generate adequate
revenues or gain a substantial share of the markets it intends to serve. AT&T
Latin America also may have difficulty attracting new customers from established
providers.
SIGNIFICANT PRICE COMPETITION COULD ADVERSELY AFFECT AT&T LATIN AMERICA'S
REVENUES AND OPERATING RESULTS.
AT&T Latin America's price levels for its services will depend to a
significant degree on competitors' prices over which AT&T Latin America has no
control. A number of AT&T Latin America's existing and potential competitors
have greater financial and other resources than it has. Some competitors may be
able to use their financial resources and incumbent status to cause severe price
competition. If AT&T Latin America has to reduce prices to compete effectively,
its operating results may be adversely affected.
BECAUSE AT&T LATIN AMERICA IS BUILDING ITS CUSTOMER BASE AND EXPANDING AND
BUILDING NETWORKS, IT IS PARTICULARLY VULNERABLE TO THE IMPACT OF DAMAGE TO ITS
NETWORKS AND SYSTEM FAILURES.
To market its services to business customers and other high volume users,
AT&T Latin America's networks will need to provide a high level of reliability,
capacity and security. Its networks, many of which are being expanded or newly
constructed, are subject to physical damage, power loss, capacity limitations,
software defects and breaches of security. Service interruptions or other
defects could impede AT&T Latin America's ability to attract and retain
customers.
THE RESTRICTIONS ON AT&T LATIN AMERICA'S BUSINESS IN ITS CERTIFICATE OF
INCORPORATION AND AGREEMENTS WITH AT&T CORP. COULD ADVERSELY AFFECT AT&T LATIN
AMERICA'S PROVISION OF NEW SERVICES AS WELL AS ITS ABILITY TO EXPAND ITS
GEOGRAPHIC REACH.
AT&T Latin America's certificate of incorporation and agreements with AT&T
Corp. limit the geographical area where it may operate. In addition, AT&T Latin
America will enter into a regional vehicle agreement with AT&T Corp. that will
govern the services AT&T Latin America may provide and, in some cases, to whom
it may provide services. The services AT&T Latin America offers under the AT&T
brand are also subject to the service mark license agreement with AT&T Corp.
which requires the maintenance of service levels appropriate for services that
bear an AT&T brand. Each of
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these limitations could adversely affect AT&T Latin America's ability to provide
new services and expand into new markets.
AT&T LATIN AMERICA NEEDS TO OBTAIN ADDITIONAL LICENSES AND APPROVALS IN ORDER TO
EXPAND ITS SERVICES AND ENTER NEW MARKETS.
AT&T Latin America must from time to time obtain additional licenses and
approvals from governmental agencies to provide its services. Because many of
its markets have been recently deregulated, there may be particular difficulties
or delays in obtaining them. If AT&T Latin America encounters difficulties or
delays in obtaining licenses, zoning variances or rights of way agreements, its
ability to provide new services and expand into new markets could be adversely
affected.
AT&T LATIN AMERICA'S ABILITY TO SERVE CUSTOMERS AND COMPETE EFFECTIVELY COULD BE
ADVERSELY AFFECTED IF IT FAILS TO OBTAIN RIGHTS-OF-WAY AND VARIOUS THIRD PARTY
AGREEMENTS TO CONSTRUCT AND MAINTAIN ITS NETWORKS.
AT&T Latin America will need easements, rights-of-way, franchises and
licenses from various private parties, actual and potential competitors and
local governments to construct and maintain its networks. AT&T Latin America
does not yet have all of the approvals required to build networks in several
markets it considers attractive, such as Buenos Aires. It may not be able to
obtain and maintain the necessary approvals on acceptable terms. Also, other
service providers may obtain similar approvals that allow them to compete
against AT&T Latin America or enter these markets before it can. Moreover, some
of the agreements and approvals AT&T Latin America has are short-term or are
revocable by third parties. Termination or non-renewal of any of these
agreements could require AT&T Latin America to remove its fiber optic cable or
abandon its network in place. This would adversely affect its ability to service
customers and compete effectively.
CHANGES IN GOVERNMENTAL DEREGULATION COULD ADVERSELY AFFECT AT&T LATIN AMERICA'S
OPERATIONS AND GROWTH BY RESTRICTING ITS ABILITY TO OFFER EXISTING AND PLANNED
COMMUNICATIONS SERVICES.
AT&T Latin America has largely based its growth strategy upon its
expectation that deregulation of the communications markets will continue in the
countries where it will operate. These countries may not proceed with
deregulation on schedule or may stop entirely or reverse the trend towards
deregulation. This could adversely affect AT&T Latin America's operations and
growth by restricting its ability to offer existing and planned communications
services. Incumbent providers, trade unions and others may resist legislation
directed toward deregulation. In addition, national and local laws and
regulations differ significantly among the countries in which AT&T Latin America
will operate. How these laws and regulations are interpreted and enforced as
well as changes in laws or regulations and judicial intervention could limit
AT&T Latin America's ability to provide some of its existing and planned
communications services.
AT&T LATIN AMERICA MUST KEEP PACE WITH RAPID INDUSTRY AND TECHNOLOGICAL CHANGE
TO ATTRACT AND MAINTAIN CUSTOMERS AND COMPETE EFFECTIVELY.
The communications industry, particularly in Latin America, is changing
rapidly. This is due to factors such as
- deregulation,
- privatization,
- technological improvements,
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- expansion of communications infrastructure, and
- the globalization of the world's economies and free trade.
AT&T Latin America's success depends, in part, upon how well it anticipates
and adapts to change and whether it offers its customers attractive
communications services. If it can not do so, it will be more difficult for it
to attract and retain customers and compete effectively.
AT&T LATIN AMERICA'S CUSTOMER SERVICE COULD SUFFER IF AT&T LATIN AMERICA IS
UNABLE TO OBTAIN SATISFACTORY SERVICES FROM LOCAL COMMUNICATIONS PROVIDERS,
WHICH COULD ADVERSELY AFFECT ITS ABILITY TO COMPETE.
AT&T Latin America depends on incumbent local carriers to provide various
communications services to it and to its customers. FirstCom and Netstream have
from time to time had delays in receiving these communications services. AT&T
Latin America may not be able to obtain these services on the scale and within
the time required by it at an affordable cost, or at all. If adequate services
are not provided, customer service could suffer as could AT&T Latin America's
competition position and financial results.
FAILURE TO RETAIN KEY PERSONNEL AND ATTRACT ADDITIONAL PERSONNEL MAY DETRACT
FROM AT&T LATIN AMERICA'S ABILITY TO MANAGE ITS BUSINESS EFFECTIVELY, ATTRACT
CUSTOMERS AND EXECUTE ITS GROWTH STRATEGY.
A small number of key executive officers and operating personnel will
manage AT&T Latin America. They include Patricio E. Northland, FirstCom's
president and chief executive officer, who has led FirstCom since 1996. AT&T
Latin America's business will be adversely affected if it does not attract,
retain and motivate skilled and qualified technical and sales personnel with
experience in the communications industry and, particularly, in Latin America.
In particular, it may detract from its ability to manage its business
effectively, attract customers and execute its strategy to grow through
construction of additional networks and suitable acquisitions. People with the
requisite qualifications and experience are in great demand and often have
competing offers of employment.
AT&T LATIN AMERICA'S LIMITED OPERATING AND FINANCIAL SYSTEMS RESOURCES MAY MAKE
IT DIFFICULT TO MANAGE FUTURE GROWTH.
AT&T Latin America may not be able to keep pace with a high level of
growth. AT&T Latin America's ability to effectively manage growth and expansion
contemplated by its growth strategy will require that it implement and improve
its operating and financial systems. It will also need to expand, train and
manage a growing base of employees.
AT&T LATIN AMERICA COULD ENTER INTO ARRANGEMENTS WITH CONCERT THAT COULD CHANGE
AT&T LATIN AMERICA'S STRATEGY AND BUSINESS, WHICH COULD AFFECT AT&T LATIN
AMERICA'S GROWTH AND RESULTS OF OPERATIONS, AND ADVERSELY AFFECT THE MARKET
PRICE OF THE CLASS A COMMON STOCK.
One of AT&T Latin America's strategies is to collaborate with Concert.
There have been preliminary discussions among AT&T Corp., British Telecom and
Concert with respect to the desirability of various arrangements that would,
among other things, enhance such collaboration.
Possible arrangements with respect to Concert range from enhanced
commercial cooperation to AT&T Corp.'s contributing to Concert all or a portion
of its ownership interest in AT&T Latin America. Neither AT&T Corp., AT&T Latin
America, FirstCom nor Concert has made any determination with respect to these
matters. AT&T Corp. would have the right to terminate its brand license to AT&T
Latin America if it ceased to own a majority of the voting power in AT&T Latin
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<PAGE> 32
America. AT&T Corp. has advised FirstCom, however, that it would be prepared to
continue the brand license in the context of any arrangements of this type.
It is not possible to predict what steps AT&T Latin America will take to
enhance its collaboration with Concert. Nor is it possible to predict whether
any arrangements will be made or on what terms. This type of arrangement would
be likely to be subject to governmental and other third-party approvals. Any
arrangements with Concert could change AT&T Latin America's strategy and
business, which could affect AT&T Latin America's growth and results of
operations, or adversely affect the market price of the Class A common stock
THE SPECIAL ECONOMIC AND POLITICAL RISK OF CONDUCTING OPERATIONS IN LATIN
AMERICA COULD ADVERSELY AFFECT AT&T LATIN AMERICA'S ABILITY TO INCREASE REVENUES
IN RESPONSE TO INCREASES IN INFLATION RATES OR CURRENCY DEVALUATIONS WHERE AT&T
LATIN AMERICA OPERATES.
Since all of AT&T Latin America's operations are in Latin America, it will
be subject to significant economic, political and social instability and other
risks not typical of investments in businesses conducted in the United States.
During the past several years, many countries where AT&T Latin America now
operates or will operate have had high inflation, uneven economic growth rates
and political instability. Also many of these countries have economies in
various stages of development or structural reform and their local economies
have fluctuated. AT&T Latin America may not be able to mitigate the effect of
inflation on its operations in these countries by price increases, even over the
long-term. In addition, to the extent these factors affect the ability of
subscribers to pay for AT&T Latin America's services, the growth of revenues
from services offered in these markets could be limited.
In addition to inflation, many of these countries have had significant
volatility in currency exchange rates. AT&T Latin America would be adversely
affected if currency exchange rates change adversely to AT&T Latin America or if
currency controls are imposed.
AT&T LATIN AMERICA COULD PAY ADDITIONAL TAXES BECAUSE ITS OPERATIONS ARE SUBJECT
TO VARIOUS FOREIGN TAXES.
AT&T Latin America structures its operations based on certain assumptions
about various tax laws, U.S. and international tax treaty developments,
international currency exchange and capital repatriation laws and other relevant
laws of a variety of non-U.S. jurisdictions. Taxing or other authorities might
not reach the same conclusions as AT&T Latin America. AT&T Latin America could
suffer adverse tax and other financial consequences if its assumptions about
these matters are incorrect or the relevant laws are changed or modified.
DISTRIBUTIONS AND OTHER PAYMENTS TO AT&T LATIN AMERICA FROM ITS SUBSIDIARIES AND
AFFILIATES MAY BE SUBJECT TO FOREIGN TAXES, REDUCING ITS EARNINGS.
Distributions of earnings and other payments, including interest, AT&T
Latin America receives from its subsidiaries and affiliates may be subject to
withholding taxes imposed by the jurisdictions in which these entities are
formed or operating. These taxes would reduce the amount of after-tax cash AT&T
Latin America would receive from these entities.
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LABOR REGULATIONS AND STRONG LABOR UNIONS MAY INCREASE AT&T LATIN AMERICA'S
OPERATING AND LABOR COSTS.
Labor regulations in Latin America are generally more favorable to
employees than they are in the United States. Most Latin American countries also
require higher rates of mandatory social security and similar contributions by
employers than the United States. In addition, labor unions in most Latin
American countries are considered to be strong and influential. If AT&T Latin
America's operations become unionized, it could experience strikes or other
conflicts with labor unions or personnel that increase its operating and labor
costs.
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FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "The Companies" and
elsewhere in this proxy statement/prospectus are forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of AT&T
Latin America to be materially different from any future results, performance or
achievements of AT&T Latin America expressed in or implied by the
forward-looking statements.
Forward-looking statements include but are not limited to statements and
references about the following matters:
- expectations and estimates as to completion dates, construction costs,
subsequent maintenance expenses and growth of the networks to be built or
expanded, as to the amount of cash requirements to implement its growth
strategy and as to its ability to obtain financing;
- expectations concerning growth and demand for communications services;
- expectations about the sources of revenues and the percentage breakdown
of sources of revenues;
- AT&T Latin America's ability to implement successfully its growth
strategy and to sell capacity on its networks; and
- future financial performance, including growth in sales and income.
In addition to matters that are described in this proxy
statement/prospectus, particularly the cautionary statements included in "Risk
Factors," the following factors, among others, could cause AT&T Latin America's
actual results to differ materially from those expressed in or implied by any
forward-looking statements contained in this proxy statement/prospectus:
- the rate of expansion of AT&T Latin America's networks and customer base;
- inaccurate forecasts of customer or market demand;
- loss of one or more important customers;
- highly competitive market conditions;
- changes in or developments under laws, regulations and licensing
requirements in the areas in which it may operate;
- changes in communications technology;
- currency fluctuations; and
- changes in economic, regulatory and political conditions in the areas
which it may operate.
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE FIRSTCOM SPECIAL MEETING
At the FirstCom special meeting, FirstCom will ask its shareholders to
consider and vote on a proposal to approve and adopt the merger agreement and
approve the merger.
THE FIRSTCOM BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS ADVISABLE
AND IN THE BEST INTERESTS OF FIRSTCOM AND ITS SHAREHOLDERS. ACCORDINGLY, THE
FIRSTCOM BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND APPROVED AND
ADOPTED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE FIRSTCOM
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AND APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding
FirstCom common shares and Series A convertible preferred shares, voting
together as a single class, as well as the affirmative vote of seventy-five
percent of the outstanding Series A convertible preferred shares, voting as a
separate class, are required to approve the merger agreement and the merger.
Each FirstCom common share and Series A convertible preferred share is entitled
to one vote on the merger proposal. If all of the holders of Series A
convertible preferred shares convert those shares into FirstCom common shares
prior to the shareholders' meeting, the holders of a majority of the aggregate
number of outstanding FirstCom common shares and Series A convertible preferred
shares, voting together as a single class, would be necessary to approve the
merger. There would no longer be a separate class vote of the Series A
convertible preferred shares at that meeting.
Only holders of record of FirstCom common shares and Series A convertible
preferred shares at the close of business on July 12, 2000 are entitled to
receive notice of and vote at the FirstCom special meeting. As of June 30, 2000,
there were 31,764,225 FirstCom common shares and 1,448,885 FirstCom Series A
convertible preferred shares outstanding and entitled to vote. Holders of a
majority of the outstanding FirstCom common shares and a majority of the
outstanding Series A convertible preferred shares on the record date, present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the FirstCom special meeting.
Patricio E. Northland, the chairman, president and chief executive officer
of FirstCom and three other substantial holders of FirstCom common stock have
agreed to vote all the FirstCom shares they own in favor of the merger. In
addition, the holders of FirstCom's Series A convertible preferred shares have
agreed to vote all their shares in favor of the merger. This agreement by the
holders of Series A convertible preferred shares applies both to their vote with
the common shareholders and, if required, to their vote as a separate class. As
of June 30, 2000, these common and preferred shareholders together owned
approximately 22% of the then outstanding shares of capital stock of FirstCom
entitled to vote on the merger proposal, excluding any shares that these holders
might acquire by exercising FirstCom options and warrants. These voting
agreements will terminate if the merger agreement terminates.
A list of FirstCom shareholders entitled to vote at the FirstCom special
meeting will be available for examination at FirstCom's executive offices
located at 220 Alhambra Circle, Coral Gables, Florida beginning on August 7,
2000 during normal business hours and at the FirstCom special meeting.
Further stockholder approval is not required by any of the other parties to
the merger agreement.
HOW SHARES WILL BE VOTED AT THE SPECIAL MEETING
Shares represented by a proxy will be voted at the FirstCom special meeting
as specified in the proxy.
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If a FirstCom shareholder fails to return his or her proxy or attend the
special meeting, the shareholder's shares will not be counted for the purpose of
determining whether a quorum is present at the FirstCom special meeting. Failure
to return a proxy will have the same effect as voting "AGAINST" the merger
unless the shareholder votes his shares in person in favor of the merger at the
FirstCom special meeting. If a FirstCom shareholder returns a properly executed
proxy but fails to mark his or her vote, the shares will be counted for the
purpose of determining whether a quorum is present at the FirstCom special
meeting and these shareholders will have their shares voted "FOR" approval of
the merger proposal.
Abstentions will be considered present for the purpose of establishing a
quorum and will have the same effect as a vote "AGAINST" approval of the merger
and the merger agreement.
Under Nasdaq rules, your broker cannot vote your FirstCom shares on the
merger proposal without specific instructions from you. Unless you follow the
directions your broker provides to you regarding how to instruct your broker to
vote your shares on the merger proposal, your shares will not be voted. Broker
non-votes will be counted for purposes of determining whether a quorum exists
and will have the same effect as a vote "AGAINST" the merger and the merger
agreement.
HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
A FirstCom shareholder of record may revoke a proxy at any time before the
FirstCom special meeting by delivering a duly executed revocation or a
subsequent proxy dated after the initial proxy to:
FirstCom Corporation
220 Alhambra Circle -- Suite 910
Coral Gables, Florida 33134
Attention: General Counsel
A FirstCom shareholder may also revoke his or her proxy by attending and
voting at the FirstCom special meeting. Attendance at the special meeting by a
shareholder who has signed a proxy but does not provide a notice of revocation
or a request to vote in person is not sufficient to revoke that proxy.
SOLICITATION OF PROXIES
FirstCom will pay the cost of printing and mailing this document and the
cost of soliciting your proxies. Corporate Investor Communications, Inc.,
FirstCom's proxy solicitation agent, will assist in the solicitation of proxies
for a fee up to $5,500.00 plus reimbursement of reasonable out-of-pocket
expenses. FirstCom will indemnify the proxy solicitation agent against specific
liabilities and expenses, including liabilities for breach of the solicitation
agent agreement. In addition to solicitation by mail, our directors, officers
and employees may solicit proxies from holders of common shares by telephone, in
person or through other means. FirstCom will not compensate these people for
this solicitation, but it will reimburse them for reasonable out-of-pocket
expenses they have in connection with this solicitation. FirstCom will also
arrange for brokerage firms, fiduciaries and other custodians to send
solicitation materials to the beneficial owners of shares held of record by
those persons. FirstCom will reimburse these brokerage firms, fiduciaries and
other custodians for their reasonable out-of-pocket expenses.
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THE MERGER
GENERAL
FirstCom will become a subsidiary of AT&T Latin America upon completion of
the merger. As a result, instead of owning 100% of the fully-diluted economic
interest of FirstCom, former FirstCom shareholders and optionholders will own
approximately 34% of the fully-diluted economic interests in AT&T Latin America.
Currently, AT&T Corp. indirectly owns 90% of the economic interest in AT&T
Latin America. SL Participacoes, an affiliate of Promon Ltda., owns 10% of the
economic interest in AT&T Latin America. Upon completion of the merger, AT&T
Corp. and SL Participacoes will together own approximately 65% of the
fully-diluted economic interest in AT&T Latin America.
The following table describes the expected ownership of the common stock of
AT&T Latin America after the merger:
<TABLE>
<CAPTION>
FULLY-DILUTED ACTUAL FULLY-DILUTED ACTUAL
ECONOMIC ECONOMIC VOTING VOTING
INTEREST INTEREST INTEREST INTEREST
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Former shareholders of FirstCom...................... 34% 29% 5% 4%
AT&T Corp............................................ 59% 63% 93% 94%
SL Participacoes (an affiliate of Promon and former
owner of Netstream)................................ 7% 7% 1% 1%
Former shareholders of Keytech LD.................... * 1% * *
</TABLE>
* Less than 1%.
The percentages indicated above assume that the parties will complete the merger
on August 31, 2000.
The "actual" percentages presented above assume that the outstanding share
capital of FirstCom as of the merger will be 31,764,225 common shares and
1,448,885 Series A convertible preferred shares, the amounts outstanding as of
June 30, 2000. The percentages exclude the 9,051,166 options and warrants to
purchase shares of FirstCom common stock that were outstanding as of June 30,
2000. The "actual" percentages as of the merger will depend on the number of
those options and warrants that are exercised between June 30, 2000 and the date
of the merger.
BACKGROUND OF THE MERGER
The proposed merger resulted from arm's length negotiations between
representatives of FirstCom and AT&T Corp. and their respective legal,
accounting and financial advisors. The following is a summary of the background
of those negotiations.
In January 1999, Patricio E. Northland, FirstCom's chairman of the board,
president and chief executive officer, first approached AT&T Corp. regarding a
possible business combination or strategic investment. FirstCom had been
considering the possibility of engaging in a business combination or strategic
transaction with a leading communications company based upon its desire to
expand its service offerings to additional principal markets in Latin America,
including Brazil and Argentina. Mr. Northland believed that an alliance with a
premier international communications company at this time would enhance
FirstCom's ability to expand in Latin America for a number of reasons. They
included brand name recognition, greater access to required financial resources
and the possibility of developing a pan-regional infrastructure and customer
base. AT&T Corp. was identified as a possible
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strategic partner based upon AT&T Corp.'s reputation as a recognized leader in
communications markets throughout the world and these other criteria. In
addition, AT&T Corp. did not have significant facilities-based operations in the
local communications markets of many of the principal cities in Latin America.
When approached by Mr. Northland, AT&T Corp. had already begun to consider
the possibility of establishing facilities-based operations in Latin America to
serve the communications needs of business customers in the area and to
participate in the growth it anticipated in the Latin American communications
industry. AT&T Corp. had identified Netstream as a possible acquisition
candidate in Brazil. AT&T Corp. entered into discussions with FirstCom because
FirstCom is a facilities-based company, its services and geographic coverage of
Chile, Colombia and Peru complement Netstream's activities in Brazil, and it has
an experienced and entrepreneurial management team. AT&T Corp. also considered
that pursuing a merger with FirstCom would create immediately a publicly-traded
common stock to use in capital raising activities and as currency for future
acquisitions.
In January 1999, members of senior management of FirstCom and executives of
AT&T Corp. began discussing the possibility of a business combination of
FirstCom and AT&T Corp. At a special meeting of FirstCom's board of directors
held in January 1999, the FirstCom board of directors was advised of the
discussions and authorized the discussions to continue.
On January 21, 1999, FirstCom and AT&T Corp. entered into a confidentiality
agreement. FirstCom and AT&T Corp., and their respective representatives, then
began to exchange and review confidential information to evaluate a possible
business combination. From January through April 1999, AT&T Corp. and its
financial, technical and legal advisors conducted preliminary due diligence with
respect to FirstCom, and in mid-April 1999 both parties decided to move forward
with more formal negotiations. The due diligence activities conducted by AT&T
Corp. and its advisors included interviews with FirstCom's senior management in
Coral Gables, as well as in-country site visits to FirstCom's operations in each
of Santiago, Lima/Callao and Bogota. During this initial period, no further
understandings were reached between FirstCom and AT&T Corp. with respect to a
specific transaction. This was due, in part, to a confidentiality agreement that
prohibited AT&T Corp. from disclosing to FirstCom the then-pending transaction
with Netstream.
On April 19, 1999, the FirstCom board of directors approved retaining CIBC
World Markets as its financial advisor with respect to a possible transaction.
CIBC World Markets suggested that FirstCom seek to determine the level of
interest among possible strategic partners in a potential business combination
with, or investment in, FirstCom. After discussions with FirstCom's management
and CIBC World Markets, the FirstCom board of directors requested that the
senior management of FirstCom and CIBC World Markets contact other parties to
determine their possible interest in a strategic transaction with FirstCom. The
FirstCom board of directors also discussed with senior management and CIBC World
Markets the timing and process for contacting potential strategic partners and
soliciting their interest and the financial information about FirstCom that
would be disclosed, subject to the execution of appropriate confidentiality
agreements, to parties that expressed an interest in FirstCom.
The FirstCom board of directors considered that a protracted process of
considering strategic alternatives for FirstCom would likely generate
speculation regarding the possible acquisition of FirstCom, disrupt FirstCom's
operations and subject FirstCom to the risk of losing key personnel and
customers. In light of these concerns, the FirstCom board of directors believed
that it was in the best interests of FirstCom and its shareholders to establish
a reasonable but limited period to make contact with other parties and to allow
those parties to complete their due diligence inquiries into the business and
affairs of FirstCom and to indicate their level of interest in pursuing further
discussions. The FirstCom board of directors therefore instructed CIBC World
Markets to approach a select
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number of potential partners or acquirors about their interest in pursuing a
transaction with FirstCom, primarily focusing on large international
communications companies which had investments in Latin America. From April 19,
1999 through the end of June 1999, CIBC World Markets contacted several leading
international communications companies to determine whether they would be
interested in a strategic acquisition or other significant transaction with
FirstCom.
On April 22, 1999, FirstCom and AT&T Corp. and their respective
representatives met to discuss the terms and conditions upon which a business
combination transaction might be structured. From April 23, 1999 through August
1, 1999, both parties and their representatives held numerous meetings and
conversations to discuss the possible terms and conditions of a business
combination. FirstCom and its advisors also participated in meetings with AT&T
Corp. in May, June and July 1999 with respect to due diligence on FirstCom's
operations and business plans and the proposed operations of a combined company
following a transaction. In June 1999, AT&T Corp. informed FirstCom that it was
pursuing a transaction with a Brazilian communications carrier, which would be
part of any transaction between FirstCom and AT&T Corp. However, because AT&T
Corp. was not able to disclose the identity of this Brazilian company, FirstCom
and AT&T Corp. did not discuss specific terms of a possible transaction. In
early July 1999, after obtaining waivers from Promon and FirstCom relating to
the exchange of confidential information, AT&T Corp. informed FirstCom of its
negotiations to acquire Netstream, and FirstCom and its advisors commenced a due
diligence review of Netstream.
On July 14 and 15, 1999, representatives of FirstCom, AT&T Corp.,
Netstream, Promon and Salomon Smith Barney, financial advisor to AT&T Corp.,
conducted due diligence activities in Sao Paulo on the operations of Netstream.
On August 2, 1999, FirstCom terminated negotiations with AT&T Corp. for the
following principal reasons:
- FirstCom and AT&T Corp. had been unable to agree upon mutually acceptable
terms for a transaction;
- the contribution by AT&T Corp. to the combined company of Netstream was
an important element of the proposed transaction with FirstCom. However,
the terms of the transaction between Netstream and AT&T Corp. had not yet
been finalized, and AT&T Corp. was bound by a confidentiality agreement
with Netstream that prohibited it from providing FirstCom important
information about Netstream. The FirstCom board considered this
information necessary for an appropriate evaluation of the proposed
transaction with AT&T Corp.; and
- the FirstCom board of directors concluded that the complexity of
anticipated negotiations with AT&T Corp. made it unlikely that a mutually
acceptable agreement could be reached until AT&T Corp. had finalized the
terms of its transaction with Netstream.
Following termination of the negotiations with AT&T Corp., FirstCom
continued serious negotiations with a potential strategic investor with whom
senior management had had a number of conversations about a transaction since
May, 1999. The strategic investor indicated in early August that it was
interested in a transaction with FirstCom, but it advised FirstCom's senior
management that it would require four to six weeks to complete its due diligence
review, obtain approval of one of its substantial strategic partners in another
region, determine the availability of financing and provide a firm transaction
proposal, if any. However, no agreements were reached regarding specific
financial terms of a transaction between FirstCom and this strategic investor.
At a meeting on August 11, 1999, the FirstCom board of directors determined,
after consultation with management, that its business judgment was that it was
not in the best interests of FirstCom to continue the process or to pursue
further the solicitation of indications of interest from financial or strategic
investors. In making
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that determination, the FirstCom board of directors considered the contingent
nature of the strategic buyer's indication of interest, the potentially
detrimental effect on FirstCom as a result of the continued diversion of
management's attention from the business of FirstCom, and the anticipated length
of time required to complete due diligence inquiries, confirm the availability
of required financing and resolve other expressed contingencies.
AT&T Corp. announced on August 24, 1999 that it had agreed to acquire
Netstream.
On September 7, 1999, senior management of FirstCom contacted executives of
AT&T Corp. and discussed the possibility of trying to structure a mutually
acceptable transaction. During the ensuing two-week period, AT&T Corp. provided
FirstCom with additional information about Netstream, which enabled the FirstCom
board to more fully evaluate a proposed transaction with AT&T Corp. During this
period, the management of FirstCom and AT&T also continued to discuss how to
structure a mutually acceptable transaction. On September 27, 1999, some of the
financial terms of a proposed transaction were agreed in principle, subject to
negotiation of the detailed terms and structure of the proposed merger
transaction, the terms under which AT&T Latin America would be able to use the
AT&T Corp. brand name and logo, the scope of AT&T Latin America's permitted
services, preparation of definitive agreements, completion of due diligence and
approval of the board of directors of FirstCom.
On October 1, 1999, FirstCom and AT&T Corp. entered into an agreement
providing for exclusive negotiations until October 18, 1999, which date was
subsequently extended until the merger agreement was executed. From October 1 to
October 31, 1999, FirstCom and AT&T Corp., and their respective legal and
financial advisors, negotiated and finalized the terms of the merger agreement
and the other transaction agreements.
On October 6 and 7, 1999, representatives of FirstCom and CIBC World
Markets, along with representatives of AT&T Corp. and Salomon Smith Barney,
conducted due diligence activities on the operations of Netstream. This due
diligence included visits to the network operating centers in Sao Paulo and Rio
de Janeiro, a review of Netstream's business plan with Netstream's senior
management, a review of Netstream's network architecture and visits with certain
of Netstream's customers.
FirstCom's board of directors held a special telephonic meeting on October
29, 1999, at which time FirstCom's legal and financial advisors reviewed for the
board of directors the terms of the transaction and updated FirstCom's board of
directors on the issues related to finalizing the transaction documentation.
FirstCom's board of directors held a special telephonic meeting on October
31, 1999, at which meeting the FirstCom board of directors reviewed and
discussed the final terms of the merger with FirstCom's senior management and
legal and financial advisors. Also at this meeting, CIBC World Markets delivered
to the FirstCom board of directors an oral opinion, which opinion was confirmed
by delivery of a written opinion dated November 1, 1999, to the effect that, as
of the date of the opinion and based on and subject to the matters described in
the opinion, the 34% fully-diluted equity ownership that FirstCom's shareholders
will receive in AT&T Latin America upon the completion of the merger was fair,
from a financial point of view, to the holders of FirstCom common shares. After
full discussion, FirstCom's board of directors approved the merger agreement and
the related transaction documents upon the terms described in this proxy
statement/prospectus and recommended the approval of the merger by FirstCom's
shareholders.
The merger agreement was executed by the parties and the proposed merger
was publicly announced before the opening of public market trading on the
morning of November 1, 1999. The FirstCom board of directors' approval of the
merger agreement and the related agreements was based
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on the factors described immediately below in the section entitled "Reasons for
the Merger; Recommendation of FirstCom's Board of Directors."
REASONS FOR THE MERGER; RECOMMENDATION OF FIRSTCOM'S BOARD OF DIRECTORS
In arriving at its decision to approve the merger and the merger agreement,
and to recommend that FirstCom shareholders approve the merger, FirstCom's board
of directors considered the following material factors:
- the merger complements FirstCom's operations in Colombia, Chile and Peru
by adding Netstream's Brazilian operations, and facilitates FirstCom's
immediate entry into Brazil, Latin America's largest market for
communications services. In this regard, the FirstCom board of directors
also noted the benefit of having an affiliate of Promon as a substantial
shareholder of the combined company, given Promon's standing in Brazil;
- the merger offers the opportunity of an alliance between FirstCom's
business and shareholders with those of AT&T Corp. FirstCom's board of
directors considered that AT&T Corp.'s technical expertise, its
world-famous brand and its strong credibility and reputation in Latin
America would enhance the value of FirstCom's assets and operations more
effectively than FirstCom could as an independent company. In this
regard, the board of directors took note of the general increase in
competition in Latin America and the fact that several markets in which
FirstCom has operations have attracted one or more large international
communications companies that are competing with, or are positioning
themselves to compete with, FirstCom's business. The board also
considered the potential benefit of the combined company's having a
relationship with AT&T Corp. in current and future dealings with local
governments and incumbent communications companies in Latin America;
- the combination of the FirstCom and Netstream operations into a single
group of companies offers an opportunity to create a pan-Latin American
broadband communications business that would benefit from administrative,
operating and brand synergies;
- the combined company would have potentially enhanced access to the global
transmission assets and capabilities of the Concert global venture
between AT&T Corp. and British Telecom and to the AT&T Global Network
Services business. The combined company would also have potentially
enhanced access within Latin America to the global multinational
customers served by those entities;
- the merger enhances FirstCom's ability to execute upon its business plan,
considering such factors as FirstCom's capital requirements, the
difficulty in obtaining financing in the current markets for companies
with operations in Latin America and the possible competitive pressures
and network build-out delays that FirstCom might encounter in the absence
of financing on commercially acceptable terms, or at all. FirstCom's
board of directors noted that AT&T Corp. would be providing the combined
company, AT&T Latin America, with a $100 million credit facility on
reasonable terms. The board also considered that the significant size and
market reach of AT&T Latin America, combined with the likely positive
reaction of financial markets to the sponsorship of AT&T Corp., would
allow AT&T Latin America more favorable access to the public capital
markets than FirstCom alone;
- the board of directors perceived strong growth potential for AT&T Latin
America's business after the merger and considered that FirstCom's
shareholders would be able to participate in that growth. The board of
directors also believed AT&T Latin America would benefit from the
involvement of FirstCom's senior management team, as well as the
continued involvement of the in-country management of Netstream and of
FirstCom's subsidiaries; and
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- FirstCom's management and its advisors had solicited proposals from, and
engaged in discussions with, significant participants in the
international communications industry about possible strategic
transactions involving FirstCom. In the opinion of the board of
directors, taking into account various positive and negative factors,
those discussions did not result in proposals for transactions that were
likely to be as favorable over the long term to FirstCom's business and
shareholders as the merger.
In the course of its deliberations, FirstCom's board of directors also
reviewed with FirstCom's management and advisors a number of additional factors
relevant to the merger, including:
- information developed from an in-depth analysis by FirstCom's management
and advisors of the business, operations, assets, liabilities,
competitive position, management and employees of Netstream, as well as
the results of a review of the Netstream acquisition agreements between
affiliates of AT&T Corp. and Promon, the terms of Promon's affiliate's
investment in AT&T Latin America and other documents and materials
relating to Netstream, Promon and AT&T Latin America;
- the financial presentation of CIBC World Markets to FirstCom's board of
directors, including its opinion as to the fairness, from a financial
point of view, to the holders of FirstCom common shares of the 34%
fully-diluted equity ownership in AT&T Latin America that FirstCom's
shareholders will receive in the merger, as more fully described below in
"Opinion of FirstCom's Financial Advisor";
- the proposed governance of AT&T Latin America, including the proposed
election of at least three disinterested individuals to the board of
directors, which individuals would not be employees, officers or
directors of any affiliate of AT&T Corp., other than AT&T Latin America,
or employees or officers of AT&T Latin America;
- AT&T Corp.'s stated intention to operate AT&T Latin America as a
stand-alone public company and to not increase its shareholding
percentage in AT&T Latin America above 80% for at least 12 months without
the approval of the disinterested members of the board of directors of
AT&T Latin America;
- AT&T Corp.'s stated intention to maintain voting control of AT&T Latin
America, given the possibility of future issuances of shares in a public
offering or to finance acquisitions, and AT&T Corp.'s corporate
requirements and policies for the licensing of the AT&T brand and logo to
AT&T Latin America; and
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, as well as the conditions to
the parties' respective obligations, are reasonable.
FirstCom's board of directors also identified and considered some
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- the potentially lengthy period of time that may be required to complete
the merger, particularly in light of the fact that the merger agreement
does not permit FirstCom to solicit transactions that could impede or
prevent consummation of the merger;
- the restrictions on FirstCom imposed by the merger agreement and the
potential business opportunities that might be foregone due to these
restrictions or the pendency of the merger generally;
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- business and territorial restrictions imposed on AT&T Latin America by
the regional vehicle agreement between AT&T Corp. and AT&T Latin America
and in AT&T Latin America's certificate of incorporation;
- AT&T Corp.'s ownership of a class of shares of AT&T Latin America having
superior voting rights to the class of shares owned by other shareholders
of AT&T Latin America, including former FirstCom shareholders;
- the right to a board of directors seat, change of control repurchase
rights and limited consent rights accorded to Promon's affiliate until
the completion of a future public offering of common stock by AT&T Latin
America, under the terms of a shareholders' agreement between AT&T Corp.
and Promon's affiliate, which rights would not be available to all
shareholders of AT&T Latin America, including former FirstCom
shareholders;
- the terms of executive compensation and related agreements between AT&T
Latin America, FirstCom and Patricio E. Northland, president and chief
executive officer of FirstCom, who will be nominated as president and
chief executive officer of AT&T Latin America under the terms of the
merger agreement;
- the possibility that FirstCom would be required to pay AT&T Corp. a $10
million termination fee, plus expenses up to $1 million, if, among other
things, FirstCom agreed to a transaction with a party other than AT&T
Corp. In considering this issue, the board of directors concluded that
the amount of the termination fee would likely not dissuade other parties
from making unsolicited offers to enter into a strategic transaction with
FirstCom; and
- the other risks and considerations described under "Risk Factors."
The FirstCom board considered that, although FirstCom and its subsidiaries
would initially contribute a substantial portion of the combined revenues of
AT&T Latin America following the merger, the FirstCom shareholders would receive
34% of the fully-diluted equity ownership of AT&T Latin America in the merger.
Based upon the prospects for generating substantial revenues in Brazil and the
significance of the brand license with AT&T Corp., combined with the other
material factors described above, FirstCom's board determined that the ownership
percentage to be received by the FirstCom shareholders in AT&T Latin America was
appropriate.
The above discussion describes all of the material factors considered by
FirstCom's board of directors in its consideration of the merger agreement and
the merger. After considering these factors, and taking into account the
recommendation of management, the FirstCom board of directors concluded that the
positive factors described above outweighed the negative factors described
above.
Because of the variety of factors considered, the FirstCom board of
directors did not find it practicable to, and did not make specific assessments
of, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. The determination was made after
consideration of all of the factors together. In addition, individual members of
the FirstCom board of directors may have given different weights to different
factors.
THE FIRSTCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FIRSTCOM
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
OPINION OF FIRSTCOM'S FINANCIAL ADVISOR
CIBC World Markets acted as FirstCom's financial advisor in connection with
the merger. On October 31, 1999, at a meeting of the FirstCom board of directors
held to evaluate the proposed merger, CIBC World Markets rendered to the
FirstCom board an oral opinion, confirmed by delivery
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of a written opinion dated November 1, 1999, the date the parties executed the
merger agreement, to the effect that, as of the date of the opinion and based on
and subject to the matters described in the opinion, the 34% fully-diluted
equity ownership in AT&T Latin America that FirstCom's shareholders will receive
in the merger was fair, from a financial point of view, to the holders of
FirstCom common shares.
The full text of the written opinion of CIBC World Markets dated November
1, 1999, which describes the assumptions made, matters considered and
limitations on the review undertaken, is attached to this proxy
statement/prospectus as Annex B and is incorporated into this proxy
statement/prospectus by reference. THE OPINION OF CIBC WORLD MARKETS RELATES
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF
FIRSTCOM'S COMMON SHARES OF THE 34% FULLY-DILUTED EQUITY OWNERSHIP THAT
FIRSTCOM'S SHAREHOLDERS WILL RECEIVE IN AT&T LATIN AMERICA UPON COMPLETION OF
THE MERGER. CIBC WORLD MARKETS' OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER, INCLUDING THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED IN THE MERGER BY THE HOLDERS OF FIRSTCOM'S SERIES A
CONVERTIBLE PREFERRED SHARES. THE OPINION OF CIBC WORLD MARKETS DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO ANY MATTER RELATING TO THE
PROPOSED MERGER.
As part of its role as financial advisor, and in arriving at its opinion,
CIBC World Markets:
- reviewed the merger agreement and related documents;
- reviewed audited financial statements of FirstCom for the fiscal years
ended December 31, 1997 and December 31, 1998;
- reviewed unaudited financial statements of FirstCom for the six-month
period ended June 30, 1999;
- reviewed financial projections prepared by the managements of FirstCom
and AT&T Corp., including estimates as to potential operating synergies
and cost savings;
- reviewed the historical market prices and trading volume for FirstCom
common stock;
- held discussions with the senior management of FirstCom, Netstream and
AT&T Corp. with respect to the businesses and prospects for future growth
of FirstCom, Netstream and AT&T Latin America;
- performed a discounted cash flow analysis of FirstCom, Netstream and AT&T
Latin America using assumptions of future performance provided to and
discussed with it by the managements of FirstCom and AT&T Corp.;
- reviewed and analyzed publicly available financial data for companies it
deemed comparable to FirstCom, Netstream and AT&T Latin America;
- reviewed and analyzed publicly available information for transactions
that it deemed comparable to the merger;
- reviewed public information concerning FirstCom;
- at the request of FirstCom, approached and held discussions with selected
participants in the international communications industry about a
possible strategic transaction with FirstCom; and
- performed other analyses and reviewed other information as it deemed
appropriate.
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In rendering its opinion, CIBC World Markets relied on and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information which FirstCom, Netstream, AT&T Corp. and
their employees, representatives and affiliates provided to or discussed with
it.
With respect to projections of future financial condition and operating
results of FirstCom, Netstream and AT&T Latin America provided to or discussed
with CIBC World Markets, including estimates as to potential operating synergies
and cost savings anticipated by the managements of FirstCom and AT&T Corp. and
the timing, amount and achievability of those synergies and cost savings, CIBC
World Markets assumed, at the direction of FirstCom's management, without
independent verification or investigation, that the projections were reasonably
prepared on bases reflecting the best available information, estimates and
judgments of the managements of FirstCom and AT&T Corp.
CIBC World Markets assumed, at the direction of FirstCom's management, that
the merger would qualify as a tax-free reorganization for federal income tax
purposes. CIBC World Markets also assumed, at the direction of FirstCom's
management, that the merger and the acquisition of Netstream would be effected
in all material respects in accordance with their applicable terms and, to the
extent relevant to its analysis, CIBC World Markets evaluated AT&T Latin America
pro forma for the merger and the acquisition of Netstream.
CIBC World Markets did not make or obtain any independent evaluations or
appraisals of the assets or liabilities of FirstCom, Netstream, AT&T Latin
America or entities affiliated with any of them. CIBC World Markets evaluated
the FirstCom percentage equity ownership in AT&T Latin America on an aggregate
and fully-diluted basis and did not express any opinion as to the proportionate
equity ownership in AT&T Latin America of the holders of FirstCom common shares
and FirstCom Series A convertible preferred shares. CIBC World Markets did not
express any opinion as to the underlying valuation, future performance or
long-term viability of FirstCom, Netstream or AT&T Latin America, or the price
at which the FirstCom common shares or AT&T Latin America common stock would
trade after announcement of the signing of the merger agreement or the closing
of the merger.
The opinion of CIBC World Markets was necessarily based on the information
available to it and general economic, financial and stock market conditions and
circumstances existing, and as could be evaluated by CIBC World Markets, on the
date of its opinion. Although subsequent developments may affect the opinion of
CIBC World Markets, it does not have any obligation to update, revise or
reaffirm its opinion. No other instructions or limitations were imposed by the
FirstCom board of directors upon CIBC World Markets with respect to the
investigations made or the procedures followed by it in rendering its opinion.
INTRODUCTION TO FINANCIAL ANALYSES. CIBC World Markets performed a
"Selected Companies Analysis," "Selected Transactions Analysis" and "Discounted
Cash Flow Analysis" in order to derive an equity reference range for FirstCom.
CIBC World Markets also performed a "Selected Companies Analysis" and
"Discounted Cash Flow Analysis" in order to derive an equity reference range for
Netstream. Using the average of the results of these analyses, together with
other factors described below, CIBC World Markets then performed a "Relative
Contribution Analysis" in order to derive a reference range for FirstCom's
equity ownership in AT&T Latin America. CIBC World Markets then compared this
equity ownership reference range against the 34% fully-diluted percentage equity
ownership in AT&T Latin America that FirstCom's shareholders will receive in the
merger. These analyses are more fully described below.
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FIRSTCOM ANALYSIS
Selected Companies Analysis. CIBC World Markets compared financial and
stock market information for FirstCom and the following five selected publicly
held companies in FirstCom's industry:
- e.spire Communications, Inc.
- Electric Lightwave, Inc.
- GST Telecommunications, Inc.
- ICG Communications, Inc.
- Intermedia Communications Inc.
CIBC World Markets reviewed enterprise values, calculated as fully-diluted
equity market value, plus debt, less cash, as multiples of, among other things,
estimated calendar years 1999, 2000 and 2001 revenues, and gross property, plant
and equipment, and net property, plant and equipment. CIBC World Markets then
applied selected multiples derived from these financial statistics for the
selected companies to corresponding financial statistics of FirstCom to derive
an equity reference range for FirstCom. All multiples were based on closing
stock prices on October 28, 1999. Estimated financial data for the selected
companies were based on publicly available research analysts' estimates and
estimated financial data for FirstCom were based on internal estimates of
FirstCom's management. This analysis yielded an equity reference range of
approximately $140,475,300 to $254,354,500. This reference range was used to
derive an average equity reference range for FirstCom as described below under
the caption "Average Reference Range."
Selected Transactions Analysis. CIBC World Markets reviewed the purchase
prices and implied transaction multiples in the following four selected public
transactions in FirstCom's industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
AT&T Corp.......................... MetroNet Communications Corp.
AT&T Corp.......................... Teleport Communications Group, Inc.
WorldCom, Inc...................... Brooks Fiber Properties, Inc.
WorldCom, Inc...................... MFS Communications Company, Inc.
</TABLE>
CIBC World Markets reviewed enterprise values in the selected transactions
as multiples of, among other things, gross property, plant and equipment, and
net property, plant and equipment. CIBC World Markets then applied selected
multiples derived from these financial statistics for the selected transactions
to corresponding financial statistics of FirstCom to derive an equity reference
range for FirstCom. All multiples were based on publicly available information
at the time of announcement of the relevant transaction. This analysis yielded
an equity reference range of approximately $327,119,400 to $549,133,200. This
reference range was used to derive an average equity reference range for
FirstCom as described below under the caption "Average Reference Range."
Discounted Cash Flow Analysis. CIBC World Markets performed a discounted
cash flow analysis of FirstCom to estimate the present value of the future cash
flows, net of taxes and interest payments related to debt obligations, that
FirstCom could generate during fiscal years 2000 through 2003. This analysis was
based on internal estimates of the management of FirstCom under two scenarios,
one which assumed adequate capital funding for FirstCom's current business plan
and one which reflected FirstCom's current capital constraints. The range of
estimated terminal values for both scenarios was calculated by applying
multiples ranging from 8.0 times to 10.0 times to
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FirstCom's projected fiscal year 2003 earnings before interest, taxes,
depreciation and amortization. The present value of the cash flows and terminal
values were calculated using discount rates ranging from 25.0% to 35.0%. This
analysis yielded an equity reference range of approximately $552,991,800 to
$722,250,600, based on the first scenario that assumes adequate capital funding
for FirstCom, and approximately $323,007,700 to $432,358,500, based on the
second scenario that reflects FirstCom's current capital restraints. These
reference ranges were used to derive an average equity reference range for
FirstCom as described below under the caption "Average Reference Range."
Average Reference Range. Based on the "Selected Companies Analysis,"
"Selected Transactions Analysis" and "Discounted Cash Flow Analysis" described
above, CIBC World Markets derived an average equity reference range for FirstCom
of approximately $336 million to $490 million.
NETSTREAM ANALYSIS
Selected Companies Analysis. CIBC World Markets compared financial
information for Netstream and the following seven selected publicly held
companies in Netstream's industry:
- Adelphia Business Solutions, Inc.
- AT&T Canada Inc.
- COLT Telecom Group PLC
- Global TeleSystems Group, Inc.
- McLeodUSA Incorporated
- NEXTLINK Communications, Inc.
- Time Warner Telecom Inc.
CIBC World Markets reviewed enterprise values as multiples of, among other
things, estimated calendar years 2000 and 2001 revenues, and gross property,
plant and equipment, and net property, plant and equipment. CIBC World Markets
then applied selected multiples derived from these financial statistics for the
selected companies to corresponding financial statistics of Netstream to derive
an equity reference range for Netstream. All multiples were based on closing
stock prices on October 28, 1999. Estimated financial data for the selected
companies were based on publicly available research analysts' estimates and
estimated financial data for Netstream were based on internal estimates of the
management of AT&T Corp. as adjusted by FirstCom management. This analysis
yielded an equity reference range of approximately $336,630,500 to $504,945,700.
This reference range was used to derive an average equity reference range for
Netstream as described below under the caption "Average Reference Range."
Discounted Cash Flow Analysis. CIBC World Markets performed a discounted
cash flow analysis of Netstream to estimate the present value of the future cash
flows, net of taxes and interest payments related to debt obligations, that
Netstream could generate during fiscal years 2000 through 2003. This analysis
was based on internal estimates of the management of AT&T Corp. as adjusted by
FirstCom management. The range of estimated terminal values for Netstream was
calculated by applying multiples ranging from 9.0 times to 11.0 times to
Netstream's projected fiscal year 2003 earnings before interest, taxes,
depreciation and amortization. The present value of the cash flows and terminal
values were calculated using discount rates ranging from 14.0% to 18.0%. This
analysis yielded an equity reference range of approximately $875,846,100 to
$1,097,665,700. This reference range was used to derive an average equity
reference range for Netstream as described below under the caption "Average
Reference Range."
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Average Reference Range. Based on the "Selected Companies Analysis" and
"Discounted Cash Flow Analysis" described above, CIBC World Markets derived an
average equity reference range for Netstream of approximately $606 million to
$801 million.
RELATIVE CONTRIBUTION ANALYSIS. CIBC World Markets analyzed the
contributions of FirstCom and AT&T Corp. to AT&T Latin America in order to
derive an equity ownership range for FirstCom in AT&T Latin America. CIBC World
Markets utilized, as an estimate of FirstCom's contribution to AT&T Latin
America, the average equity reference range derived for FirstCom as described
above of approximately $336 million to $490 million. CIBC World Markets then
derived an estimate of AT&T Corp.'s contribution to AT&T Latin America by
adding:
- the average equity reference range derived for Netstream as described
above of approximately $606 million to $801 million, which did not
include potential synergies resulting from the merger;
- cash contributions to AT&T Latin America by affiliates of AT&T Corp. and
Promon; and
- the estimated present value range of the potential synergies anticipated
by the management of AT&T Corp. to be realized from Netstream's
operations in Brazil as a result of the merger.
In order to calculate the present value of these anticipated potential
synergies, CIBC World Markets performed a discounted cash flow analysis of the
future cash flows to be realized from the additional revenues anticipated to be
generated from Netstream's Brazilian operations as a result of the merger, based
on internal estimates of AT&T Corp.'s management. This analysis indicated an
equity ownership range for FirstCom in AT&T Latin America of approximately 24.9%
to 38.3%, as compared to the fully-diluted equity ownership in AT&T Latin
America that FirstCom's shareholders will receive in the merger of approximately
34%.
OTHER FACTORS. In rendering its opinion, CIBC World Markets also reviewed
and considered other factors, including:
- historical and projected financial data for FirstCom and projected
financial data for Netstream;
- selected analysts' reports on FirstCom, including earnings per share
estimates of those analysts;
- historical trading volumes, market prices and earnings per share data for
FirstCom common stock and the relationship between movements in FirstCom
common stock;
- movements in the common stock of various composite groups of companies,
domestic and international, in FirstCom's and Netstream's industry;
- movements in the common stock of a composite of facilities-based long
distance and international long distance carriers;
- movements in the common stock of a composite of Latin American wireline
providers;
- a comparison of financial information for AT&T Latin America and selected
companies and the net present value of the cash flows that AT&T Latin
America could generate during fiscal years 2000 through 2003 based on
internal estimates of the managements of FirstCom and AT&T Corp.; and
- the net present value of the potential synergies anticipated by the
management of AT&T Corp. that could be realized by AT&T Latin America
through its affiliation with AT&T Corp., including AT&T's Global Network
Services business, and the Concert global venture, as well as from
Netstream's operations in Brazil.
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The above discussion is a summary description of the material aspects of
the opinion of CIBC World Markets to the FirstCom board of directors and the
material financial analyses performed and factors considered by CIBC World
Markets in connection with its opinion. The preparation of a fairness opinion is
a complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. Accordingly, a fairness opinion
is not readily susceptible to summary description. CIBC World Markets believes
that its analyses and the summary above must be considered as a whole and that
selecting portions of its analyses and factors it considered, without
considering all analyses and factors it considered, could create a misleading or
incomplete view of the processes underlying its analyses and opinion.
In performing its analyses, CIBC World Markets considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of FirstCom. No company, business or transaction used in the
analyses as a comparison is identical to FirstCom, Netstream, AT&T Latin America
or the merger, and an evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, businesses or transactions analyzed.
The estimates contained in the analyses of CIBC World Markets and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not necessarily purport to
be appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, the analyses and estimates of CIBC World
Markets are inherently subject to substantial uncertainty.
The type and amount of consideration payable in the merger were determined
through negotiation between FirstCom and AT&T Corp. Although CIBC World Markets
provided financial advice to FirstCom during the course of negotiations, the
decision to enter into the merger was solely that of the FirstCom board of
directors. The opinion and financial analyses of CIBC World Markets were only
one of many factors considered by the FirstCom board of directors in its
evaluation of the merger and should not be viewed as determinative of the views
of FirstCom's board of directors or senior management with respect to the
merger, the consideration payable in the merger or the FirstCom percentage
equity ownership in AT&T Latin America.
FirstCom selected CIBC World Markets based on its reputation, expertise and
familiarity with FirstCom. CIBC World Markets is an internationally recognized
investment banking firm and, as a customary part of its investment banking
business, is regularly engaged in valuations of businesses and securities in
connection with acquisitions and mergers, underwritings, secondary distributions
of securities, private placements and valuations for other purposes. CIBC World
Markets in the past has provided financial services to FirstCom and AT&T Corp.
unrelated to the merger, for which services CIBC World Markets has received
compensation. CIBC World Markets also is currently providing a $10 million
credit facility to a subsidiary of FirstCom. In the ordinary course of business,
CIBC World Markets and its affiliates may actively trade the securities of
FirstCom and AT&T Corp. for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in these
securities.
FirstCom has agreed to pay CIBC World Markets for its services upon
completion of the FirstCom merger an aggregate financial advisory fee equal to a
percentage of the total consideration, including liabilities assumed, payable in
connection with the merger. It is currently estimated that the aggregate
financial advisory fee payable to CIBC World Markets will be approximately $4.5
million.
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In addition, FirstCom has agreed to reimburse CIBC World Markets for its
reasonable out-of-pocket expenses, including reasonable fees and expenses of
counsel, and to indemnify CIBC World Markets and related parties against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
VOTING AGREEMENTS
Patricio E. Northland, the chairman, president and chief executive officer
of FirstCom and three other substantial holders of FirstCom common stock have
agreed to vote all the FirstCom shares they own in favor of the merger. In
addition, the holders of FirstCom's Series A convertible preferred shares have
agreed to vote all their shares in favor of the merger. This agreement by the
holders of Series A convertible preferred shares applies both to their vote with
the common shareholders and, if required, to their vote as a separate class. As
of June 30, 2000, these common and preferred shareholders together owned
approximately 22% of the then outstanding shares of capital stock of FirstCom
entitled to vote on the merger proposal, excluding any shares that these holders
might acquire by exercising FirstCom options and warrants. These voting
agreements will terminate if the merger agreement terminates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Shortly before the merger agreement was signed, Patricio E. Northland,
FirstCom's chairman of the board, president and chief executive officer
purchased from FirstCom 800,000 restricted common shares of FirstCom and
received options to purchase 2.2 million common shares of FirstCom. The purchase
price per share for the restricted common shares, and the exercise price per
share of the options, was $10.70, representing the average closing price of the
FirstCom common stock for the five consecutive trading days immediately
preceding the date the merger agreement was signed. These options vest, subject
to Mr. Northland's continued employment, one-ninth on March 1, 2001, three-
ninths on each of March 1, 2002 and 2003, and one-ninth on each of March 1, 2004
and 2005. The restricted shares are subject to repurchase rights by FirstCom at
$10.70 per share; the number of these shares subject to that repurchase right is
progressively reduced at the same rate as the rate at which Mr. Northland's 2.2
million options vest. When the merger is completed, these options and shares
will be exchanged for options and shares of AT&T Latin America. FirstCom also
forgave a loan to Mr. Northland of approximately $425,000 plus accrued and
unpaid interest. In connection with his purchase of the 800,000 restricted
common shares, Mr. Northland has incurred with a financial institution a demand
loan of $8.56 million secured by those shares. AT&T Corp. intends, upon
completion of the merger, to cause AT&T Latin America to assume or refinance the
secured loan. The terms of the demand loan permit Mr. Northland to repay it at
any time.
Mr. Northland also has executed with AT&T Latin America a five-year
employment agreement that automatically renews in one year increments and will
become effective upon the completion of the merger. Under this agreement, Mr.
Northland will be entitled to receive:
- an annual base salary of $510,000;
- an annual performance bonus that may range from 0% to 200% of base
salary, with a target bonus of 100% of base salary, that will be
determined based upon the satisfaction of performance criteria to be
established by the compensation committee of the board of directors of
AT&T Latin America; and
- a retention bonus of up to $3,000,000 payable in six equal installments
of $500,000 on each six-month period after the closing date up to the
third anniversary of Mr. Northland's initial employment with AT&T Latin
America.
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<PAGE> 51
The employment agreement also provides that Mr. Northland will be entitled
to participate in a deferred compensation plan to be adopted by AT&T Latin
America and in employee benefit plans and programs that are no less favorable
than the plans and programs FirstCom currently provides.
If Mr. Northland's employment is terminated by AT&T Latin America other
than for "cause," or if Mr. Northland terminates his employment for "good
reason," he will be entitled to severance of two times his annual base salary
and annual bonus as well as a pro rata annual bonus for the year in which his
employment terminated. In addition, his retention bonus will be immediately
payable and all options and restricted shares will vest. "Cause" includes Mr.
Northland's:
- engaging in fraudulent or dishonest conduct that the board of directors
reasonably determines has or would have a material adverse effect on AT&T
Latin America, its affiliates or their respective businesses;
- conviction of, or guilty plea to, a felony or comparable crime;
- willful refusal to perform his material employment-related duties or
responsibilities or intentionally or knowingly engaging in any activity
that is in material conflict with or is materially adverse to the
business interests of AT&T Latin America, its affiliates or their
respective businesses; and
- breach of any material provision of the employment agreement.
"Good reason" includes, without Mr. Northland's written consent:
- a diminution of his duties, responsibilities, salary or bonus;
- the relocation of his principal place of business from the metropolitan
Miami, Florida area;
- notice by AT&T Latin America to terminate the automatic renewal of the
agreement;
- his failure to be elected to the board of directors; and
- a material breach of the agreement not cured by AT&T Latin America within
30 days of his written notice to AT&T Latin America of the breach.
AT&T Latin America will indemnify Mr. Northland for certain proceedings
brought against him by reason of the fact that he is or was a director, officer
or employee of AT&T Latin America or served as such at the request of AT&T Latin
America with respect to another company. In addition, Mr. Northland agreed not
to compete against AT&T Latin America during his employment and thereafter for
two years.
Upon a change of control of FirstCom, other than as a result of the merger,
or, after the merger, a change of control of AT&T Latin America, the retention
bonus will be immediately payable and the options and restricted shares will
immediately vest in full. If Mr. Northland's benefits are subject to an excise
tax, and the benefits subject to the excise tax exceed 110% of the amount of
benefits that could be paid that would not give rise to the excise tax, he will
be entitled to a "gross-up" payment in an amount sufficient to make him whole
after the imposition of the excise tax.
AT&T LATIN AMERICA COMMON STOCK TO BE RECEIVED BY FIRSTCOM'S DIRECTORS AND
EXECUTIVE OFFICERS. The following table includes the number of FirstCom common
shares held by FirstCom's executive officers and directors as of June 30, 2000,
which will convert into shares of AT&T Latin
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America Class A common stock at the merger. It also includes the approximate
market value of those shares based on the closing price of FirstCom common
shares as of June 30, 2000.
<TABLE>
<CAPTION>
APPROXIMATE
NAME SHARES MARKET VALUE
---- ---------- ------------
<S> <C> <C>
Patricio Northland................................... 1,400,000 $21,084,000
George Cargill....................................... 1,700,000 25,602,000
David Kleinman....................................... 30,000 451,800
Marco Northland...................................... 155,682 2,344,571
---------- -----------
Total...................................... 3,285,682 $49,482,371
</TABLE>
The following table includes the number of options to purchase FirstCom
common shares held by FirstCom's executive officers and directors as of June 30,
2000, which will convert into options to purchase shares of AT&T Latin America
Class A common stock at the merger. It also includes the approximate market
value of those options based on the closing price of FirstCom common shares as
of June 30, 2000.
<TABLE>
<CAPTION>
WEIGHTED APPROXIMATE
NAME OPTIONS EXERCISE PRICE MARKET VALUE(1)
---- --------- -------------- ---------------
<S> <C> <C> <C>
Patricio Northland............................. 5,147,333 $6.42 $44,475,902
George Cargill................................. 500,000 3.43 5,816,400
David Kleinman................................. 260,000 2.84 3,177,100
Andrew Hulsh................................... 250,000 6.02 2,260,260
Marco Northland................................ 133,333 2.30 1,701,329
Carlos Fernandez............................... 130,000 1.96 1,703,300
Jose Gandullia................................. 125,000 6.24 1,102,500
--------- ----- -----------
Total................................ 6,545,666 $6.01 $60,236,731
</TABLE>
---------------
(1) Approximate market value of each option calculated based on the difference
between the closing price of a FirstCom common share on June 30, 2000 less
the exercise price for that option.
The value ascribed above to shares of AT&T Latin America may not be
accurate. Although shares of FirstCom are being exchanged for shares of AT&T
Latin America Class A common stock on a 1:1 basis in the merger, that does not
necessarily mean that shares of AT&T Latin America are valued correctly, or will
trade after the merger, based on the trading price of shares of FirstCom.
INSURANCE. Under the merger agreement, AT&T Corp. agreed to cause AT&T
Latin America or Frantis to maintain for a period of six years after the merger
officers' and directors' liability insurance covering the parties covered by
FirstCom's existing officers' and directors' liability insurance policies.
NASDAQ NATIONAL MARKET LISTING OF AT&T LATIN AMERICA SHARES OF CLASS A COMMON
STOCK
AT&T Latin America has received approval of its application to list its
Class A common stock on the Nasdaq National Market under the symbol "ATTL". It
is a condition to the merger that the Class A shares be approved for listing on
a national securities exchange, subject to official notice of issuance.
Following the merger, FirstCom's common shares will be de-listed from the
Nasdaq Small Cap Market, where they are currently listed.
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ACCOUNTING TREATMENT
AT&T Latin America intends to account for the merger under the purchase
method of accounting for financial reporting purposes. It will make a
determination of the fair value of FirstCom's assets and liabilities in order to
allocate the purchase price to the assets acquired and liabilities assumed in
accordance with GAAP. AT&T Latin America will record as goodwill and amortize
over a 20-year period any excess of the purchase price over the fair value of
the assets and liabilities of FirstCom.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion provides a summary of the material U.S. federal
income tax consequences of the merger to holders of FirstCom common shares who
hold the stock as a capital asset (generally, property held for investment). It
is based on the opinions of counsel delivered to each of FirstCom and AT&T Latin
America by their respective counsel, which are filed as exhibits to the AT&T
Latin America registration statement that includes this proxy
statement/prospectus. The discussion does not address the individual tax
position of any holder of FirstCom common shares nor does it address the tax
consequences that may be relevant to holders of FirstCom common shares with
special tax status, including insurance companies, financial institutions,
dealers in securities, holders that are not citizens or residents of the United
States, tax-exempt entities and holders that acquired FirstCom common shares
upon the exercise of employee stock options or otherwise as compensation.
Moreover, the discussion does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction. Finally, the tax
consequences to holders of FirstCom's Series A convertible preferred shares,
stock options, deferred shares or warrants are not discussed. The following
discussion is based on the Internal Revenue Code, the regulations promulgated
under the Internal Revenue Code, and administrative rulings and court decisions
as of the date of this proxy statement/prospectus. These authorities are all
subject to change, possibly with retroactive effect, and any change could affect
the accuracy of the following discussion. No ruling has been or will be sought
from the Internal Revenue Service concerning the tax consequences of the merger.
HOLDERS OF FIRSTCOM COMMON SHARES SHOULD CONSULT WITH THEIR TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM IN LIGHT OF THEIR
PARTICULAR INDIVIDUAL CIRCUMSTANCES, INCLUDING THE EFFECTS OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
Baker & McKenzie, counsel to FirstCom, has delivered to FirstCom an opinion
dated on or about the date of this proxy statement/prospectus, to the effect
that:
- the merger will constitute a reorganization within the meaning of Section
368(a) of the Code; and
- AT&T Latin America, Frantis and FirstCom will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
Debevoise & Plimpton, counsel to AT&T Corp. and AT&T Latin America, has
delivered the same opinion to AT&T Corp. and AT&T Latin America. The opinions
assume that the merger will take place as described in the merger agreement and
that certain factual matters represented by AT&T Latin America and FirstCom,
which will be reconfirmed prior to the merger, are true and correct. It is a
condition to the obligations of AT&T Latin America and FirstCom to consummate
the merger that each shall receive an opinion, dated immediately prior to the
merger, confirming the previously received opinion described herein. Based upon
these opinions, the following will be the material U.S. federal income tax
consequences of the merger:
- no gain or loss will be recognized by the stockholders of FirstCom upon
receipt of shares of AT&T Latin America Class A common stock in exchange
for their FirstCom common shares,
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except that a holder of FirstCom common shares who receives cash in lieu
of a fractional share of AT&T Latin America Class A common stock will
recognize gain or loss equal to the difference between the amount of this
cash and the tax basis allocated to the stockholder's fractional share of
AT&T Latin America Class A common stock. In the case of a stockholder of
FirstCom that is not a corporation, long-term capital gain recognized
from a fractional share will be taxed at a maximum U.S. federal income
tax rate of 20% if the holding period for this fractional share is more
than one year;
- the aggregate tax basis of the AT&T Latin America Class A common stock
received in the merger, including fractional shares of AT&T Latin America
Class A common stock for which cash is received, will be the same as the
basis of the FirstCom common shares for which it is exchanged; and
- the holding period of the AT&T Latin America Class A common stock will
include the holding period of the FirstCom common shares for which it is
exchanged.
REGULATORY MATTERS
U.S. ANTITRUST LAWS. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, or HSR Act, and the rules promulgated under the HSR Act
by the Federal Trade Commission, or FTC, some acquisition transactions may not
be consummated unless notice has been given, required information has been
furnished to the Antitrust Division of the DOJ and the FTC and specified waiting
period requirements have been satisfied.
After signing the merger agreement, AT&T Latin America and FirstCom filed
Pre-Merger Notification and Report Forms with the FTC and the Antitrust Division
of the DOJ under the HSR Act. The FTC has advised them that early termination of
the applicable waiting period was granted on December 27, 1999.
At any time before or after the effective time of the merger, either the
FTC or the DOJ could take action under the antitrust laws that it deems
necessary or desirable in the public interest, including seeking to enjoin the
merger or seeking divestiture of substantial assets of AT&T Latin America or
FirstCom or their respective subsidiaries. Private parties and state attorneys
general may also bring an action under the antitrust laws under certain
circumstances.
Based upon an examination of information available to AT&T Latin America
and FirstCom relating to the businesses in which the companies and their
respective subsidiaries are engaged, AT&T Latin America and FirstCom believe
that the consummation of the merger will not violate the antitrust laws.
However, there can be no assurance that a challenge to the merger on antitrust
grounds will not be made or, if such a challenge is made, of the result.
Completion of the merger is subject to no action having been instituted by the
FTC or the DOJ that is not withdrawn or terminated prior to the effective time
of the merger.
FEDERAL COMMUNICATIONS COMMISSION. FirstCom currently holds an
authorization to provide international facilities-based services pursuant to
Section 214 of the U.S. Federal Communications Act of 1934, as amended. Because
of that authorization, FCC regulations required approval by the FCC prior to the
transfer of control of FirstCom. The FCC has given that approval and waived the
associated foreign application notification waiting period.
FOREIGN REGULATORY MATTERS. Before the merger is completed, in connection
with its ownership of licenses and concessions, FirstCom must give prior notice
to governmental authorities in Chile, Colombia and Peru of the change of control
resulting from the merger. In Chile, FirstCom must publish notice of the change
of control and give notice of the change of control to the
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<PAGE> 55
Superintendencia de Valores y Seguros (Superintendency of Securities and
Insurance). In Peru, FirstCom must give notice to the Ministerio de Transportes
y Comunicaciones (Ministry of Transportation and Communications). In Colombia,
FirstCom has received approval for the merger from the Superintendencia de
Industria y Comercio (Superintendency of Industry and Trade).
Although AT&T Corp. completed the acquisition of Netstream in early
December 1999, that transaction remains subject to AT&T Corp.'s receipt of a
notice of non-objection from the Conselho da Defesa Economica, or CADE, the
Brazilian antitrust authority. In Brazil, unlike the practice in the United
States, acquisition transactions are commonly submitted for review to CADE after
they have been completed. Although AT&T Latin America cannot provide any
assurances, it believes that such notice will be obtained without any material
conditions. AT&T Corp. obtained the approval of Agencia Nacional de
Telecommunicacoes, or ANATEL, the Brazilian telecommunications regulatory
authority, prior to the completion of the Netstream acquisition.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of AT&T Latin America common stock FirstCom's shareholders
receive in the merger will be freely transferable, except for those received by
"affiliates," as that term is defined under the Securities Act of 1933, of
FirstCom at the time of the special meeting. Shares of AT&T Latin America Class
A common stock received by FirstCom affiliates may be resold by them only in
transactions permitted by the resale provisions of Rule 144 or Rule 145 under
the Securities Act of 1933, or as otherwise permitted under the Securities Act
of 1933. Persons who may be considered to be FirstCom affiliates generally
include individuals or entities that FirstCom controls, are controlled by
FirstCom, or are under common control with FirstCom. This may include some of
FirstCom's officers and directors as well as FirstCom's principal shareholders.
For example, Patricio E. Northland, FirstCom's chairman of the board, president
and chief executive officer, is considered an "affiliate" for this purpose.
FIRSTCOM'S 14% SENIOR NOTES
As permitted under the merger agreement, AT&T Latin America is requiring
FirstCom to make a tender offer for its outstanding 14% senior notes due 2007
and, as part of that tender offer, to solicit the consent of holders at least a
majority in principal amount of the outstanding notes to certain amendments to
the covenants of FirstCom relating to the notes. The receipt of the necessary
consents to those amendments is a condition to the merger. There is currently
$150 million in aggregate principal amount outstanding under the notes. Under
the merger agreement, AT&T Corp., directly or through AT&T Latin America, is
obligated to finance the amount of any tender offer, plus related costs and
expenses. AT&T Latin America intends to finance the tender offer through the
issuance to a wholly-owned subsidiary of AT&T Corp. of non-voting,
non-convertible and non-participating 15% Series B preferred stock of AT&T Latin
America. Based on the expected cost of the tender offer plus related costs and
expenses, less the amount of restricted cash of FirstCom, and assuming 100%
participation by holders of the notes, AT&T Latin America believes that the face
amount of that preferred stock will be approximately $173 million. The 15%
Series B preferred stock will be redeemable at the option of either the holder
or AT&T Latin America at any time after the fourth anniversary of its issuance.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the Texas Business Corporation Act, which governs the rights of
FirstCom's shareholders prior to completion of the merger, FirstCom shareholders
have no dissenters' rights of appraisal or other rights to demand fair value for
their shares by reason of the merger.
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THE MERGER AGREEMENT
This is a summary of the material provisions of the merger agreement, as
amended. A copy of the merger agreement is attached as Annex A to this proxy
statement/prospectus and incorporated in this document. You should refer to the
full text of the merger agreement for more details about the merger and the
terms and conditions of the merger agreement.
TIMING OF THE MERGER
The merger will become effective when Frantis files a certificate of merger
with the Secretary of State of the State of Delaware and FirstCom files articles
of merger with the Secretary of State of the State of Texas. The parties will
file the certificate of merger and articles of merger after the satisfaction or
waiver of all conditions in the merger agreement. The parties expect to complete
the merger in August 2000, but cannot assure you when, or if, all of the
conditions to closing of the merger will be satisfied or waived.
MERGER CONSIDERATION
The shareholders of FirstCom will receive one share of Class A common stock
of AT&T Latin America for each common share of FirstCom they own and one share
of Series A convertible preferred stock of AT&T Latin America for each Series A
convertible preferred share of FirstCom they own. Each Class A common share of
AT&T Latin America has one vote per share, and each Class B common share of AT&T
Latin America has ten votes per share, on all matters submitted to a vote of the
stockholders of AT&T Latin America. When the merger is completed, the shares of
Class A common stock will trade on the Nasdaq National Market under the symbol
"ATTL" and FirstCom's common shares will no longer be traded. AT&T Latin
America's Class B shares will not be publicly listed or traded. Holders of
fractional interests of FirstCom shares will receive cash, without interest, in
an amount and according to the procedures described in "Exchange Procedures"
below.
TREATMENT OF FIRSTCOM OPTIONS AND WARRANTS
After the merger, each of the outstanding options and warrants to purchase
shares of FirstCom common stock will convert into an option or warrant to
purchase the same number of shares of Class A common stock of AT&T Latin America
as the former FirstCom options or warrants. The options and warrants to purchase
shares of Class A common stock of AT&T Latin America will be at an exercise or
purchase price per share equal to the exercise or purchase price per share in
effect under the corresponding FirstCom options or warrants. Each of these
converted options and warrants of AT&T Latin America otherwise will have
substantially the same terms and conditions as the corresponding former options
and warrants to purchase FirstCom common shares.
EXCHANGE PROCEDURES
After the merger, the exchange agent will mail a letter of transmittal to
each person who held FirstCom common shares at the time of the merger. The
holder should use this letter of transmittal in exchanging FirstCom stock
certificates. After surrendering to the exchange agent a FirstCom stock
certificate together with a letter of transmittal, the holder of a FirstCom
stock certificate will be entitled to receive a stock certificate representing
AT&T Latin America Class A common stock. The exchange agent will cancel the
surrendered certificates. AT&T Latin America will not issue any fractional
shares of AT&T Latin America Class A common stock in the merger. Holders of
fractional interests in FirstCom will receive cash, without interest, instead of
certificates representing fractional
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shares of AT&T Latin America. The amount of cash will be equal to a pro rata
portion of the net proceeds the exchange agent receives from the public sale of
the aggregate number of shares of AT&T Latin America Class A common stock the
exchange agent receives in excess of the aggregate number of those shares
distributed in the merger in exchange for whole FirstCom common shares. AT&T
Latin America will not pay any dividends or other distributions declared after
the merger to any holder of an unexchanged FirstCom certificate entitling the
holder to a share of AT&T Latin America Class A common stock until the holder
surrenders the certificate to the exchange agent. FIRSTCOM SHAREHOLDERS SHOULD
NOT SEND IN THEIR FIRSTCOM STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
After the merger, there will be no transfers on FirstCom's transfer books
of FirstCom common shares that were outstanding immediately before the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations by FirstCom to AT&T Corp.,
AT&T Latin America and Frantis, as well as by AT&T Corp. to FirstCom. These
representations and warranties will not survive the completion of the merger. A
summary of these representations and warranties follows.
REPRESENTATIONS AND WARRANTIES BY FIRSTCOM. The merger agreement contains
representations and warranties by FirstCom to AT&T Corp., AT&T Latin America and
Frantis, the shell subsidiary AT&T Latin America created for the merger, with
standard exceptions, as to:
- corporate existence, organization, standing and authority;
- power and authority to enter into and perform, and enforceability of, the
merger agreement and the ancillary agreements;
- compliance with laws;
- capitalization;
- ownership of subsidiaries;
- absence of violations, conflicts, defaults or breaches under applicable
laws, FirstCom's or its subsidiaries' organizational documents or certain
agreements to which they are party or their assets are subject;
- necessary governmental and other consents and approvals;
- accuracy of reports filed with the SEC and financial statements;
- pending or threatened litigation;
- absence of certain changes or events since June 30, 1999;
- compliance with tax obligations and certain tax matters;
- employee benefit plans matters;
- employment and labor matters;
- brokers' and finders' fees;
- possession of all necessary governmental licenses and permits;
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- environmental matters;
- material contracts;
- ownership of assets;
- ownership of and rights to use certain intellectual property;
- insurance policies;
- transactions with affiliates;
- delivery of a fairness opinion by FirstCom's advisors;
- inapplicability of certain state takeover statutes;
- absence of extortion or improper payments; and
- absence of investments in Venezuela.
REPRESENTATIONS AND WARRANTIES BY AT&T CORP. The merger agreement contains
representations and warranties by AT&T Corp. to FirstCom, with standard
exceptions, as to:
- corporate existence, organization, standing and authority of AT&T Corp.,
AT&T Latin America and Frantis;
- power and authority of AT&T Corp., AT&T Latin America and Frantis, the
shell subsidiary AT&T Latin America created for the merger, to enter into
and perform the merger agreement and ancillary agreements;
- compliance with laws by AT&T Corp., AT&T Latin America and Frantis;
- capitalization of AT&T Latin America;
- absence of violations, conflicts, defaults or breaches under AT&T
Corp.'s, AT&T Latin America's or Frantis' organizational documents,
certain agreements to which AT&T Latin America, Frantis or certain
affiliates are party or their assets are subject or laws applicable to
them;
- necessary governmental and other consents and approvals;
- pending or threatened litigation;
- effectiveness of the Netstream acquisition agreements;
- accuracy of information supplied by AT&T Corp. for inclusion in this
proxy statement; and
- brokers' and finders' fees.
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COVENANTS
The material covenants that AT&T Corp., AT&T Latin America, Frantis and
FirstCom have agreed to in the merger agreement are discussed below:
NO SOLICITATION OF TRANSACTIONS BY FIRSTCOM. FirstCom has agreed that it
and its subsidiaries will not, and will not authorize or permit any of their
respective officers, directors, employees, financial advisors, agents or other
representatives to:
- solicit, initiate or encourage any inquiries or proposals that are, or
may reasonably be expected to lead to, alternative acquisition proposals;
and
- participate in any discussions or negotiations regarding alternative
acquisition proposals.
An alternative acquisition proposal is:
- a proposal or offer relating to any direct or indirect acquisition or
purchase of 10% or more of the assets of any class of outstanding equity
securities of FirstCom or any of its subsidiaries;
- a tender offer or exchange offer that if consummated would result in any
person beneficially owning 10% or more of any class of equity securities
of FirstCom or any of its subsidiaries; or
- any merger, consolidation, business combination, sale of substantially
all the assets, joint venture, management or operating agreement,
recapitalization, liquidation, dissolution or similar transaction
involving FirstCom or any of its subsidiaries.
Prior to the approval of the merger by the FirstCom shareholders, if the
FirstCom board of directors determines in good faith, having received the advice
of outside counsel concerning its fiduciary duties to FirstCom's shareholders,
that failure to take one of the actions described in the two immediately
preceding bullet points would breach its fiduciary duties to its shareholders,
then FirstCom may, in response to an alternative acquisition proposal that was
unsolicited and is a superior proposal:
- furnish non-public information about FirstCom to the person who made that
alternative acquisition proposal under the terms of a customary
confidentiality agreement; and
- participate in negotiations regarding that alternative acquisition
proposal.
Neither the FirstCom board of directors nor any committee of that board may
withdraw or modify, or propose to modify or withdraw, the board of directors'
approval of the merger, or approve or recommend, or propose to approve or
recommend, an alternative acquisition proposal, or cause FirstCom to enter into
an agreement concerning an alternative acquisition proposal unless:
- the alternative acquisition proposal constitutes a "superior proposal,"
as described below;
- FirstCom's board of directors has determined in good faith, based on the
advice of outside counsel, that by not doing so it would breach its
fiduciary duties to FirstCom's shareholders; and
- FirstCom delivers a notice to AT&T Corp. terminating the merger
agreement.
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If FirstCom receives an alternative acquisition proposal, FirstCom has
agreed to notify AT&T Corp. promptly of its relevant terms and to provide to
AT&T Corp. a copy if it is in writing.
Superior proposal is any bona fide proposal:
- made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, 50% or more of the
voting power of the common stock of, or all or substantially all the
assets of, FirstCom and its subsidiaries;
- on terms which FirstCom's board of directors determines in good faith,
after receiving the advice of a financial advisor of nationally
recognized standing, to be more favorable to FirstCom's shareholders than
the merger; and
- for which financing, if necessary, is then committed or which, in the
good faith judgment of FirstCom's board of directors, is reasonably
capable of being obtained by the third party making the proposal.
BOARD'S COVENANT TO RECOMMEND THE MERGER. FirstCom's board of directors
has agreed to recommend the merger to its shareholders.
Unless the FirstCom board of directors has determined in good faith, after
consultation with and upon the advice of outside counsel, that failure to do so
would constitute a breach of its fiduciary duties to FirstCom's shareholders
under applicable law, the FirstCom board of directors has agreed that it will
not:
- withdraw or modify, or propose to withdraw or modify, in a manner adverse
to AT&T Corp., its approval or recommendation of the merger unless there
is a superior proposal outstanding;
- approve or recommend, or propose to approve or recommend, an alternative
acquisition proposal that is not a superior proposal; or
- cause FirstCom to enter into any letter of intent, agreement in
principle, acquisition agreement or other agreement with respect to an
alternative acquisition proposal unless it is a superior proposal.
CONDUCT OF BUSINESS PENDING THE MERGER. FirstCom has agreed, among other
things, that during the period from the signing of the merger agreement and the
completion of the merger, with certain exceptions, FirstCom and its subsidiaries
will:
- conduct their operations in the ordinary course in accordance with the
current business plan; and
- use reasonable best efforts to preserve intact and keep available their
business organizations, services of personnel and relationships with
third parties.
The merger agreement also does not permit FirstCom or its subsidiaries,
without the prior consent of AT&T Corp., to:
- amend their charter or bylaws;
- issue, sell, pledge or dispose of any shares of capital stock, except for
issuances in connection with outstanding options and warrants, conversion
of existing preferred shares or issuance of new preferred shares so long
as the sum of the redemption price of the new preferred shares and
additional permitted debt is not more than $20 million;
- split, combine or reclassify its existing capital stock or declare any
stock dividends;
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- grant or amend any options, warrants or convertible securities or cause
any unexercisable option to be exercisable, except for the issuance of
options to purchase up to 300,000 shares of common stock of FirstCom in
the ordinary course of business to employees of FirstCom and its
subsidiaries;
- declare any dividends on any capital stock except on capital stock owned
by FirstCom or a subsidiary of FirstCom;
- redeem or purchase any shares of their or their subsidiaries' capital
stock;
- sell, lease or otherwise dispose of any assets except for sales in the
ordinary course whose proceeds do not exceed $50,000 in any transaction
and $100,000 in the aggregate;
- settle any pending or threatened litigation if the settlement involves a
payment in excess of $250,000 in any one case or $500,000 in the
aggregate;
- make capital expenditures in excess of amounts specified in the current
FirstCom business plan or otherwise acquire assets in excess of $150,000
outside of the ordinary course;
- incur indebtedness except in the ordinary course for working capital
under existing facilities or indebtedness not exceeding, when added to
the redemption price of new preferred shares, $20 million;
- assume or guarantee liabilities of other parties, except for
majority-owned subsidiaries of FirstCom or obligations in the ordinary
course not exceeding $50,000 individually and $150,000 in the aggregate;
- make any material tax election or settle any material income tax
liability;
- enter into or amend existing employment arrangements involving aggregate
payments in excess of $250,000 in the aggregate or increase benefits or
compensation other than in the ordinary course;
- enter into any material contracts or amend existing material contracts
other than in ordinary course;
- materially change insurance coverage;
- change any accounting principles or practices except as required by law
or GAAP;
- materially change existing marketing programs or commit to any new
marketing programs except in the ordinary course;
- materially change billing practices or sales terms or cause a material
delay or acceleration of the payment of accounts, notes receivable or
notes payable;
- waive, relinquish or terminate any rights or claims under material
contracts or allow any rights to use material intellectual property to
lapse, except in the ordinary course;
- take certain insolvency or bankruptcy-related actions;
- enter into any arrangement with a person in Venezuela that has operations
similar to parties to the merger agreement; or
- agree to take any of the actions listed above.
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AT&T Corp. consented to the issuance by FirstCom of options to purchase
160,000 shares of its common stock in addition to the options to purchase
300,000 shares of its common stock that are otherwise permitted.
AT&T CORP.'S OWNERSHIP OF AT&T LATIN AMERICA. During the 12 months
following the merger, AT&T Corp. and its affiliates may not increase AT&T
Corp.'s direct or indirect ownership of the outstanding capital stock of AT&T
Latin America above 80% without the consent of AT&T Latin America's
disinterested directors.
CONDUCT OF THE BUSINESS OF AT&T LATIN AMERICA AND NETSTREAM. AT&T Latin
America has agreed to use its reasonable efforts to preserve intact and keep
available its business organization, officers and employees, and relationships
with third parties. AT&T Latin America has also agreed that until the merger, it
will not, subject to certain exceptions:
- amend its charter or bylaws;
- issue, sell, pledge or dispose of any shares of capital stock, except for
issuances related to the Netstream acquisition, the contribution of
capital by AT&T Corp. or the issuance of unvested options to acquire up
to 625,000 shares of Class A common stock to officers and employees of
Netstream in the ordinary course of business;
- split, combine or reclassify its existing capital stock or declare any
stock dividends except as required by the merger;
- redeem or purchase any shares of its or its subsidiaries' capital stock;
- declare any dividends on any capital stock except on capital stock of a
wholly-owned subsidiary;
- sell, lease or otherwise dispose of any assets except for sales in the
ordinary course whose proceeds do not exceed $50,000 in any transaction
and $100,000 in the aggregate;
- settle any pending or threatened litigation if the settlement involves a
payment in excess of $50,000 in any one case or $100,000 in the
aggregate;
- incur indebtedness except in the ordinary course for working capital or
capital expenditures;
- waive, relinquish or terminate any rights or claims under material
contracts or allow any rights to use material intellectual property to
lapse, except in the ordinary course;
- take certain insolvency or bankruptcy related actions;
- materially amend the Netstream acquisition agreements; or
- agree to take any of the actions listed above.
FirstCom consented to the acquisition of Keytech LD by AT&T Latin America
and the related transactions and the parties amended the merger agreement
accordingly.
INSURANCE. For a period of six years following the completion of the
merger, AT&T Corp. will cause AT&T Latin America to maintain directors' and
officers' liability insurance that covers parties currently covered in their
capacities as officers and directors by FirstCom's existing directors' and
officers' liability insurance policies. AT&T Latin America must maintain this
insurance on terms that are as advantageous to such officers and directors as
FirstCom's current policies and provide for aggregate coverage of 300% of the
amount covered by FirstCom's current policies.
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CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO COMPLETION OF THE MERGER OF ALL PARTIES TO THE MERGER
AGREEMENT. The parties to the merger agreement are not obligated to complete
the merger unless the following unsatisfied conditions are satisfied or waived:
- FirstCom's shareholders have approved the merger;
- FirstCom makes a tender offer for the outstanding 14% senior notes due
2007, and holders of at least a majority in principal amount of the notes
consent to certain amendments to the covenants of FirstCom relating to
the notes;
- there are no governmental orders, judgments or injunctions restraining or
otherwise prohibiting the merger or the other transactions described in
the merger agreement; and
- the registration statement concerning this proxy statement/prospectus is
effective and not subject to any stop order or related proceedings.
ADDITIONAL CONDITIONS TO AT&T AND AT&T LATIN AMERICA'S COMPLETION OF THE
MERGER. AT&T Corp., AT&T Latin America and Frantis, the shell subsidiary AT&T
Latin America created for the merger, also are not obligated to complete the
merger unless the following conditions, have been satisfied or waived:
- the executive employment agreement entered into on October 31, 1999
between AT&T Latin America and Patricio E. Northland remains in effect;
- the representations and warranties of FirstCom contained in the merger
agreement, without taking into account any of their materiality
qualifications or thresholds, are true and correct except where the
failure to be true and correct would not have a material adverse effect;
- FirstCom has materially complied with all of its obligations under the
merger agreement and the ancillary agreements;
- AT&T Corp., AT&T Latin America and the shell subsidiary AT&T Latin
America created for the merger have received reconfirmation as of the
merger of the opinion of Debevoise & Plimpton, their counsel, to the
effect that the merger will be treated as a reorganization for purposes
of Section 368(a) of the Internal Revenue Code; and
- FirstCom has completed a reorganization of its Colombian subsidiary and
has received related local regulatory approvals in Colombia, and AT&T
Corp. has received an opinion from Baker & McKenzie, counsel to FirstCom,
relating to the validity and effectiveness of this reorganization.
ADDITIONAL CONDITIONS TO FIRSTCOM'S COMPLETION OF THE MERGER. FirstCom is
also not obligated to complete the merger unless the following conditions, among
others, have been satisfied or waived:
- AT&T Corp. and AT&T Latin America have entered into the regional vehicle
agreement and the service mark license agreement;
- the representations and warranties of AT&T Corp. contained in the merger
agreement, without taking into account any of their materiality
qualifications or thresholds, are true and correct except where the
failure to be true and correct would not have a material adverse effect;
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- AT&T Corp., AT&T Latin America and Frantis have materially complied with
all of their obligations under the merger agreement and the ancillary
agreements;
- the shares of Class A common stock of AT&T Latin America have been
accepted for listing on a national securities exchange;
- AT&T Corp. or one or more of its affiliates has provided AT&T Latin
America with a revolving $100 million credit facility;
- AT&T Corp. has caused Patricio E. Northland to be elected to the board of
directors of AT&T Latin America, plus two, or if Promon's affiliate has
not nominated a director, three, disinterested directors agreed to by
FirstCom;
- FirstCom has received reconfirmation as of the merger of the opinion of
Baker & McKenzie, its counsel, to the effect that the merger will be
treated as a reorganization for purposes of Section 368(a) of the
Internal Revenue Code;
- AT&T Latin America's board of directors has adopted a board policy
relating to corporate opportunities in the form that is attached to the
merger agreement; and
- the shareholders of AT&T Latin America have adopted the forms of
certificate of incorporation and bylaws that are attached to the merger
agreement, and if any preferred shares are outstanding, the form of
certificate of designation attached to the merger agreement.
The parties may waive each of the conditions listed above, except for
approval of the merger by the FirstCom shareholders, the absence of injunctions
or other prohibitions relating to the merger and effectiveness of the
registration statement concerning this proxy statement/prospectus. FirstCom is
permitted to waive one or more of the conditions described above but it does not
intend to do so. FirstCom will not waive any material condition, such as receipt
of the legal opinion described above, without first recirculating revised proxy
materials and resoliciting the vote of its stockholders.
TERMINATION OF THE MERGER AGREEMENT
Either FirstCom or AT&T Corp. may terminate the merger agreement if:
- the merger has not been completed by August 31, 2000 or any conditions to
the obligations of FirstCom or AT&T Corp. have not been satisfied or
waived by that date; or
- any law or regulation is enacted, or any governmental entity issues a
final and non-appealable order, making the merger illegal or prohibiting
the merger.
FirstCom may terminate the merger agreement if:
- FirstCom enters into or agrees to enter into an alternative acquisition
agreement; or
- Netstream has suffered a material adverse effect under the Netstream
acquisition agreement.
AT&T Corp. may terminate the merger agreement if:
- the shareholders of FirstCom fail to approve the merger at the meeting
called to vote on the merger;
- any person or group acquires ownership of 20% or more of FirstCom's
common shares;
- FirstCom suffers a material adverse effect under the merger agreement;
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- FirstCom enters into an alternative acquisition agreement; or
- FirstCom's board of directors:
- withdraws, modifies or fails to maintain its recommendation to
FirstCom's shareholders to approve the merger;
- recommends an alternative acquisition proposal or receives from a
nationally recognized financial advisor to FirstCom a fairness opinion
with respect to an alternative acquisition proposal indicating that it
is a superior proposal; or
- authorizes the execution of an alternative acquisition agreement with
someone other than AT&T Corp.
In addition, AT&T Corp. and FirstCom may agree to terminate the merger
agreement at any time without completing the merger, even after the shareholders
of FirstCom have approved the merger.
TERMINATION FEES
FirstCom must pay AT&T Corp. a termination fee of $10 million, plus out
of-pocket expenses up to $1 million incurred by AT&T Corp. and its affiliates in
connection with the merger and the related transactions, if the merger is not
completed if:
- FirstCom enters into or agrees to enter into an alternative acquisition
agreement;
- FirstCom's board of directors:
- withdraws, modifies or fails to maintain its recommendation to the
shareholders to approve the merger;
- recommends an alternative acquisition proposal or receives from a
nationally recognized financial advisor to FirstCom a fairness opinion
with respect to an alternative acquisition proposal indicating that it
is a superior proposal; or
- authorizes the execution of an alternative acquisition agreement with a
person other than AT&T Corp; or
- any other person acquires ownership of 20% or more of FirstCom's common
shares.
OTHER FEES AND EXPENSES
AT&T Corp. and FirstCom are paying their respective costs and expenses
associated with the merger and the related transactions other than in connection
with the termination fees described above. AT&T Corp. will also either pay the
costs and expenses of AT&T Latin America and Frantis or reimburse them for their
costs. FirstCom expects that it will have incurred approximately $10 million of
merger-related fees and expenses, consisting primarily of fees and expenses of
investment bankers, SEC filing fees, attorneys' fees, accountants' fees and
financial printing and other related charges.
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ASSIGNMENT, AMENDMENT AND WAIVER
FirstCom may not assign the merger agreement without the prior written
consent of the other parties to the merger agreement. AT&T Corp. may assign its
rights under the merger agreement to an affiliate so long as AT&T Corp. retains
all of its obligations. FirstCom and AT&T Corp. may amend the merger agreement
in writing prior to the merger. However, if the parties amend the merger
agreement after approval of the merger by FirstCom's shareholders, no amendment
may be made that adversely affects the rights of FirstCom's shareholders without
the approval of a majority of FirstCom's shareholders. Any provision of the
merger agreement may be waived if the party waiving the provision agrees in
writing.
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OTHER MATERIAL AGREEMENTS AND ARRANGEMENTS
REGIONAL VEHICLE AGREEMENT WITH AT&T CORP.
AT&T Latin America and AT&T Corp. will enter into a "regional vehicle
agreement" at the time of the merger. A form of the regional vehicle agreement
is an exhibit to the merger agreement included in this proxy
statement/prospectus as Annex A. This section describes the material terms of
the regional vehicle agreement and related provisions of AT&T Latin America's
certificate of incorporation.
Purpose The parties to the merger agreement contemplate that
AT&T Latin America will serve as AT&T Corp.'s strategic
vehicle for in-country investments in AT&T Latin
America's region to provide high-speed broadband
connections and designated communications services to
business customers, to the extent set forth in the
regional vehicle agreement. The parties defined the
overall scope and nature of AT&T Latin America's
operations in the regional vehicle agreement as well as
in AT&T Latin America's certificate of incorporation.
Scope The regional vehicle agreement and the certificate of
incorporation define:
- where in Latin America AT&T Latin America may operate;
- what communications services AT&T Latin America may
provide, and in some cases, to whom those services may
be provided; and
- the conditions under which AT&T Corp. and its
affiliates may compete with AT&T Latin America.
Other Commercial
Arrangements The regional vehicle agreement also addresses commercial
arrangements between AT&T Latin America, on the one
hand, and AT&T Corp. and its affiliates and ventures, on
the other hand. These affiliates and ventures include
AT&T Global Network Services and the Concert global
venture between AT&T Corp. and British
Telecommunications plc.
Term The regional vehicle agreement has an indefinite term
and will generally terminate only by mutual agreement of
AT&T Latin America and AT&T Corp. However, AT&T Corp.
may terminate the regional vehicle agreement at any time
after the termination of the service mark license
agreement with AT&T Corp.
AT&T LATIN AMERICA'S REGION
AT&T Latin America's certificate of incorporation permits it to operate
only in the countries of South America and the Caribbean, plus Panama but
excluding Cuba. In addition, the regional vehicle agreement restricts AT&T Latin
America from operating in Venezuela.
AT&T LATIN AMERICA SERVICES
AT&T Latin America's certificate of incorporation limits AT&T Latin
America's business to the provision of telecommunications services. The regional
vehicle agreement and AT&T Latin America's
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certificate of incorporation permit AT&T Latin America to provide the services
described in this prospectus/proxy statement under "The Companies -- the
Combined Companies -- Growth Strategy" and "-- Description of AT&T Latin
America."
Following is a description of the services AT&T Latin America is permitted
to provide as well as limitations on its services:
PERMITTED SERVICES. AT&T Latin America may provide the following services:
- long distance;
- 1-800/toll-free;
- local voice delivered through fixed lines;
- Internet access;
- e-commerce or electronic commerce;
- fixed wireless for connection to networks;
- video conferencing services;
- web hosting, which involves providing or managing equipment to operate an
Internet web site;
- voice over Internet Protocol, which involves the transmission of voice
over an inter-networking standard that enables communication across the
Internet regardless of the hardware or software used;
- AT&T calling card services, and AT&T Direct(R) services, which allow
callers to access AT&T networks from points throughout the world;
- dedicated line services, which involve the leasing of network lines
expressly for connecting two or more users. These dedicated lines
establish a permanent circuit dedicated solely to the use of the
particular customer;
- switched digital services, which allow users to establish end-to-end
digital connections over shared facilities on an as-needed basis, similar
in concept to making a telephone call; and
- virtual network services, which involve a connection of customer networks
to an operator's network to create an overall capability for voice and
data services that acts functionally like a network owned or operated
exclusively by that customer.
AT&T Latin America may also provide data services using the following
protocols for transmitting data over a communications network:
- packet X.25, an older protocol designed for transmitting data files in
pieces or "packets" over analog communications networks that were
originally designed for voice traffic;
- frame relay, a newer protocol designed for transmission of data over
digital networks in packets of varying length; and
- asynchronous transfer mode, an even newer protocol, designed for
transmitting data in fixed-size packets or "cells" to enable networks to
accommodate many different transmission systems and permit transmission
of a mix of voice, data and video.
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PROHIBITED SERVICES. The regional vehicle agreement limits AT&T Latin
America's ability to provide other services. AT&T Latin America may not provide:
- mobile wireless/personal communications services;
- cable telephone or cable services, which include telephone, data and
video services, as well as Internet access, delivered through networks
typically used to deliver cable television; or
- cross-border transport services between two or more countries to
international carriers and select services involving the arrangement,
management and delivery of termination of international communications
traffic.
In addition, AT&T Latin America may not provide solutions services, such as
outsourcing professional services and systems integration. Outsourcing
professional services include:
- providing professional services relating to network architecture
validation, implementation, operations and life cycle management, which
include confirming that a network's design works efficiently, installing
and testing network equipment and managing the need for change to the
network;
- business process consulting and migration planning and implementation,
which include planning to ensure that a customer's network properly
supports the customer's objectives and planning for and implementing
changes to that network; and
- ownership and acquisition of assets from and on behalf of customers
related to providing outsourcing professional services.
Systems integration involves:
- advising clients how best to use information technology to achieve their
ends and to reengineer business processes to make organizations work more
effectively;
- specifying, designing or building integrated business systems for or on
behalf of clients;
- managing the change to those systems for or on behalf of clients;
- supporting, maintaining, enhancing, operating or further developing those
systems for or on behalf of clients, providing program or project
management and integration of customer-defined individual customer
solutions; and
- providing other related services required or requested by clients in
connection with the services listed above.
Systems integration services do not include the underlying capability to
provide services.
MANAGED NETWORK SERVICES. Although AT&T Latin America may not provide
solutions services, it may provide managed network services to companies other
than multinational corporations reserved for Concert by AT&T Corp. and British
Telecom. Managed network services include:
- providing services to a customer that consist solely of providing and
maintaining the elements of a customer's wide area communications
network, which is a network connecting two or more customer sites, each
of which may operate an internal local area network;
- to the extent relating to a customer's wide area communications network,
directly related planning, design, installation, maintenance and ongoing
support functions; and
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- providing equipment on the customers' premises at the interface between a
wide area communications network and the remainder of the customer's
networking environment insofar as that equipment facilitates:
- the maintenance of the customer's wide area communication services;
- the recording of performance data with respect to the customer's wide
area communications services;
- the provisioning of new wide area communications services to the
customer or changes in the parameters of these services; or
- the integration of multiple wide area communications services, but
excluding in the case of the first two items listed in this paragraph
any such service or equipment that materially extends services beyond
the interface described above further into the customer's non-wide
area communications network.
AT&T Latin America does not believe that this restriction on its providing
managed network services to multinational customers reserved for Concert will
materially affect its ability to implement its growth strategy. AT&T Latin
America plans to generate revenues by supplying its services to Concert for
resale to those customers in connection with Concert's provision of managed
network services to its customers.
To the extent AT&T Latin America provides services under the AT&T Latin
America brand or other AT&T Corp. brands, there are service limitations in the
service mark license agreement with AT&T Corp., which is described below.
COMPETITION BY AT&T CORP.
The regional vehicle agreement limits the ability of AT&T Corp. and its
subsidiaries to compete with AT&T Latin America. It also places obligations on
AT&T Corp. if it acquires competitors of AT&T Latin America with specific
characteristics, as described below.
The limitations on competition and the obligations of AT&T Corp. relating
to the acquisitions of competitors discussed below do not apply to Concert or
AT&T Global Network Services companies, AT&T Corp.'s Liberty Media group or AT&T
Corp.'s acquisition of MediaOne or to any person in which any of those companies
has an equity interest.
In addition, restrictions relating to competition with AT&T Latin America
do not apply to:
- services using assets owned or controlled by the AT&T Global Network
Services companies; or
- services provided by AT&T Corp. or its subsidiaries in connection with
providing managed network services or outsourcing professional services,
which are described on pages 62-63.
COMPETITIVE SERVICES. Except as described above, AT&T Corp. and its
existing subsidiaries may not offer customers a number of services in AT&T Latin
America's region unless they are obtained from AT&T Latin America. These
services include:
- long distance;
- 1-800/toll-free;
- local voice delivered through fixed lines;
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<PAGE> 71
- Internet access;
- dedicated line services, which involve the leasing of network lines
expressly for connecting two or more users. These dedicated lines
establish a permanent circuit dedicated solely to the use of the
particular customer;
- switched digital services, which allow users to establish end-to-end
digital connections over shared facilities on an as-needed basis, similar
in concept to making a telephone call; and
- virtual network services, which involve a connection of customer networks
to an operator's network to create an overall capability for voice and
data services that acts functionally like a network owned or operated
exclusively by that customer.
These services also include data services using the following protocols for
transmitting data over a communications network.
- packet X.25, an older protocol designed for transmitting data files in
pieces or "packets" over analog communications networks that were
originally designed for voice traffic;
- frame relay, a newer protocol designed for transmission of data over
digital networks in packets of varying length; and
- asynchronous transfer mode, an even newer protocol, designed for
transmitting data in fixed-size packets or "cells" to enable networks to
accommodate many different transmission systems and permit transmission
of a mix of voice, data and video.
REGIONAL ACQUISITIONS. AT&T Corp. and its subsidiaries may acquire
competitors of AT&T Latin America. However, except as described below, if that
competitor earned more than half of its revenues in the previous fiscal year in
AT&T Latin America's region from the services described under the heading
"Competitive Services" on pages 63-64 AT&T Corp. or its relevant subsidiary
would be required either to:
- cause that competitor to cease offering those services; or
- offer to sell to AT&T Latin America for cash at fair market value the
portion of the competitor's business that primarily relates to those
services in AT&T Latin America's region.
That offer must be made within either eighteen or thirty months of the
acquisition of the competitor, depending on how much of the competitor's
business is derived from AT&T Latin America's region. No offer to purchase is
required if it would:
- violate any law or a pre-existing contractual obligation of the
competitor;
- violate a contract that is binding on any material assets of the
competitor;
- result in a tax on an AT&T Corp. entity that is material in relation to
the price paid for that portion of the business; or
- in the good faith determination of the board of directors of the relevant
AT&T Corp. entity, violate its fiduciary duties to minority shareholders
of the relevant company.
If AT&T Latin America does not accept such an offer for a competitive
business, the acquired competitor may compete with AT&T Latin America.
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<PAGE> 72
AT&T LATIN AMERICA'S RELATIONSHIP WITH CONCERT AND RELATED RESTRICTIONS ON AT&T
LATIN AMERICA'S BUSINESS
AT&T Corp. and AT&T Latin America are also using the regional vehicle
agreement to outline some of the ways they expect AT&T Latin America to interact
with AT&T Corp's Concert global venture with British Telecom. AT&T Latin America
intends to supply services to Concert and Concert's customers and to distribute
Concert's services to its own customers.
The Concert global venture focuses on cross-border transport of
communications services to large business customers and to other carriers. AT&T
Latin America believes that AT&T Latin America's business and Concert's business
complement one another, because AT&T Latin America will focus on providing
services within a particular country, rather than providing services between
countries.
AT&T Latin America plans to offer customers a portfolio of communications
services that meet their end-to-end needs, including cross-border services.
However, AT&T Latin America will generally not provide those cross-border
services over its own networks. Instead, it will purchase the cross-border
components of the services it offers customers from other providers, such as
Concert. The regional vehicle agreement also contemplates the following
arrangements:
Supplying Services to
Concert AT&T Latin America expects to be a preferred supplier of
its in-country communications services to Concert in
accordance with the agreements between AT&T Corp. and
British Telecom governing the Concert joint venture.
AT&T Latin America and Concert are currently discussing
the nature and extent of this preferred supplier
relationship.
Distributing Concert
Services AT&T Corp. will request that Concert appoint AT&T Latin
America as a distributor of Concert's services in AT&T
Latin America's region. The regional vehicle agreement
requires that AT&T Latin America purchase from Concert
its requirements for select services involving the
arrangement, management and delivery of termination of
international communications traffic, if Concert
provides those services on commercially reasonable
terms. AT&T Latin America must also purchase from
Concert select communications services between or among
two or more countries that are provided or targeted to
businesses and to their employees as such, on
commercially reasonable terms. AT&T Latin America and
Concert are currently discussing the nature and extent
of these purchasing arrangements.
RESTRICTIONS ON AT&T LATIN AMERICA'S BUSINESS RELATED TO
CONCERT. Additional restrictions on AT&T Latin America's business would apply
if it and its subsidiaries receive more than an aggregate of $150 million
revenues in any year from providing services over cross-border networks in which
they have an equity interest. This is an amount of this type of revenues
significantly higher than the amounts that AT&T Latin America's growth strategy
contemplates. That is because AT&T Latin America does not expect that the
cross-border networks in which it will have an equity interest will be material.
The additional restrictions would prohibit AT&T Latin America from
offering, selling or distributing to multinational corporations reserved for
Concert by AT&T Corp. and British Telecom, except through Concert, communication
services, which consist of:
- those services and applications, including enhanced services and
applications, that involve the transmission of voice, data, sound, music,
still and moving image or video and other elements by fixed media, or
radio or other wave signal;
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<PAGE> 73
- any similar or substitute service available or offered from time to time;
and
- the business of developing, designing or offering content-based
applications.
The additional restrictions would also prohibit AT&T Latin America from
- offering, distributing or providing to any customers select
communications services between countries that are provided or targeted
to businesses and to their employees in their capacity as employees,
except through Concert; and
- owning, operating, leasing or managing facilities predominantly used to
provide services between or among two or more countries.
COMMERCIAL ARRANGEMENTS WITH AT&T GLOBAL NETWORK SERVICES AND AT&T CORP.
The regional vehicle agreement contemplates the following arrangements
between AT&T Latin America and AT&T Global Network Services:
Supplying Services
to the AT&T Global
Network Services
companies AT&T Latin America will be a preferred supplier of its
services to the AT&T Global Network Services companies.
Preferred supplier means that the AT&T Global Network
Services companies will purchase services from AT&T
Latin America in preference to other parties that are
not preferred suppliers of the AT&T Global Network
Services companies. AT&T Latin America must, however, be
able to provide the services on terms and conditions and
standards at least as favorable regarding price, quality
and service as the AT&T Global Network Services
companies could obtain in an arm's length transaction.
Distributing Services of
the AT&T
Global Network Services
companies Promptly after the merger, AT&T Corp. will cause the
appropriate AT&T Global Network Services companies to
discuss possible arrangements for AT&T Latin America to
distribute their services in its region. Except as
described below, AT&T Latin America will be an exclusive
distributor of AT&T Global Network Services in at least
one country in AT&T Latin America's region. However, as
a distributor AT&T Latin America must be able to meet
the performance and service level requirements of AT&T
Global Network Services. Any distribution arrangements
may not affect the ability of (1) any person to comply
with obligations under agreements relating to AT&T
Corp.'s purchase of the global network from IBM or (2)
any other AT&T Corp. affiliate to:
- distribute AT&T Global Network Services directly to
customers in AT&T Latin America's region;
- have its employees market or sell AT&T Global Network
Services to customers in AT&T Latin America's region;
or
- appoint remarketers or global value added resellers of
AT&T Global Network Services.
POSSIBLE INTEGRATION OF OPERATIONS. AT&T Corp., AT&T Latin America and
FirstCom recently entered into a non-binding memorandum of understanding
relating to possible collaboration among AT&T Latin America, AT&T Global Network
Services Latin America and AT&T Corp.'s Solutions division in Latin America. In
that connection, they have agreed to form a collaboration committee. The
collaboration committee will consider the desirability of AT&T Global Network
Services --
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<PAGE> 74
Latin America and other AT&T Corp. subsidiaries transferring assets, contracts
and licenses in AT&T Latin America's region to AT&T Latin America. The
collaboration committee also will consider bringing over AT&T Global Network
Services -- Latin America personnel to AT&T Latin America. It also will consider
the possibility of management services arrangements and supply and other
commercial contracts among the companies relating to any transferred assets or
contracts.
No agreement on any of these matters has been reached. Any transactions
would be subject to the negotiation of definitive agreements, approval by the
relevant boards of directors, including AT&T Latin America's, and receipt of
governmental or regulatory approvals.
SUPPLYING SERVICES TO AT&T CORP. AND ITS OTHER SUBSIDIARIES. AT&T Latin
America will be a preferred supplier of the services described under the heading
"Competitive Services" on pages 63-64 in its region to AT&T Corp. and its
wholly-owned subsidiaries, except to the extent those companies are required to
purchase services from Concert. Preferred supplier means that the purchaser will
purchase the relevant services from AT&T Latin America instead of other parties
that are not their preferred suppliers. AT&T Latin America must, however, to be
able to provide the services on terms and conditions and standards at least as
favorable regarding price, quality and service as the particular AT&T Corp.
entity could obtain in an arm's length transaction.
SERVICE MARK LICENSE AGREEMENT WITH AT&T CORP.
AT&T Corp. has entered into a service mark license agreement with AT&T
Latin America that will become effective when the merger is completed. The form
of the service mark license agreement is an exhibit to the merger agreement
included in this proxy statement/prospectus as Annex A.
SERVICE MARKS. AT&T Corp. will license service marks, including "AT&T" and
the AT&T with a fanciful globe design mark, to AT&T Latin America for its use in
the provision of its services in AT&T Latin America's region. A list of these
service marks is attached to the service mark license agreement. AT&T Latin
America may also use the "AT&T" mark as part of its trade and corporate names so
long as at least half of the licensed services -- namely, those grossing the
highest revenue -- meet service specifications provided by AT&T Corp. AT&T Latin
America may sublicense the marks to entities it controls that meet service
specifications and assume all obligations of AT&T Latin America under the
service mark license agreement other than the obligation to pay a brand fee.
AT&T Latin America may not use any mark other than a mark licensed by AT&T Corp.
for the services described under the heading "Competitive Services" on pages
63-64 without AT&T Corp.'s consent.
BRAND FEE. During the term of the service mark license agreement, AT&T
Latin America will pay a fee to AT&T Corp. every six months equal to the greater
of $2.5 million and a designated percentage of its gross revenues. Initially the
designated percentage of gross revenues will be 4%. This percentage will
decrease to 3.25% in the third year of the initial term and to 2.5% in the final
two years of the initial term. AT&T Corp. has agreed to spend this fee to
support and monitor use of the licensed marks by AT&T Latin America in AT&T
Latin America's region and to provide a communications director and other staff
employed by AT&T Corp. who will manage and monitor the licensed marks in
conjunction with an officer of AT&T Latin America.
TERM; TERMINATION. The initial term of the license will be for five years
from the date of completion of the merger. The agreement will automatically
renew for an additional five years if AT&T Latin America is not in material
default or breach of the license agreement. AT&T Corp. may terminate the license
prior to the end of its term if AT&T Corp. no longer owns shares having voting
control of AT&T Latin America or if AT&T Latin America misuses the marks or
otherwise materially breaches its obligations under the service mark license
agreement and is not able to correct the breach in a timely fashion.
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<PAGE> 75
CREDIT FACILITY
Prior to completion of the merger, a subsidiary of AT&T Corp. will provide
a revolving credit facility of up to $100 million principal amount to AT&T Latin
America having the following material terms:
- an annual interest rate of 90-day London Inter-Bank Offered Rate, or
LIBOR, plus 3.75%, payable quarterly;
- mandatory prepayment by the borrower out of any proceeds from issuances
of debt or equity in the capital markets and bank financings;
- final maturity two years after the closing of the merger;
- restrictions on permitted capital expenditures, debt, liens and disposal
of assets by the borrower; and
- at the AT&T Corp. subsidiary's request, security in the shares of AT&T
Latin America's operating subsidiaries and their assets.
AT&T LATIN AMERICA SHAREHOLDERS' AGREEMENT WITH SL PARTICIPACOES
AT&T Latin America is party to a shareholders' agreement with Promon's
affiliate, SL Participacoes, which owns 10% of AT&T Latin America's currently
outstanding capital stock, in the form of Class A common shares. That
shareholders' agreement includes the following terms:
REGISTRATION RIGHTS. SL Participacoes may require AT&T Latin America on
one occasion to register the shares of Class A common stock owned by SL
Participacoes and its permitted transferees after an underwritten primary
offering of Class A shares has occurred. SL Participacoes and its permitted
transferees also have unlimited "piggyback" registration rights, permitting them
to include their Class A shares in registration statements filed by AT&T Latin
America. These "piggyback" registration rights do not apply in connection with
an initial underwritten offering of Class A shares or other securities solely
for the account of AT&T Latin America, a business combination transaction,
issuances under employee benefit plans or exchange offer or an offer solely to
existing stockholders or employees. AT&T Latin America must pay the costs
associated with all of these registrations. The exercise of these registration
rights is subject to notice requirements, timing restrictions and volume
limitations which may be imposed by the underwriters of an offering.
SALE OF SHARES; PARTICIPATION RIGHTS. SL Participacoes and its permitted
transferees may require AT&T Corp. or its designee to purchase their shares of
AT&T Latin America if a change of control of AT&T Latin America occurs. A change
of control would occur under the following circumstances:
- AT&T Corp. and its affiliates, either alone or together with British
Telecom and its affiliates, cease to own a majority of the outstanding
voting securities of AT&T Latin America or cease to have control of the
management of AT&T Latin America; or
- AT&T Corp. and its direct and indirect wholly-owned subsidiaries cease to
own 25% or more of the outstanding voting securities of AT&T Latin
America.
SL Participacoes and its permitted transferees also have rights to
participate in purchases of new shares of AT&T Latin America capital stock, or
securities convertible into shares, if AT&T Latin America proposes to sell these
shares or convertible securities for cash.
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<PAGE> 76
These participation rights will not apply to new shares or convertible
securities which are:
- sold in a registered public offering or pursuant to SEC Rule 144A or in a
global offering pursuant to SEC Regulation S;
- sold to British Telecom or another major international telecommunications
company which AT&T Corp. or AT&T Latin America plans to partner within a
joint venture or strategic alliance; or
- sold to employees, officers, directors or consultants of AT&T Latin
America.
Each of these change of control and participation rights will expire when a
primary underwritten offering of shares of Class A common stock occurs.
During the 60-day period beginning December 30, 2001, SL Participacoes and
its permitted transferees that are affiliates of Promon may require AT&T Corp.
or its designee to purchase the shares of AT&T Latin America purchased by SL
Participacoes in December 1999 at a price per share equal to the original
purchase price paid, adjusted for stock splits, stock dividends,
recapitalizations and similar transactions, plus accrued interest at an interest
rate equal to the 12-month London Inter-Bank Offered Rate.
AT&T LATIN AMERICA SHAREHOLDERS' AGREEMENT WITH KEYTECH SHAREHOLDERS
AT&T Latin America is a party to a shareholders' agreement with the former
shareholders of Keytech LD. That shareholders' agreement includes the following
terms:
REGISTRATION RIGHTS. Under the shareholders agreement, the former Keytech
LD shareholders may require AT&T Latin America on one occasion to register the
shares of Class A common stock owned by the former shareholders of Keytech LD
and their permitted transferees after an underwritten primary offering of Class
A shares has occurred. Those shareholders and their respective permitted
transferees will also have unlimited "piggyback" registration rights, permitting
them to include their Class A shares in registration statements filed by AT&T
Latin America. These "piggyback" rights do not apply in connection with an
underwritten offering of Class A shares or other securities solely for the
account of AT&T Latin America, a business combination transaction, issuances
under employee benefit plans or exchange offer or an offer solely to existing
stockholders or employees. AT&T Latin America must pay the costs associated with
all of these registrations. The exercise of these registration rights is subject
to notice requirements, timing restrictions and volume limitations which may be
imposed by the underwriters of an offering.
SALE OF SHARES. The former shareholders of Keytech LD and their permitted
transferees may require AT&T Corp. or its designee to purchase their shares of
AT&T Latin America if a change of control of AT&T Latin America occurs. A change
of control would occur under the following circumstances:
- AT&T Corp. and its affiliates, either alone or together with British
Telecom and its affiliates, cease to own a majority of the outstanding
voting securities of AT&T Latin America or cease to have control of the
management of AT&T Latin America; or
- AT&T Corp. and its direct and indirect wholly-owned subsidiaries cease to
own 25% or more of the outstanding voting securities of AT&T Latin
America.
The change of control rights will expire when a primary underwritten
offering of shares of Class A common stock occurs.
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<PAGE> 77
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined financial information for
AT&T Latin America gives effect to the merger as if it had been completed on
January 1, 1999 for statement of operations purposes and on March 31, 2000 for
balance sheet purposes, subject to the assumptions and adjustments in the
accompanying notes to the unaudited pro forma combined financial information. In
addition to the merger, the unaudited pro forma combined financial information
also reflects the following related transactions:
- one condition to the merger required that AT&T Latin America receive a
total of $70 million in cash equity contributions from its shareholders.
As part of the Netstream acquisition, in December 1999, an affiliate of
AT&T Corp. contributed $10 million and an affiliate of Promon contributed
$40 million of equity capital to AT&T Latin America, in cash. During June
2000, AT&T Corp. and an affiliate of Promon contributed an additional $20
million of cash to the capital of AT&T Latin America on a pro rata basis
in accordance with their respective ownership percentages in AT&T Latin
America.; and
- as permitted under the merger agreement AT&T Latin America is requiring
FirstCom to make a tender offer for its outstanding 14% senior notes due
2007 and, as part of that tender offer, to obtain the consent of holders
at least a majority in principal amount of the outstanding notes to
certain amendments to the covenants of FirstCom relating to the notes.
AT&T Latin America intends to finance the tender through the issuance to
AT&T Corp. of non-voting, non-convertible and non-participating 15%
Series B preferred stock of AT&T Latin America. The 14% senior notes have
a face value of $150 million and are currently recorded on FirstCom's
balance sheet at $133,438,000.
The merger will be accounted for using the purchase method of accounting in
accordance with the guidelines required by GAAP. The fair values of the assets
and liabilities of FirstCom to be acquired are assumed to equal their historical
carrying values, except for property, plant and equipment and identifiable
intangible assets for which estimates of fair value have been separately
reflected, with all excess of such acquisition costs being attributable to
goodwill. Goodwill is amortized in the pro forma combined financial information
on a straight-line basis over a 20-year period.
A final determination of required purchase accounting adjustments will be
made upon the completion of a study undertaken by AT&T Latin America to
determine the fair value of the net assets acquired. Therefore, the actual
allocation to our assets for goodwill may be adjusted.
The pro forma adjustments do not reflect any operating efficiencies, cost
savings or other synergies that may be achieved with respect to the combined
company.
The unaudited pro forma combined financial information does not purport to
present the results of operations of AT&T Latin America had the merger occurred
on the date, or at the beginning of the periods, for which the merger is being
given pro forma effect. Nor is the unaudited pro forma combined financial
information necessarily indicative of the results of operations that may be
achieved in the future. Assuming completion of the merger, the actual financial
position and results of operations of AT&T Latin America will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, changes in value not
currently identified and changes in operating results between the dates of the
pro forma financial information and the date on which the merger took place.
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<PAGE> 78
The unaudited pro forma combined financial information should be read in
conjunction with the accompanying notes, with the historical financial
statements of AT&T Latin America and Netstream and the notes thereto included in
this proxy statement/prospectus and with the historical financial statements of
FirstCom that are incorporated by reference in this proxy statement/prospectus.
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<PAGE> 79
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T LATIN AMERICA CORP.
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT&T LATIN
AT&T LATIN PRO AMERICA
AMERICA FIRSTCOM FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................... $ 279 26,891 $ 20,000D $ 47,170
Restricted cash............................................. -- 105 105
Restricted investments...................................... -- 20,713 (9,500)E 11,213
Accounts receivable, net.................................... 3,606 12,030 15,636
Short-term investments...................................... 30,636 30,636
Prepaid expenses and other current assets................... 3,902 3,196 7,098
-------- -------- ----------
Total current assets................................ 38,423 62,935 111,858
Property, plant and equipment, net.......................... 86,051 99,143 (19,943)F 165,251
Goodwill and other intangible assets, net................... 259,764 17,286 7,114F 768,138
483,974F
Deferred financing costs and other.......................... -- 14,131 (13,521)E 610
-------- -------- ----------
Total assets........................................ $384,238 193,495 $1,045,857
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable............................................ $ 7,281 13,520 $ $ 20,801
Vendor financing, current................................... -- 1,340 1,340
Short-term debt............................................. 3,184 4,488 7,672
Accrued interest............................................ -- 8,954 (8,954)E --
Other accrued expenses...................................... 1,600 1,600
Deferred income taxes....................................... 302 302
Lease obligations, current.................................. 340 51 391
Other current liabilities................................... 9,598 2,600 12,198
-------- -------- ----------
Total current liabilities........................... 20,403 32,855 44,304
Senior notes, net........................................... -- 133,438 (133,438)E --
Vendor financing............................................ -- 5,451 5,451
Lease obligations, less current portion..................... 411 146 557
Deferred income taxes....................................... 1,624 2,134 3,758
Other liabilities........................................... -- 1,349 1,349
-------- -------- ----------
Total liabilities................................... 22,438 175,373 55,419
-------- -------- ----------
Minority interest........................................... -- 3,033 3,033
Commitments and contingencies............................... -- -- --
Redeemable Series A Preferred Stock......................... 12,123 (12,123)F --
Redeemable Series B Preferred Stock......................... 172,500E 206,900
34,400E
Stockholders' equity:
Common stock................................................ 30 (30)F 1,135
1,135F
Additional paid in capital.................................. 376,566 89,852 (89,852)F 756,904
20,000D
394,738F
(34,400)E
Warrants.................................................... -- 26,737 (26,737)F 90,361
90,361F
Accumulated deficit......................................... (15,341) (113,415) 113,415F (68,470)
(53,129)E
Cumulative translation adjustments.......................... 575 (238) 238F 575
-------- -------- ----------
Total stockholders' equity.......................... 361,800 2,966 780,505
-------- -------- ----------
Total liabilities and stockholders' equity.......... $384,238 $193,495 $1,045,857
======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
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<PAGE> 80
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T LATIN AMERICA CORP.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------
AT&T AT&T
LATIN AT&T LATIN
AMERICA NETSTREAM LATIN FIRSTCOM AMERICA
HISTORICAL HISTORICAL AMERICA HISTORICAL PRO FORMA PRO FORMA
(A) (C) ADJUSTMENTS (PRO FORMA) (B) ADJUSTMENTS COMBINED
------------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues:...... $ 802 $ 1,191 $ 1,993 $ 38,356 $ 40,349
Operating Expenses:
Cost of revenues..... 865 5,176 6,041 22,005 28,046
Selling, general and
administrative..... 2,164 7,010 9,174 25,698 1,000H 35,872
Non-cash compensation
and consulting
expenses........... -- 353 353
Depreciation and
amortization....... 1,707 2,838 18,746G 23,291 10,211 29,199I 61,805
(896)I
Merger Expense....... -- -- 1,008 1,008
------------- ----------- --------- ----------- -------------
Loss from
operations......... (3,934) (13,833) (36,513) (20,919) (86,734)
Other expense
(income), net...... 190 258 448 20,350 (22,544)E (1,746)
------------- ----------- --------- ----------- -------------
Net loss before
income taxes and
minority
interest........... (4,124) (14,091) (36,961) (41,269) (84,989)
Income Taxes......... -- -- 170 170
------------- ----------- --------- ----------- -------------
Net Loss Before
Minority Interest.. (4,124) (14,091) (36,961) (41,439) (85,159)
=============
Minority Interest
Expense............ -- -- -- 33 33
------------- ----------- --------- ----------- -------------
Net Loss............. $ (4,124) $ (14,091) $ (36,961) $ (41,472) $ (85,192)
============= =========== ========= =========== =============
Redeemable preferred
stock dividends.... 26,900E 26,900
-------------
Net loss attributable
to common
stockholders....... (112,092)
=============
Net basic and diluted
loss per common
share.............. $ (103.10) $ (1.19) $ (924.03) $ (1.94)J $ (0.99)
============= =========== ========= =========== =============
Weighted average
common shares
outstanding........ 40,000 11,840,141 40,000 21,354,012K 113,469,672
------------- ----------- --------- ----------- -------------
</TABLE>
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T LATIN AMERICA CORP.
PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------
AT&T
LATIN AT&T
AMERICA FIRSTCOM LATIN
HISTORICAL HISTORICAL AMERICA
(UNAUDITED) (UNAUDITED) PRO FORMA PRO FORMA
(A) (B) ADJUSTMENTS COMBINED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:............................................. $ 4,364 $ 11,750 $ $ 16,114
Operating Expenses:
Cost of revenues............................................ 6,921 5,309 12,230
Selling, general and administrative......................... 4,232 10,056 250H 14,538
Non-cash compensation and consulting expenses............... 57 57
Depreciation and amortization............................... 6,160 2,936 7,300I 16,133
(263)I
Merger Expense.............................................. 6,137 6,137
------------- ----------- ------- ---------
Loss from operations........................................ (12,949) (12,745) (32,981)
Other expense (income), net................................. (1,732) 5,192 (5,685)E (2,225)
------------- ----------- ------- ---------
Net loss before income taxes and minority interest.......... (11,217) (17,937) (30,756)
Income Taxes................................................ 17 17
------------- ----------- ------- ---------
Net Loss Before Minority Interest........................... (11,217) (17,954) (30,773)
=========
Minority Interest Expense
------------- ----------- ------- ---------
Net Loss.................................................... $ (11,217) $ (17,954) $ (30,773)
============= =========== ======= =========
Redeemable preferred stock dividends........................ 7,500E 7,500
------------- ----------- ------- ---------
Net loss attributable to common stockholders................ (38,273)
============= =========== ======= =========
Net basic and diluted loss per common share................. $ (280.43) $ (0.61) $ (0.34)
============= =========== ======= =========
Weighted average common shares outstanding.................. 40,000 29,660,707 113,469,672
------------- ----------- ------- ---------
</TABLE>
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AT&T LATIN AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(A) AT&T Latin America's historical financial statements as of and for the
three-month period ended March 31, 2000 have been derived from its unaudited
interim consolidated financial statements. The historical statement of
operations for the period from inception (October 13, 1999) through December 31,
1999 has been derived from its audited consolidated financial statements.
(B) FirstCom's historical financial statements as of and for the
three-month period ended March 31, 2000 have been derived from a previously
filed Form 10-Q (incorporated by reference). The historical statement of
operations for the year ended December 31, 1999 has been derived from a
previously filed Form 10-K, as amended (incorporated by reference).
(C) Netstream's historical financial statement as of and for the period
from January 1 through December 7, 1999 has been derived from its books and
records.
(D) Cash and cash equivalents:
A condition to the merger requires that AT&T Latin America have received a
total of $70 million in cash equity contributions from its shareholders.
Accordingly, in connection with the Netstream acquisition, in December 1999 an
affiliate of AT&T Corp. contributed $10,000 and an affiliate of Promon
contributed $40,000 of equity capital to AT&T Latin America. During June 2000,
AT&T Corp. and an affiliate of Promon contributed another $20,000 of cash to the
capital of AT&T Latin America in proportion to their respective ownership
percentages in AT&T Latin America.
(E) Senior notes, net:
As permitted under the merger agreement, AT&T Latin America is requiring
FirstCom to make a tender offer and consent solicitation related to the 14%
senior notes due 2007. The notes have a face value of $150,000.
The tender offer would have an impact on several historical FirstCom
amounts currently recorded on its balance sheet, including the payment of the
notes of $133,438, the elimination of accrued interest of $8,954, the expense of
the related deferred financing costs of $13,521 and the use of the remaining
restricted cash balance utilized for interest payments on the notes of $9,500.
AT&T Latin America intends to finance the tender offer through the issuance to a
subsidiary of AT&T Corp. of non-voting, non-convertible and non-participating
15% Series B preferred stock of AT&T Latin America. The proceeds of the issuance
of the Series B preferred stock would be used to complete the tender offer for
the notes. The value of the Series B preferred stock has been estimated at
$172,500, based on the tender of 100% of the notes in the tender offer at a
premium. Based on the current estimated amounts, AT&T Latin America would incur
a loss related to the repayment of the notes of $53,129, which amount has been
reflected as an increase to accumulated deficit as of March 31, 2000.
The amount of the preferred stock actually issued may vary from $172,500,
depending on, among other things:
- the principal amount of the notes received in the tender offer;
- the amount of any tender premium for the notes;
- the balance of restricted cash held by FirstCom as of the completion of
the tender offer and the amount of interest accrued at that time with
respect to the tendered notes; and
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<PAGE> 83
- the amount of costs and expenses of AT&T Latin America relating to the
tender offer.
Dividends have been calculated based on the assumption that they will be
accrued throughout the year at 15% of the total face amount of the Series B
preferred stock resulting in approximately $26,900 and $7,500 for the year ended
December 31, 1999 and for the three-month period ended March 31, 2000,
respectively. These amounts have been recorded as a reduction of additional
paid-in-capital.
Additionally, an adjustment has been made to reflect the elimination of the
historical FirstCom interest expense relating to the notes of $22,544 and $5,685
currently recorded in the statements of operations for the year ended December
31, 1999 and for the three-month period ended March 31, 2000, respectively.
(F) Equity and intangible assets:
In connection with recording the merger, the following information outlines
the recording of intangible assets, including goodwill, for the merger, the
elimination of equity of FirstCom, and the issuance of AT&T Latin America
shares:
Intangible assets
The following discussion represents a preliminary estimate of the
calculation of goodwill as required by U.S. GAAP. The actual goodwill recorded
in the financial statements of AT&T Latin America may vary from the amounts
presented in this unaudited pro forma combined financial information pending the
results of the study currently under way.
AT&T Latin America has tentatively considered the carrying value of the
acquired net assets to approximate fair value, except for property, plant and
equipment and identified intangible assets for which estimates of fair value
have been separately reflected, with all excess of such acquisition costs being
attributable to goodwill. AT&T Latin America is in the process of fully
evaluating the assets acquired and, as a result, the purchase price allocation
among tangible and intangible (and their related useful lives) assets acquired
may change. Goodwill associated with the transaction will be amortized over a
20-year life.
The following discussion assumes that the shareholders' equity of FirstCom
consisted of its outstanding shares, options and warrants as of March 31, 2000,
except that the number of shares of Series A convertible preferred stock of
FirstCom is assumed to reflect accrual of paid-in-kind share dividends through
June 30, 2000.
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To record preliminary goodwill related to the FirstCom transaction as
follows:
<TABLE>
<S> <C>
Fair value of AT&T Latin America Class A common and
preferred shares issued in the merger..................... $ 388,073(i)
Fair value of AT&T Latin America options and warrants issued
in the merger............................................. 90,361(ii)
Estimated transaction costs................................. 7,800(iii)
---------
Total estimated cost of acquisition............... $ 486,234
Less net assets value of FirstCom:
FirstCom property, plant and equipment............ 79,200(iv)
FirstCom intangible assets........................ 24,400
Historical FirstCom remaining net assets.......... (101,340)(vi)
---------
Preliminary goodwill.............................. $ 483,974(vii)
</TABLE>
---------------
(i) As of March 31, 2000, AT&T Latin America would have issued 30,890,528
shares of its Class A common stock and 1,448,885 shares of its Series A
preferred stock (assuming accrual of share dividends through June 30, 2000) at a
1:1 ratio for each share of FirstCom common stock and Series A convertible
preferred stock outstanding and assuming a market price of AT&T Latin America
shares of $12.00 per share. The estimated value of the stock issued by AT&T
Latin America was determined by obtaining the average market price of the
FirstCom securities for a period from three days prior to and three days
subsequent to November 1, 1999, the date of the announcement of the merger.
(ii) Also as of March 31, 2000, AT&T Latin America would have issued
options and warrants to acquire approximately 10,016,269 shares of its Class A
common stock. The options and warrants to purchase shares of Class A common
stock will be at an exercise or purchase price per share equal to the exercise
or purchase price per share in effect under the FirstCom options or warrants.
The fair value, using the Black Scholes model, of these options and warrants is
$90,361.
(iii) AT&T Corp. will incur estimated transaction costs of $7,800 relating
to the merger of AT&T Latin America with FirstCom. Accordingly, the $7,800 has
been reflected as an additional equity contribution by AT&T Corp. AT&T Latin
America will not be responsible for these transaction costs, because, as
provided in the merger agreement, any such costs incurred by AT&T Latin America
will be reimbursed by AT&T Corp.
(iv) AT&T Latin America has estimated the fair value of the fixed assets to
be acquired. AT&T Latin America is finalizing its study of the FirstCom assets
and liabilities acquired and as such, this estimate is subject to change.
(v) AT&T Latin America has preliminarily identified software and workforce
in place as intangible assets related to the merger. For purposes of estimating
the amortization expense related to these intangibles, AT&T Latin America has
assumed a five year and three year amortization period for the software and
workforce in place, respectively.
(vi) Represents all assets other than property, plant and equipment and
intangible assets less total liabilities and minority interest.
(vii) AT&T Latin America has tentatively considered the carrying value of
the acquired net assets to approximate fair value, except for property, plant
and equipment and identifiable intangible assets for which estimates of fair
value have been separately reflected, with all excess of such acquisition costs
being attributable to goodwill. AT&T Latin America is in the process of fully
evaluating the assets acquired and, as a result, the purchase price allocation
among tangible and intangible (and their related useful lives) assets acquired
may change. Goodwill associated with the transaction will be amortized over a
20-year life.
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<PAGE> 85
Stockholders' equity elimination:
Once the merger is completed, the equity on FirstCom's books will be
eliminated. As such, this part of the entry reflects the elimination of FirstCom
historical stockholders' equity accounts in connection with the merger.
Issuance of AT&T Latin America shares:
This part of the entry reflects the issuance of AT&T Latin America common
stock and preferred stock as of the completion of the merger.
At March 31, 2000, the capital of AT&T Latin America was represented by
40,000 issued and outstanding shares of common stock. Of these shares, 36,000
were Class B shares owned by an affiliate of AT&T Corp., and 4,000 were Class A
shares owned by an affiliate of Promon. During June 2000, AT&T Latin America
reclassified its share capital in order to accommodate the issuance to FirstCom
shareholders of one Class A share of AT&T Latin America common stock for each
outstanding share of FirstCom common stock. AT&T Latin America will have, as of,
without giving effect to, the merger, the following number of shares
outstanding, which is the maximum number permitted by the merger agreement:
(i) 80,848,204 common shares, plus
(ii) an additional number of common shares equal to 2.077 times the number
of paid-in-kind share dividends accrued with respect to the Series A convertible
preferred stock of FirstCom from November 1, 1999 up to the closing date of the
merger (which additional number would be 282,054 common shares as of June 30,
2000, or 2.077 times the accrued 135,799 of share dividends over that period);
plus
(iii) 1,178,689 common shares that were issued to the selling stockholders
of Keytech LD in June 2000.
It is not possible to fix presently the number of outstanding shares of
AT&T Latin America as of the closing of the merger because, as discussed above,
that number will be affected by the number of common shares issued to affiliates
of AT&T Corp. and Promon to compensate for accrual of the share dividends on the
Series A convertible preferred stock of FirstCom. However, if the closing of the
merger had occurred on June 30, 2000, the capital of AT&T Latin America would
have consisted of up to 124,190,940 shares, on a fully-diluted basis, excluding
any shares of non-voting, non-convertible and non-participating preferred stock
issued to AT&T Corp. to finance a tender offer for the FirstCom notes. Those
fully-diluted shares would have been distributed as follows immediately after
the merger:
(a) 81,130,258 common shares of AT&T Latin America would have been owned
directly or indirectly by affiliates of AT&T Corp. and Promon. 1,178,689 common
shares would have been owned by the selling stockholders of Keytech LD;
(b) 40,906,797 common shares of AT&T Latin America would have been owned by
the former common shareholders of FirstCom or would have been reserved for
issuance upon exercise of options and warrants to acquire shares of FirstCom. As
of March 31, 2000, this number included 30,890,528 outstanding common shares of
FirstCom and 10,016,269 outstanding options and warrants to acquire common
shares of FirstCom. From November 1, 1999, the date of the merger agreement and
the announcement of the merger, through March 31, 2000, 6,516,002 options or
warrants were exercised, 25,000 options were cancelled and FirstCom granted
220,000 new options to its employees;
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<PAGE> 86
(c) up to 705,000 common shares of AT&T Latin America would have been
reserved for issuance upon exercise of options granted by FirstCom and AT&T
Latin America between March 31, 2000 and the date of the merger; and
(d) 1,448,885 Series A convertible preferred shares of AT&T Latin America
would have been owned by former holders of the Series A convertible preferred
stock of FirstCom.
The number of shares outstanding under items (a) and (d) above will be
slightly higher since the merger will be completed after June 30, 2000.
Common stock at par value was calculated as the total number of outstanding
shares of 113,469,672 as of March 31, 2000 multiplied by the par value of $0.01
per share.
On June 30, 1999, FirstCom issued 1,250,000 shares of 15% Series A
convertible preferred stock for an aggregate principal amount of $10,000. The
Series A convertible preferred stock is convertible at any time by the holders
into FirstCom common stock on a one-for-one basis, subject to adjustment to
reflect the accretion of the 15% paid-in-kind dividend. On November 1, 1999, the
Series A convertible preferred stock was convertible into 1,313,086 shares of
FirstCom common stock. In the merger, the Series A convertible preferred stock
will be exchanged for AT&T Latin America preferred stock having substantially
the same terms and conditions as the Series A convertible preferred stock. For
purposes of the pro forma adjustments, AT&T Latin America and FirstCom assumed
the conversion of Series A convertible preferred stock into 1,448,885 Series A
common shares, reflecting the accretion of the paid-in-kind dividend through
June 30, 2000.
(G) Netstream amortization:
To record the additional amortization expense for the Netstream related
goodwill and other intangibles as though the companies had been combined at the
beginning of the period. The preliminary goodwill recorded was $277,600. The
other intangibles recorded were $4,700. Goodwill is amortized on a straight-line
basis over 20 years, and the other intangibles are amortized on a straight-line
basis over 3 years.
(H) Employment contract:
Patricio E. Northland, FirstCom's chairman of the board and chief executive
officer, has executed a five-year employment agreement with AT&T Latin America
that will become effective upon completion of the merger. The employment
agreement includes a retention bonus of six $500 payments payable on each
six-month anniversary of the closing date up to the third anniversary.
Accordingly, $1,000 of compensation expense has been reflected for the year
ended December 31, 1999 and $250 for the three-month period ended March 31,
2000.
(I) Depreciation & amortization:
The estimated goodwill amortization expense arising from the merger is
based on the straight-line method over a 20-year life. The adjustments of
$24,199 and $6,050 are calculated as total preliminary goodwill for FirstCom
divided by the 20-year estimated life for the year ended December 31, 1999 and
for the three-month period ended March 31, 2000, respectively. Additionally, the
adjustment for the amortization of the intangible assets of approximately $5,000
and $1,250 for the year ended December 31, 1999 and for the three months ended
March 31, 2000, respectively, was calculated based on the estimated lives of
three to five years. An adjustment has been made to reflect the decrease of the
historical FirstCom goodwill amortization in the statement of operations of
approximately $896 for the year ended December 31, 1999 and $263 for the
three-month period
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<PAGE> 87
ended March 31, 2000, respectively. The depreciation and amortization expense
represents a preliminary estimate of the calculation of goodwill as required by
U.S. GAAP. The actual goodwill recorded in the financial statements of AT&T
Latin America may vary significantly from the amounts presented in this
unaudited pro forma combined financial information pending the results of the
study now underway.
(J) Net basic and diluted loss per share:
The computation of net basic loss per share of common stock is computed by
dividing net loss for the year by the weighted average number of common shares
outstanding during the year. The weighted average number of shares outstanding
for the year ended December 31, 1999 and for the three-month period ended March
31, 2000 excludes 10,016,269 outstanding stock options and warrants and
1,448,885 shares of Series A convertible preferred stock that are anti-dilutive.
(K) Weighted average common shares outstanding:
Adjustment to number of AT&T Latin America shares that would have been
outstanding had the transactions occurred at the earliest date presented. This
calculation is based on the following assumption of the number of common shares
outstanding of AT&T Latin America, which reflects the outstanding shares of
FirstCom as of March 31, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SHAREHOLDER OUTSTANDING CLASS OF COMMON SHARE
----------- ---------------- ---------------------
<S> <C> <C>
FirstCom shareholders.......................... 32,339,413 Class A common shares
Affiliate of Promon............................ 8,113,026 Class A common shares
Affiliate of AT&T Corp......................... 73,017,233 Class B common shares
Total................................ 113,469,672
===========
</TABLE>
In addition, an additional 1,178,689 common shares outstanding are owned by
the selling stockholders of Keytech as a result of the Keytech acquisition which
occurred in June 2000.
The number of common shares listed above assumes that no holder of Series A
convertible preferred shares converts its shares into common shares.
FirstCom and AT&T Latin America have been in discussions with the holders
of the FirstCom Series A convertible preferred shares regarding the possible
conversion of these preferred shares into FirstCom common shares shortly before
the merger. Those discussions contemplate that, in connection with this
conversion, FirstCom will accelerate all future paid-in-kind dividends on these
preferred shares. Assuming this acceleration occurs, the holders of the
preferred shares would receive 1,666,667 shares of AT&T Latin America Class A
common stock in the merger.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF AT&T LATIN AMERICA
COMPANY OVERVIEW.
AT&T Corp. created AT&T Latin America in October 1999 to be a leading
provider of broadband communications services to business customers in AT&T
Latin America's region. AT&T Latin America's focus is on providing high-capacity
and value-added data, Internet, voice, video conferencing and electronic
commerce services to business customers.
AT&T Latin America currently conducts substantially all of its business
activities through its subsidiary, Netstream, which it acquired in December
1999. Except for $70 million cash proceeds that AT&T Latin America received in
December 1999 and June 2000 as capital contributions from its shareholders and a
substantial amount of goodwill arising from the acquisition of Netstream, the
assets and liabilities of Netstream currently constitute substantially all of
the assets of AT&T Latin America on a consolidated basis. On June 30, 2000, AT&T
Latin America acquired Keytech LD, a development stage broadband communications
company in Argentina, which does not yet have material operations.
Throughout 1998 and until its acquisition by AT&T Latin America in December
1999, Netstream was operated as a part of Promon. The historical financial
information of Netstream presented in this proxy statement/prospectus reflects
periods during which it did not operate independently of Promon. Therefore, this
financial information may not necessarily reflect the results of operations or
the financial condition of Netstream which would have resulted had it been an
independent company during the reporting periods presented.
The countries in which AT&T Latin America may operate include the countries
in South America and the Caribbean, plus Panama, but excluding Venezuela and
Cuba. AT&T Latin America currently operates only in Brazil, through Netstream,
and in a limited manner in Argentina, through Keytech LD.
Netstream began construction of its first network located in Rio de Janeiro
in August 1998 and began commercial operations in Rio de Janeiro in November
1998. Also in November 1998, Netstream began construction of its network in Sao
Paulo. It began construction of its network in Belo Horizonte in March 1999 and
of its network in Barueri/Alphaville, an industrial suburb of Sao Paulo, in
December of 1999.
The revenues from services provided over AT&T Latin America's networks have
not been material. It expects that the operating and net losses and negative
cash flows from its business will increase in the near future as it expands and
develops its networks and customer base. The more rapidly AT&T Latin America
expands its communications business, the greater its near term operating losses
and capital expenditures will be. There can be no assurance that AT&T Latin
America will achieve or sustain profitability or positive cash flows from
operating activities in the future as it develops its communications networks.
INFLATION AND EXCHANGE RATES. Inflation and exchange rate variations may
have substantial effects on AT&T Latin America's results of operations and
financial condition. Generally, the effects of inflation in many Latin American
countries, including Chile, Peru and Colombia, have been offset in part by a
devaluation of the local countries' currencies relative to the U.S. dollar.
Nevertheless, the devaluation of each country's currency may have an adverse
effect on its business, results of operations and financial condition.
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To date, AT&T Latin America has not had significant foreign currency
exposure with third parties. Except for Brazil, which restricts the use of
commercial contracts denominated in foreign currency or indexed to the value of
foreign currency, AT&T Latin America generally intends to be paid for its
services in U.S. dollars or in local currencies with a pricing adjustment that
is structured to protect it against the risk of fluctuations in exchange rates.
AT&T Latin America's customer contracts in Brazil generally provide for payment
in local currency and are generally indexed to various Brazilian inflation
indicators.
AT&T Latin America has not entered into foreign currency hedging
transactions. In the future, if third party foreign currency exposure increases,
it may enter into hedging transactions in order to mitigate any related
financial exposure. However, a portion of its sales to customers will be
denominated in local currencies, and substantial or continued devaluation in
such currencies relative to the U.S. dollar could have a negative effect on the
ability of its customers to absorb the costs of devaluation. This could result
in its customers seeking to renegotiate their contracts with AT&T Latin America
or, failing satisfactory renegotiation, defaulting on these contracts.
From time to time, Latin American countries have experienced shortages in
foreign currency reserves and imposed restrictions on expatriation of local
earnings and conversion of local currencies into U.S. dollars. Also, currency
devaluations in one country may have adverse effects in another country, as in
late 1994 and 1995, when several Latin American countries were adversely
impacted by the devaluation of the Mexican peso. Any devaluation of local
currencies in the country where AT&T Latin America operates, or restrictions on
the expatriation of earnings or capital from such countries, could have a
material adverse effect on its business, results of operations and financial
condition.
RESULTS OF OPERATIONS -- AT&T LATIN AMERICA (AMOUNTS IN THOUSANDS OF U.S.
DOLLARS).
NET REVENUES. On a pro forma basis, assuming the acquisition of Netstream
had occurred on January 1, 1999, net revenues for 1999 were $1,993. Netstream
did not recognize any revenues for the eleven months ended December 31, 1998.
Revenue in 1999 was derived primarily from the provision of data and Internet
services in Sao Paulo and Rio de Janeiro. Net revenues of AT&T Latin America
were $802 for its two and one half months of operations in 1999. AT&T Latin
America expects to have increased revenues in 2000 as it adds customers and
delivers more services over its network, and because 2000 will have a full year
of operations that includes revenues from FirstCom's operations following the
merger. For the first three months of 2000, AT&T Latin America's revenues
increased to $4,364, reflecting the signing of new customers.
AT&T Latin America believes that Internet and data services will account
for over 60% of its revenue in 2000, after giving effect to the FirstCom merger
on a pro forma basis as if it occurred on January 1, 2000. This percentage may
decrease thereafter as it initiates voice services in Brazil and Argentina.
However, AT&T Latin America contemplates that over the long term a majority of
its revenues will continue to come from Internet and data services.
Assuming completion of the merger and the Keytech acquisition, AT&T Latin
America believes that Brazil will account for approximately 25% of its revenues
for 2000 with the balance of its revenues coming from former FirstCom operations
in Chile, Peru and Colombia. AT&T Latin America does not expect to have material
revenues from Argentina during 2000 due to its start up nature.
AT&T Latin America also believes that growth in its revenue in the short
and medium term will be relatively greater, in percentage terms, in Brazil and
Argentina, than revenue growth in Chile,
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Colombia and Peru. AT&T Latin America believes that these differences in
percentage growth rates will be due principally to the following factors:
- the operations of AT&T Latin America in Brazil and Argentina are at an
earlier stage of development than FirstCom's operations, and therefore
will build upon a relatively lower initial revenue base in what are the
two largest markets in which it will have operations; and
- the fact that AT&T Latin America's metropolitan networks are in the
development stage in Brazil and Argentina and do not yet generate
material revenues from customers.
COST OF REVENUES. Cost of revenues was $6,041 on a pro forma basis. In
1998, Netstream had no operations and did not recognize any costs of revenue.
Cost of revenues consists of leased line costs, maintenance costs and network
and operating systems costs (including labor). AT&T Latin America expects that,
until utilization of existing and planned facilities increases, costs of
revenues will increase both in absolute terms and as a percentage of revenue as
service is provided in additional cities. During the first quarter of 2000, AT&T
Latin America's cost of revenues was $6,921.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $9,174 in 1999 on a pro forma basis. In 1998, Netstream's selling,
general and administrative expenses were $3,848. Netstream had these costs in
1998, notwithstanding the lack of revenues during that year, because it was
engaged in activities to prepare for the launch of operations. Selling, general
and administrative expenses are comprised primarily of marketing, sales
commissions, office space (including rent and lease expenses) and indirect labor
expenses. During the first quarter of 2000, AT&T Latin America's selling,
general and administrative expenses were $4,232.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1,707 in
1999 and $23,291 on a pro forma basis, including an estimate of the calculation
of goodwill as required by U.S. GAAP. In 1998, Netstream did not recognize any
depreciation and amortization expense because it had not started operations.
AT&T Latin America expects that depreciation and amortization will increase
significantly in 2000 and upcoming periods as it continues to invest in the
growth and installation of its networks. During the first quarter of 2000,
depreciation and amortization reached $6,160.
INTEREST EXPENSE. AT&T Latin America did not have any interest expense in
1999. On a pro forma basis, AT&T Latin America also did not have material
interest expense in 1999, because Netstream's debt to Promon, indicated in the
Netstream historical financial information, was eliminated in the acquisition of
Netstream. Interest expense consists of capital lease expense. AT&T Latin
America did not show material interest expense in the first quarter of 2000. It
expects that interest expense will increase significantly during 2000 and future
periods as it obtains debt financing from AT&T Corp., from equipment vendors and
perhaps from the capital markets to expand its business. See -- "Liquidity and
Capital Resources -- AT&T Latin America."
NET LOSS. Net loss was $36,961 on a pro forma basis as expenses related to
the development of AT&T Latin America's networks exceeded revenues. For the
eleven months ended December 31, 1998, Netstream had a net loss of $3,442. AT&T
Latin America's actual net loss for 1999 was $4,124. During 1999, the increase
in net loss compared to 1998 was due to the fact that the buildup of revenues
did not offset to a significant degree higher depreciation and amortization
expenses during 1999. This trend continued in the first quarter of 2000, in
which AT&T Latin America recorded a net loss of $11,217.
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LIQUIDITY AND CAPITAL RESOURCES - AT&T LATIN AMERICA.
FirstCom and Netstream have had significant operating losses and negative
cash flow from their respective operations since their inception. AT&T Latin
America expects to incur significant operating losses and have negative cash
flow from operations for the next several years as it expands its existing
communications networks and develops new networks and services. It will,
therefore, need to engage in substantial capital-raising activities.
AT&T Latin America estimates that it will have cash requirements of
approximately $725 million during 2000 and the first half of 2001. AT&T Latin
America and FirstCom had spent an aggregate of $40 million of that amount
through March 31, 2000. It expects to use the remaining amount to develop and
expand its communications networks and services and fund working capital needs,
operating losses and debt service obligations. AT&T Latin America expects that
its funding needs to implement its growth strategy will continue at a somewhat
higher level from mid-2001 through the end of 2002. As of March 31, 2000, AT&T
Latin America had not made any contractual commitments for capital expenditures
and had approximately $1.7 million in debt service obligations (including
obligations under capital leases) for the remainder of 2000 for debt outstanding
at that date. AT&T Latin America expects that capital expenditures and debt
service obligations will increase in the future in connection with the cash
requirements described above.
To fund its cash requirements, AT&T Latin America needs to raise funds in
addition to cash on hand, amounts available under the credit facility provided
by AT&T Corp. and committed vendor financing. AT&T Latin America expects to
raise the additional amounts needed principally through new vendor financing and
an equity offering. Subject to prevailing market conditions, AT&T Latin America
expects to make a substantial equity offering shortly after the merger. It may
also issue debt at some point after the merger, depending on prevailing market
conditions. AT&T Latin America is not sure it will be able to raise sufficient
funds on acceptable terms or at all. Inability to raise sufficient funds could
affect its ability to meet its debt service and other obligations and would
affect its ability to carry out its growth strategy. If AT&T Latin America does
not obtain additional financing by the end of the third quarter of 2000, it will
have to postpone most of its capital expenditures until financing is obtained.
This would detract from its time to market and its ability to pursue its growth
strategy.
AT&T Latin America's cash needs in the next several years will be affected
by several factors. Among them are:
- the amount of cash generated by its business operations;
- whether it changes its plans for building and expanding its networks; and
- whether it uses cash, issues common stock or increases its debt to
complete acquisitions and ventures, such as the possible collaboration
with AT&T Global Network Services, beyond those currently anticipated.
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The following chart summarizes AT&T Latin America's and FirstCom's sources
of funds that were in place or committed to as of March 31, 2000:
<TABLE>
<CAPTION>
(US$000)
ENTITY AMOUNT
------ --------
<S> <C> <C>
Cash and short-term investments at March 31, 2000........... AT&T Latin America $ 30,915
Cash (including restricted cash) at March 31, 2000.......... FirstCom 26,996
Cash contribution from AT&T Corp. and SL Participacoes
(1)....................................................... AT&T Latin America 20,000
Credit Facility from subsidiary of AT&T Corp. (2)........... AT&T Latin America 100,000
Equipment financing facilities (3).......................... FirstCom 32,700
Bank credit facility (4).................................... FirstCom 6,700
Working capital revolving credit facility (5)............... FirstCom 1,400
--------
Total............................................. $218,711
========
</TABLE>
(1) As a condition to the merger, AT&T Latin America must have received a total
of $70 million in cash equity contributions from its shareholders. AT&T
Corp. and SL Participacoes contributed a total of $50 million in December
1999 in connection with the Netstream acquisition. In June 2000, AT&T Corp.
and SL Participacoes contributed an additional $20 million in cash to AT&T
Latin America pro rata in proportion to their respective shareholdings. AT&T
Corp. currently owns 90% of AT&T Latin America and Promon owns 10%.
(2) Under the merger agreement, a subsidiary of AT&T Corp. will provide AT&T
Latin America with a $100 million credit facility at or before the merger
closing. That facility will have a two-year maturity, and will bear interest
at a floating rate per annum based on 90-day LIBOR, plus 3.75%, payable
quarterly.
(3) FirstCom has equipment financing facilities of $29,500 principal amount from
Cisco Systems Capital Corporation and $10,000 principal amount from Nortel
Networks. The purpose of these facilities is to finance the purchase of
network equipment from Cisco and Nortel. As of March 31, 2000, $6,800 had
been used under the Cisco facility and no amount had been used under the
Nortel facility. The purchased equipment is collateral for amounts
outstanding under these facilities. The Cisco facility bears interest at a
rate per annum of LIBOR plus 5.5%, payable quarterly. The Nortel facility
bears interest at a rate per annum of LIBOR plus 4.0%, payable quarterly.
Amounts used under the Cisco and the Nortel facilities are subject to
mandatory prepayment upon a change of control of FirstCom such as the
merger. FirstCom expects that AT&T Latin America will be able either to
negotiate a waiver of these provisions or to replace these facilities with
new facilities after the merger.
(4) Effective February 25, 2000, subsidiaries of FirstCom entered into a
short-term $10 million bank credit facility. The terms of that facility are:
(i) annual interest rate of the 90-day LIBOR plus 6%, or the U.S. prime
rate, plus 5%,
(ii) principal maturity date of January 2, 2001, and
(iii) interest payments on the outstanding principal balance due beginning
April 2000.
The facility is collateralized by certain telecommunications equipment. It
is mandatorily prepayable in the event of a change of control of FirstCom,
such as the merger. As of March 31, 2000, $3,300 had been used under this
facility.
(5) During December 1999, one of FirstCom's Chilean subsidiaries obtained a
$1,400 working capital revolving credit facility from a local bank. No
amount had been used under the facility as of March 31, 2000. This facility
is denominated in UF's, a Chilean inflation-adjusted unit used
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as a reference in financing and commercial transactions in Chile. The
facility bears interest at a per annum rate based on the Chilean bank rate,
plus 4.0%.
As permitted under the merger agreement, AT&T Latin America is requiring
FirstCom to make a tender offer for its outstanding 14% senior notes due 2007.
There is $150,000 in aggregate principal amount of the notes outstanding. As
part of that tender offer, FirstCom will seek the consent of holders at least a
majority in principal amount of the outstanding notes to specified amendments to
the covenants of FirstCom relating to the notes. Receipt of the necessary
consents is a condition to the merger. Under the merger agreement, AT&T Corp.,
either itself or through AT&T Latin America, is obligated to finance the
completion of any tender offer. AT&T Latin America intends to finance the tender
offer by issuing to a wholly-owned subsidiary of AT&T Corp. non-voting, non-
convertible and non-participating 15% Series B preferred stock of AT&T Latin
America. The preferred stock will be redeemable at the option of either the
holder or AT&T Latin America at any time after the fourth anniversary of its
issuance.
In connection with the Keytech acquisition, AT&T Latin America paid $5
million to the selling stockholders and issued to them 1,178,689 shares of Class
A common stock of AT&T Latin America.
Prior to its acquisition by AT&T Latin America, Netstream's debt consisted
of intercompany borrowings from Promon and its affiliates. Those borrowings,
which were $29,400 as of September 30, 1999, increased up to the date of the
acquisition as Promon continued to finance construction of networks and
operating losses. At the closing of the acquisition in early December 1999,
approximately $45,000 of intercompany indebtedness that Netstream owed to Promon
was repaid as a part of the purchase price of Netstream. Netstream no longer has
any outstanding debt to Promon or its affiliates.
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THE COMPANIES
The following is a description of the businesses of AT&T Latin America and
of FirstCom on a combined basis and separately. Additional information regarding
FirstCom is contained in its filings with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934. See "Where You Can Find More
Information" on page 135.
AT&T LATIN AMERICA CORP.
AT&T Corp. created AT&T Latin America Corp. in October 1999 to be a leading
provider of broadband communications services to business customers in the
countries in South America and the Caribbean, plus Panama, but excluding
Venezuela and Cuba. Broadband communications services are communications
services that are delivered over high-speed, high-capacity transmission systems.
AT&T Latin America began operations after its acquisition of Netstream in
December 1999 for $320 million. AT&T Latin America today owns and operates
high-speed fiber optic networks in Sao Paulo, Rio de Janeiro, Belo Horizonte and
Barueri/Alphaville, an industrial suburb of Sao Paulo. Fiber optic networks use
laser-generated light pulses to transmit information in digital format through
cables containing glass fibers. AT&T Latin America continues to expand its
existing networks and has plans to begin building additional networks in the
Brazilian cities of Brasilia, Campinas, Curitiba, Porto Alegre and Salvador
during 2000. Because AT&T Latin America's operations were only recently
developed, they have not yet resulted in material revenues. The Brazilian
communications market is dominated by incumbent providers. In June 2000, AT&T
Latin America also acquired Keytech LD, S.A., a development stage broadband
communications company in Argentina with limited assets that include signal
transmission switching equipment and licenses to provide communications services
in Argentina. Keytech currently serves a small number of customers by reselling
services from other communications providers.
FIRSTCOM CORPORATION
FirstCom provides broadband communications services primarily to business
customers in four major metropolitan business centers: Santiago, Chile;
Lima/Callao, Peru; and Bogota and Cali, Colombia. FirstCom primarily targets
business customers, communications carriers and high volume users. It offers a
wide range of broadband communications services, including data, voice, video,
audio and Internet access. Specific service offerings vary depending on the
concessions FirstCom holds in each particular country, as well as local laws and
regulations and the infrastructure in each country. FirstCom currently operates
its own fiber optic networks in Santiago, Chile, Lima/Callao, Peru, and Bogota
and Cali, Colombia.
THE COMBINED COMPANIES
Following its merger with FirstCom, AT&T Latin America will provide
broadband communications services to major metropolitan business markets in
Argentina, Brazil, Chile, Colombia and Peru, including the following services:
- data;
- Internet;
- voice;
- video conferencing; and
- electronic commerce services.
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AT&T Latin America will focus on marketing its services to:
- multinational corporations;
- financial services companies;
- media and content providers;
- technology companies;
- government entities;
- Internet service providers; and
- communications carriers; and
- concentrations of small and medium size businesses.
AT&T Latin America's networks are interconnected with existing transmission
networks in the countries it is targeting, including public networks that are
generally operated by incumbents.
AT&T Latin America's networks use the asynchronous transfer mode format, a
technology which enables them to accommodate many different information systems
and permits transmission of a mix of voice, data and video. Its networks also
utilize a common Internet protocol-based platform. Internet protocol is an
inter-networking standard that enables communication across the large collection
of networks constituting the Internet, regardless of the hardware or software
used.
Pro forma selected operating statistics of AT&T Latin America as of March
31, 2000, after giving effect to the merger, were as follows:
PRO FORMA SELECTED OPERATING STATISTICS
(AS OF MARCH 31, 2000)
<TABLE>
<S> <C>
Network route kilometers
Metropolitan.............................................. 2,684
Domestic (long-haul)...................................... 0
Total.................................................. 2,684
Total fiber kilometers...................................... 86,436
Number of buildings connected............................... 2,241
Number of voice grade equivalent circuits................... 70,786
Number of permanent virtual circuits sold................... 4,902
Number of employees......................................... 917
</TABLE>
COMPETITIVE STRENGTHS
After the merger AT&T Latin America will have the following competitive
strengths:
TECHNOLOGICALLY ADVANCED NETWORKS. AT&T Latin America believes that it
will have a competitive advantage in attracting its target business customers
because it will own and control technologically advanced networks. These
networks will enable it to offer a wide range of reliable, high quality services
at competitive prices through a single customer connection. They will be able to
carry a variety of data, Internet, voice, video conferencing and electronic
commerce traffic over a secure, common Internet protocol-based platform.
Moreover, unlike incumbent carriers, AT&T Latin America will not have older
network systems designed primarily for voice services.
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AT&T BRAND. AT&T Latin America believes that the AT&T brand represents
high quality, reliable service and good value to customers in its target markets
in Latin America. Offering services under the AT&T brand will be a competitive
advantage in attracting customers.
RELATIONSHIP WITH AT&T CORP. AND CONCERT. AT&T Latin America will benefit
from its relationship with AT&T Corp. and its affiliates, including Concert, the
joint venture between AT&T Corp. and British Telecom. It intends to:
- access AT&T Corp.'s worldwide customer base;
- access Concert's cross-border transport facilities, including undersea
cable systems and satellite capacity, enabling AT&T Latin America to
offer customers the ability to connect to locations outside of its
region; and
- provide its customers with a wide range of services of AT&T Corp., AT&T
Global Network Services and Concert.
AT&T Latin America believes that its unique relationship with AT&T Corp.
will provide an advantage in competing with other providers of communications
services.
LOCAL PRESENCE IN MULTIPLE HIGH-GROWTH LATIN AMERICAN COMMUNICATIONS
MARKETS. AT&T Latin America will operate in most of the major metropolitan areas
in its region where there are concentrations of its target business customers.
Those areas include
- Sao Paulo, Rio de Janeiro and Belo Horizonte, Brazil;
- Santiago, Chile;
- Bogota and Cali, Colombia; and
- Lima, Peru.
AT&T Latin America plans to expand its network coverage to other important
cities in its region. For example, following its acquisition of Keytech LD in
June 2000, it plans to expand into Buenos Aires and other cities in Argentina.
Historically, these markets have depended upon the communications
infrastructure of incumbent operators, which typically does not permit the
transmission of large amounts of data traffic. Recent privatization and the
related breakup of monopolies in many of these markets has resulted in increased
competition for the types of products and services offered by AT&T Latin
America. AT&T Latin America believes that, as an early entrant into the
broadband communications market in Latin America, it will be well positioned to
benefit from the growth it anticipates in the demand for broadband
communications services from business customers.
MANAGEMENT EXPERIENCE. AT&T Latin America will have a strong management
team with significant experience in the communications industry in Latin America
and proven entrepreneurial skills. AT&T Latin America also expects to benefit
from access to technical and business personnel at AT&T Corp. and its affiliates
and members of AT&T Corp.'s management will serve on its board of directors.
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GROWTH STRATEGY
AT&T Latin America's objective is to be a leading provider of broadband
communications services to business customers in major Latin American markets.
To achieve this objective, AT&T Latin America intends to:
- FOCUS ON HIGH-DEMAND BUSINESS CUSTOMERS IN MAJOR LATIN AMERICAN
METROPOLITAN AREAS. AT&T Latin America plans to focus mainly on the needs
of business customers, especially those with high demand for data,
Internet and other broadband communications services. It will primarily
offer its services in major Latin American metropolitan areas with
concentrations of this type of customer. As part of this focus, AT&T
Latin America will continue to deploy its network facilities, construct
new networks and connect additional commercial buildings in these
markets.
- OFFER ADVANCED DATA AND INTERNET SERVICE OFFERINGS THROUGH ITS OWN
NETWORKS AND FACILITIES. AT&T Latin America believes its high speed
networks and advanced Internet protocol-based platform will enable it to
respond to increasing demand from business customers for advanced data,
Internet and electronic commerce services.
- OFFER A PORTFOLIO OF ADVANCED BUSINESS COMMUNICATIONS SERVICES. AT&T
Latin America will offer a flexible and integrated portfolio of data,
Internet, voice, video conferencing and electronic commerce services
through a single connection to the customer. Once it has established an
initial relationship with a customer, it will seek to expand the scope
and range of services it provides to the customer. AT&T Latin America
believes that this will result in increased revenue and enhanced customer
loyalty while using relatively limited additional capital investment per
customer. AT&T Latin America plans to expand its portfolio of value added
services, such as web hosting, managed network and electronic commerce
services. Web hosting involves providing or managing equipment to operate
an Internet web site.
- CAPITALIZE ON RELATIONSHIPS WITH AT&T CORP. AND CONCERT. AT&T Latin
America intends to benefit from AT&T Corp.'s worldwide customer base and
the ability of AT&T Corp. and its affiliates, including Concert, to
connect customers throughout the world. It plans to supply services in
its region to AT&T Corp., Concert and AT&T Global Network Services and
plans to distribute the services of Concert and AT&T Global Network
Services to its own customer base.
- PROVIDE CONSISTENT AND SUPERIOR SERVICE LEVELS. AT&T Latin America will
offer a similar portfolio of AT&T-branded services in each country in its
region. This will allow customers operating in several markets to receive
a consistent level of service and quality. It also plans to deploy an
integrated operations support system and implement a coordinated customer
care system and philosophy across product and country lines. The
operations support system will be designed to link all key functional
areas to enable AT&T Latin America to provide superior customer service.
The key functional areas include provisioning, technical support,
customer care and billing. Sales and customer service personnel will be
able to access the operations support system 24 hours per day, seven days
per week, and will promptly resolve customer related operational, support
or billing issues. AT&T Latin America believes that superior service
quality and customer service can be a significant competitive advantage.
- PURSUE RAPID GROWTH THROUGH NETWORK CONSTRUCTION, AS WELL AS STRATEGIC
ACQUISITIONS AND ALLIANCES. AT&T Latin America plans to invest
substantial amounts of capital to expand its networks and construct
additional networks in its region. This will include expanding its
existing networks in Brazil and constructing new networks in additional
cities in Brazil and in Buenos Aires and other cities in Argentina. After
the merger is completed, AT&T Latin
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America plans to expand FirstCom's existing networks in Chile, Colombia
and Peru. In addition, AT&T Latin America believes that, as in Europe and
the United States, the Latin American communications industry will
experience increased consolidation, with single-market providers
combining or aligning with pan-regional operations. It will pursue
acquisitions and alliances consistent with its growth strategy.
DESCRIPTION OF AT&T LATIN AMERICA
Today, AT&T Latin America's principal assets consist of:
- 100% of the equity interest in Netstream. Netstream is a Brazilian
communications carrier that owns and manages networks in the cities of
Sao Paulo, Rio de Janeiro, Belo Horizonte and in Barueri/Alphaville;
- cash and liquid assets representing the proceeds from $70 million of cash
equity contributions received from its stockholders (affiliates of AT&T
Corp. and Promon) in early December 1999 and June 2000. Some of these
contributions have been, and continue to be, used to finance growth and
operations; and
- AT&T Corp.'s agreement to provide AT&T Latin America with a license under
a service mark license agreement to use the AT&T brand name and logo in
its region.
AT&T Latin America conducts its business operations in Brazil through
Netstream. Netstream was organized in July 1998 by Promon and its affiliates as
a Brazilian limited liability company (sociedade de responsabilidade limitada).
Promon is a leading engineering and construction group based in Brazil, which
has broad experience in Brazil providing integrated engineering solutions and
construction management services to the communications, power, petrochemicals
and manufacturing industries.
AT&T Latin America began construction of its first network located in Rio
de Janeiro in August 1998 and began commercial operations in Rio de Janeiro in
November 1998. Because AT&T Latin America's operations were only recently
developed, they have not yet resulted in material revenues.
In Brazil, AT&T Latin America provides through Netstream the following
broadband services to its customers:
- data;
- voice;
- video conferencing;
- Internet; and
- electronic commerce services.
AT&T Latin America believes that Netstream is positioned to benefit from
current technical, regulatory and market developments in Brazil that have
resulted in increased demand for modern communications services, particularly
among data-intensive business users.
RECENT DEVELOPMENTS. In June 2000, AT&T Latin America acquired all of the
capital stock of Keytech LD in exchange for 1,178,689 shares of AT&T Latin
America Class A common stock, plus $5 million in cash. The parties placed
550,000 of those shares in escrow. The shares will be released to Keytech's
selling stockholders over six years to the extent they are not used to satisfy
indemnity
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obligations of the selling stockholders to AT&T Latin America. AT&T Latin
America will also make up to $1.5 million of contingent purchase price payments
to the selling stockholders in June 2001.
Keytech LD is a development stage company with a limited amount of assets,
consisting mainly of equipment that switches transmission signals. Today, it
serves a small number of customers by reselling the services of other
communications providers. Keytech LD has licenses that authorize or will
authorize by November 8, 2000 it to provide domestic and international long
distance services, local telephone services, value-added services and a range of
data services. Keytech LD also has rights to use 1910-1930 MHz wireless spectrum
for fixed links beginning in November 2000 in nine of Argentina's largest
cities.
The following discussion describes AT&T Latin America's operations in
Brazil.
NETWORKS. AT&T Latin America's broadband communications networks provide
links to customers within a given metropolitan area and the ability to connect
to points outside that area. AT&T Latin America deploys its network facilities
to reach larger office buildings, office parks and other high concentrations of
potential business customers. By doing so, it seeks to use capital efficiently
to reach a maximum number of customers and prospects.
AT&T Latin America plans to construct additional networks in the cities of
Brasilia, Campinas, Curitiba, Porto Alegre and Salvador. AT&T Latin America also
intends to extend its metropolitan networks to reach nearby concentrations of
industrial and multinational corporate customers. It plans to connect its
metropolitan area networks to one another by constructing, purchasing, swapping
or signing long-term leases for fiber optic links.
In each city, AT&T Latin America's broadband communications networks
consist of the following components:
- a network management center, operating on a 24-hour/7-day basis, where
Netstream monitors the functioning of the network and traffic patterns;
- primary, or backbone, rings of minimum 144-strand fiber optic cable, each
connected to the network management center, which extend through the main
areas or avenues served by the network and carry the most traffic;
- numerous secondary rings of 36 or 72-strand fiber optic cable, each
connected to the primary rings, which extend the network along additional
streets and to other locations where the individual buildings served are
located;
- for each building served, an access cable of 2 to 24-strand fiber optic
cable connecting central transmission equipment in the building to the
secondary ring in the street; and
- for each customer in a building, fiber optic, coaxial or copper cable
connecting the building's central transmission equipment unit to one or
more customer units.
AT&T Latin America's metropolitan networks enable it to provide advanced
communications services through a single customer connection. Although the major
Brazilian carriers are installing updated transmission equipment, AT&T Latin
America expects that the networks of those companies, which have traditionally
focused on voice communications, will predominantly consist of earlier-
generation digital and analog transmission equipment for many years.
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AT&T Latin America's networks have the following advantages over older
systems:
- the ability to carry distinct types of traffic (e.g., data, voice, video,
multimedia) over the network using a single transmission system;
- cost efficiency, due to the reduced amount of hardware required to
transmit diverse traffic;
- high-speed routing of traffic through the network, due to fewer capacity
"bottlenecks";
- high network and service reliability through the use of network designs
that allow the automatic re-routing of transmissions in case of problems;
- high degree of control, flexibility and manageability of the networks,
allowing for more sophisticated central management; and
- high levels of transmission quality.
AT&T Latin America's network architecture is compatible with older
transmission standards used in public networks in Brazil. Traffic can be passed
readily between and among its networks, other local private networks and public
national networks. These technological advantages, together with the high
bandwidth of its metropolitan area networks, permit AT&T Latin America to offer
the following service benefits to its customers:
- an integrated package of data, voice, video and audio services, as well
as basic communications and transmission services, from a single
provider;
- high-speed data transmission and, within each metropolitan area, an
ability to increase bandwidth easily;
- an ability to accommodate flexibly the requirements of very large
networks, such as dial-up networks used by Internet service providers and
other complex networks used by financial institutions, multinational
corporations, universities and government entities;
- a high degree of transmission quality, with negligible error rate and
"lost" traffic;
- through sophisticated central network management systems, an ability to
monitor continuously and to optimize a customer's traffic patterns, as
well as to allow the customer to monitor network performance, even across
interconnections with other carriers' networks;
- maximum availability of the customer's internal and external networks and
externally transmitted data -- through design features that allow the
networks to re-route automatically any transmission over the network that
is held up by faulty equipment or line damage; and
- flexibility to upgrade rapidly transmission speed and bandwidth.
AT&T Latin America has arranged to interconnect its networks with those of
Embratel, Telefonica and Telemar. Terminal equipment is located in the premises
of either AT&T Latin America or the other companies. These co-location
arrangements permit AT&T Latin America to satisfy rapidly any customer orders
for services outside its metropolitan area networks.
AT&T Latin America's communications equipment vendors actively participate
in planning and developing electronic equipment for use in its networks. AT&T
Latin America currently obtains asynchronous transfer mode equipment and
Internet protocol-based routers from Cisco, transmission equipment principally
from Nokia and voice switching equipment from Siemens. Asynchronous transfer
mode equipment uses technology that enables it to accommodate many different
information systems and permits transmission of a mix of voice, data and video.
Internet protocol-based routers
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use an inter-networking standard that enables communication across the large
collection of networks constituting the Internet, regardless of the hardware or
software used. AT&T Latin America is in the process of analyzing additional
suppliers in order to diversify its supplier base. Because AT&T Latin America
uses existing communications technology rather than developing new technology,
its research and development expenditures are not material.
SERVICES. AT&T Latin America believes that customers demand high quality,
cost effective communications services with simplified interfaces. It also
believes that larger and more sophisticated customers expect AT&T Latin America
to anticipate their communications requirements and provide customized
solutions. By offering an integrated package of advanced as well as basic
services, AT&T Latin America believes it can access a larger market, improve
customer retention, achieve higher margins and reduce the cost of acquiring new
customers.
AT&T Latin America's integrated portfolio of services in Brazil falls into
several principal categories, which are described below:
- data services;
- Internet and Internet protocol-based services;
- voice services; and
- services to other carriers.
Data Services. AT&T Latin America data's services include basic connection
services, such as point-to-point dedicated private lines, and private multipoint
network services, which consist of offering and managing communications links
among a number of locations, as wide area network services. The basic
infrastructure, plus supporting services (available or being deployed), allows
AT&T Latin America to implement different communications applications to support
a wide range of customers' needs. The networks' high transmission capacity and
reliability allow customers to support additional value-added services, such as
video conferencing.
Internet and Internet protocol-based Services. AT&T Latin America's
Internet services consist of dial-up and dedicated access services offered
primarily to businesses, as well as wholesale Internet services offered to
Internet service providers. AT&T Latin America's integrated package of wholesale
Internet services allows Internet service providers to purchase and lease their
entire access infrastructure from AT&T Latin America. The customer access
infrastructure of Internet service providers typically consists of a combination
of transmission lines, modems, traffic management equipment and software.
Voice Services. AT&T Latin America's voice services include a family of
services that allow it to provide high quality, reliable voice communications.
Services range from the provisioning of office or campus services, to building a
complete voice network covering multiple locations. Through interfaces with
other private networks and with public networks, customers can place and receive
calls originating and terminating from outside AT&T Latin America networks.
Services to Other Carriers. AT&T Latin America provides "last mile"
services to other carriers seeking to reach the customers on its networks.
CUSTOMERS. AT&T Latin America's customer base has grown rapidly since
Netstream began commercial operations in mid-1998. As of March 31, 2000, AT&T
Latin America's Brazilian operations had approximately 600 customers.
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AT&T Latin America's customers include:
- the stock exchanges of Sao Paulo (Bovespa) and Rio de Janeiro (BVRJ);
- numerous Brazilian and international banks, brokers, insurance companies
and other financial institutions including AGF, Banco Cidade, Banco
Santander, Bank of America, Barclay's Capital, BCN -- Banco de Credito
Nacional, JP Morgan and Unibanco;
- information and consulting businesses, including Andima, Bloomberg,
Deloitte Consulting and Reuters;
- Internet service providers, including AmChamNet, AOL Brasil and PSINet;
- global and regional multinational corporations;
- several international and domestic communications carriers; and
- many medium-size and smaller-size business and professional entities.
Especially for larger users, and as competition increases in Brazil for
advanced communication services generally, AT&T Latin America expects that it
may need to renegotiate the pricing of its services periodically to remain
competitive. Lower prices for communications services could have a material
adverse effect on AT&T Latin America if they cannot be offset by increases in
its customer base, increases in overall usage of its networks, increases in the
provision of higher value-added services to customers, or some combination of
these offsetting factors. AT&T Latin America believes that competition and price
erosion will be important factors in the development of communications markets
in its region.
AT&T Latin America's customer contracts generally provide for payment in
local currency and are generally indexed to various Brazilian inflation
indicators. The revenues of most of AT&T Latin America's customers are also
denominated in local currency.
SALES, MARKETING AND CUSTOMER SERVICE. AT&T Latin America seeks to build
collaborative, long-term relationships with its customers by offering them a
broad portfolio of communications services. It continuously monitors and
identifies customers' changing communications needs and seeks to build upon one
or more of its services to create a partnership with the customer in which AT&T
Latin America becomes the provider of most or all of the customer's
communications needs. AT&T Latin America believes that, in addition to providing
its customers with a good value, its sales and marketing approach allows it to
integrate its services into bundled packages that improve gross margins by
encouraging customers to use a greater number of and more advanced services.
In Brazil, AT&T Latin America has a sales force of approximately 30
professionals that are supported by technical engineering and network center
staff. AT&T Latin America's sales force is trained to emphasize its
customer-focused sales and service efforts, including its 24 hour/365 day
customer service center. AT&T Latin America's sales and marketing professionals
answer customer calls directly, rather than requiring customers to use an
automated message system. Customer assistance is provided, at all hours, in
either Portuguese or in English. AT&T Latin America also actively solicits
customer reactions in order to understand their preferences and to enhance their
overall satisfaction.
AT&T Latin America has also developed and installed customer-focused
software to provide integrated communications services. This software allows
customers to receive one fully integrated monthly billing statement for local,
long distance, international, voice mail, paging and Internet access, and will
also permit additional services to be included, when available. AT&T Latin
America
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believes that its customer-focused software platform is an important element in
the marketing of its communications services.
AT&T Latin America compensates its sales people with a combination of
salary and an incentive bonus. The sales force prioritizes target users not only
by their size and potential usage of advanced communications services, but also
by their proximity to its existing network. AT&T Latin America's current
commission structure rewards sales to existing customers and new customers in
buildings already connected to the network, as well as customers in target
buildings within short distance of the existing network.
AT&T Latin America's sales force is supported by experienced technical
engineering personnel whose objective is to organize the efficient delivery of
communications solutions to each customer. The technical staff's role includes
the proper coordination of vendor service components, customer site preparation
and installation, testing, delivery and maintenance of the service solution for
the customer. AT&T Latin America's engineering personnel have local market
experience and are receiving additional training from AT&T Corp.
COMPETITION. In Brazil, like the rest of Latin America, competition
continues to increase in communications markets. Several global communications
carriers have entered the market either by acquiring former public-sector
carriers in the privatization of the Telebras operating companies, acquiring
"mirror" licenses that the Brazilian government sold by auction to create a
duopoly in each principal area of Brazil, or by forming or acquiring alternative
service providers like Netstream.
AT&T Latin America believes that Brazil's limited-capacity communications
infrastructure, and the increasing demand by businesses for advanced
communications services creates an attractive market opportunity for new
entrants that can build networks quickly and offer high-quality integrated
services.
AT&T Latin America competes in the Brazilian communications market on the
basis of its network quality, customer responsiveness, range of services
offered, reputation for innovation and quality and price. Competition in Brazil
generally can be divided into three categories:
- incumbent carriers;
- mirror companies; and
- other communications providers.
Incumbent Carriers. Brazil's communications market is dominated by the
incumbent carriers, which are former Telebras operating companies, including
Embratel and the three local carriers, Telefonica, TeleCeontroSul and
TeleNorteLeste. Telefonica (formerly TeleSP), the largest of the local carriers,
is controlled by Telefonica de Espana S.A. Embratel, which has operated
historically as Brazil's long distance carrier, is controlled by a consortium
led by Worldcom. These incumbent carriers, which have traditionally focused
primarily on voice communications, provide varying degrees of low- and
high-speed data transmission services. They use their own and each others'
private leased circuits, public network infrastructure exchanges and data
transmission networks. Netstream started operations in 1998 and does not yet
have significant market share.
These incumbents benefit from:
- existing infrastructure;
- a large base of existing customers; and
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- an ability to market effectively to some large business customers on the
basis of broad geographic coverage.
The incumbents also have some possible market disadvantages, including:
- contractual commitments to the government to make large investments in
infrastructure, including additional residential and rural infrastructure
which tends to have a lower return on investment than infrastructure
installed in urban and commercial areas;
- the need to improve existing customer service and installation practices
to reflect the change from monopolistic environment to a competitive
environment; and
- the onset of competition from the mirror companies and other new market
entrants in traditional telephone markets, as well as advanced and value
added services.
Mirror Companies. The competitive advantages of the so-called mirror
companies are their more modern networks, compared to incumbents' networks, and
more entrepreneurial business outlook. However, the mirror companies also have
expensive contractual commitments to build facilities in the areas in which they
operate. Both mirror companies and incumbent carriers will face additional
competition when the current duopoly in fixed telephone services ends on
December 31, 2001 in each of these areas.
Other Communications Providers. In Brazil, adoption of the Minimal Law of
1996 made it possible for private companies to offer value-added communications
services. Since that time, a growing number of regional and global companies
have entered the data communications market in Brazil in an attempt to
capitalize on unmet demand for these services. While these companies have
enjoyed some advantage over the incumbents through their ability to select and
fund freely their own equipment, the new entrants rely, to a large extent, on
leased capacity on the legacy networks of the incumbent operators. There are
several business-oriented communications providers in Brazil that currently
offer or plan to offer services to its target market. These include:
- MetroRED. MetroRED is a data transmission service operator offering
dedicated last mile connections to large business customers and other
communications operators in the cities of Sao Paulo and Rio de Janeiro.
MetroRED is in the process of completing a fiber optic network connecting
the cities of Sao Paulo, Rio de Janeiro and Belo Horizonte. AT&T Latin
America believes that MetroRED will expand its product portfolio in 2000.
- Impsat. Impsat, based in Argentina, established a subsidiary in Brazil
that has offered value added services since 1998 utilizing a
satellite-based wireless network. Impsat has stated an intention to build
a fiber optic network, offering greater transmission capacity and speed,
connecting the major metropolitan markets in Argentina, Brazil, Colombia,
Ecuador, Mexico and Venezuela. Currently, Impsat is deploying fiber optic
metropolitan networks in the main cities in Brazil and has stated that it
will complete its construction in the latter part of 2000.
- GlobalOne. GlobalOne offers value-added services in Brazil to large
business customers via its proprietary points of presence and leased
infrastructure from the incumbents.
- Comsat. Comsat is an international satellite-based communications
company. AT&T Latin America believes Comsat is broadening its position
from satellite-based services to other solutions to attempt to keep its
customers from migrating to different facilities-based systems, such as
fiber optic.
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- Diveo. This Brazilian subsidiary of Diginet Americas introduced its
broadband wireless offering in the Sao Paulo region at the end of 1999.
It has announced plans to expand its offering to other major metropolitan
areas in Brazil during 2000.
AT&T Latin America intends to continue to build on Netstream's reputation
as an innovative, responsive and high quality communications services provider
in Brazil to maintain and expand its existing customer base even as the
incumbents and mirror companies place more emphasis on AT&T Latin America's
target markets and customers.
AT&T Latin America believes that it also has a competitive advantage over
certain alternative service providers which apply satellite technology.
Generally, satellite-based communications solutions, while less expensive than
fiber-based services, provide customers with significantly slower transmission
rates and lower network performance capabilities. AT&T Latin America believes
that its existing and expanding fiber optic networks will provide it with
significant competitive advantage over these alternative service providers in
addressing the broadband needs of its targeted customers.
In the third category, several international communications companies have
either entered or are considering entering the Brazilian communications market
as deregulation and increased demand continues to open new market opportunities.
While increased competition may have an effect on AT&T Latin America's pricing
policies, it believes that relationships with AT&T Corp., Concert and AGNS will
provide it with an increased portfolio of global services and a competitive cost
structure.
REGULATION AND LICENSES. Telecommunications and postal services in Brazil
are regulated by the Ministry of Communications pursuant to the
Telecommunications Law of 1962, as amended. Brazil's telecommunications laws
were significantly revised in September 1997 when the Brazilian legislature
enacted the General Telecommunications Law. This law authorized the creation of
ANATEL, an independent agency that regulates all aspects of telecommunications
services, except radio and television broadcasting, including the granting of
licenses under the General Telecommunications Law.
On May 12, 1998, ANATEL granted Promon two nation-wide unlimited term
non-exclusive licenses: a Specialized Circuit Service License and a Specialized
Network Service License. Both licenses were transferred from Promon to Netstream
on June 7, 1999. These licenses permit the construction of the network
infrastructure and the development of fixed point-to-point and point-to-
multipoint systems to provide corporate voice, data and video communications
services using terrestrial links to closed user groups. In Brazil, a "closed
user group" is a natural person, legal entity or group of natural persons or
legal entities performing a "specific activity," such as, for example, an
automotive manufacturer and its dealer network. The licenses do not permit
Netstream to provide services open to public correspondence, which means that
Netstream - like other alternative service providers in Brazil -- is not
permitted to deliver traffic originating off-network to other points off-
network. However, Netstream is able to originate and terminate traffic on its
network that is going to, or coming from points that are not on its network.
AT&T Latin America believes that Netstream's licenses are adequate for Netstream
to provide its integrated portfolio of advanced and basic services to its
business customers.
The Brazilian telecommunication market is currently in a transition from a
regulated duopoly in fixed switched public telephone services and cellular
telecommunications services to full liberalization and competition. Until
December 31, 2001, only the former Telebras companies and respective mirror
companies may provide fixed switched public telephone services. Restrictions as
to the number of providers of fixed switched public telephone services are
scheduled to cease as of January 1, 2002. ANATEL has not yet publicized specific
legal, technical and financial requirements for the issuance of future fixed
switched public telephone services authorizations after 2001. However, AT&T
Latin
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America expects that these requirements may set high standards and that
companies already operating in the Brazilian market, such as Netstream, will be
in a better position to satisfy these standards than a telecommunications
carrier that enters after full liberalization of the market.
EMPLOYEES. As of March 31, 2000, AT&T Latin America's subsidiaries had a
total of approximately 190 employees almost all of whom were located in Brazil.
AT&T Latin America expects that the number of employees of its Brazilian
operations will increase rapidly throughout 2000, reaching an estimated 350 by
year-end.
AT&T Latin America believes that its success will depend in large part on
its continued ability to attract and retain highly skilled and qualified
personnel. AT&T Latin America believes that Netstream offers and AT&T Latin
America will offer prospective employees competitive compensation and benefits
as well as the opportunity to work with advanced technology in a high-growth
company. However, AT&T Latin America cannot assure you that it will be able to
attract and retain an adequate number of qualified employees to meet its hiring
objectives. As is the case throughout Brazil, AT&T Latin America also regularly
uses the services of contract technicians for the installation and maintenance
of its network. AT&T Latin America believes that its relations with its
employees are good.
LEGAL MATTERS. Neither AT&T Latin America nor any of its subsidiaries is a
party to any material legal proceedings.
MANAGEMENT AND GOVERNANCE OF AT&T LATIN AMERICA
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the persons the parties currently expect will
serve as directors and executive officers of AT&T Latin America following the
merger, their ages and their positions following the merger. The board will also
include three "disinterested" individuals who have no affiliation with AT&T
Corp. or AT&T Latin America, who will be selected prior to the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patricio E. Northland................ 45 Chairman of the Board, President and Chief
Executive Officer
John A. Haigh........................ 46 Director
Edward M. Dwyer...................... 44 Director
Timothy A. Murray.................... 43 Director
John C. Petrillo..................... 51 Director
Gary R. Weis......................... 53 Director
Carlos A. Andre...................... 38 Chief Executive Officer -- Brazil
Thomas C. Canfield................... 44 General Counsel and Secretary
Carlos Fernandez..................... 43 Chief Executive Officer -- Chile
Carlos Ferrer........................ 35 Chief Executive Officer -- Colombia
Jose Gandullia....................... 55 Chief Executive Officer -- Peru
Rodrigo Garcia....................... 35 Vice President -- Network Services
Edgardo J. Lertora................... 57 Vice President -- Corporate Communications and
Brand Strategy
Marco A. Northland................... 42 Vice President -- Product and Business Services
Jay A. Pierce........................ 41 Vice President -- Sales and Customer Care
Jorge M. Rodriguez................... 31 Vice President -- Corporate Operations
Alejandro O. Rossi................... 39 Chief Executive Officer -- Argentina
Marie Santana........................ 49 Vice President -- Human Resources
Fernando Vicuna...................... 45 Chief Information Officer
</TABLE>
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Each director holds office until his or her successor has been duly elected
and qualified, or until his or her death, resignation or removal.
The following is biographical information for the expected directors and
executive officers of AT&T Latin America following the merger:
Patricio E. Northland will be Chairman of the board of directors and Chief
Executive Officer of AT&T Latin America after the merger. Mr. Northland has over
sixteen years of experience as an international communications executive and
entrepreneur. Mr. Northland has been Chairman of the board of directors,
President and Chief Executive Officer of FirstCom since November 1996. Born in
Chile, Mr. Northland is a U.S. citizen. In 1991, Mr. Northland founded
AmericaTel Corporation, a Miami-based international communications carrier
providing satellite-based voice, data and fax communications services to
corporate customers throughout Latin America. In 1996, Mr. Northland sold his
interest in AmericaTel to Entel. Mr. Northland has also held key management
positions with PanamSat and IntelSat.
John A. Haigh was named a director of AT&T Latin America in December 1999
and will continue as a director after the merger. Since May 1999, Mr. Haigh has
been President of the International Ventures Organization for AT&T Corp, which
includes AT&T Corp.'s entire portfolio of international in-country ventures.
Beginning in July 1996, when he first joined AT&T Corp., Mr. Haigh was Vice
President of Corporate Strategy and Business Development. From 1991 through
1996, Mr. Haigh provided consulting services to AT&T Corp. as a consultant at
Mercer Management Consulting, where he had worked since 1983, in areas such as
corporate and communications services strategy.
Edward M. Dwyer was named a director of AT&T Latin America in May 2000 and
will continue as a director after the merger. Mr. Dwyer became Treasurer of AT&T
Corp. in May 1997. He had been Chief Financial Officer of AT&T Capital Corp.
since November 1989.
Timothy L. Murray was named a director of AT&T Latin America in May 2000
and will continue as a director after the merger. Since February 2000, Mr.
Murray has been a Senior Vice President, Business Operations, of AT&T Corp. He
previously was Vice President of AT&T Business Network Services from December
1996 and Vice President of AT&T Corp., Middle Market Sales, starting in December
1994. Prior to that, he was a Marketing Vice President of AT&T Corp.
John C. Petrillo was named a director of AT&T Latin America in June 2000
and will continue as director after the merger. Mr. Petrillo has held various
positions with AT&T Corp. since 1993, most recently as Executive Vice President
of Corporate Strategy and Business Development, in which capacity he is
responsible for overall business strategy and the development of AT&T Corp.'s
online service and electronic messaging businesses.
Gary R. Weis was named a director of AT&T Latin America in May 2000 and
will continue as a director after the merger. Since May 1999, he has been Senior
Vice President of AT&T Business Services, Global Operations. Prior to joining
AT&T Corp., Mr. Weis was at IBM, where he was a General Manager responsible for
global services and network services since 1994.
Carlos A. Andre has been the chief executive officer of AT&T Latin
America -- Brazil since May 2000. Previously, from June 1995, Mr. Andre was at
Oracle do Brasil Sistemas Ltda. where he started as a Sales Director and later
became Chief Executive Officer. In August 1992, he helped launch Brazilian
operations for Novell. Prior to joining Novell, Mr. Andre helped found Unilog, a
company that develops, sells and implements human resources, logistic and
administration software.
Thomas C. Canfield will be General Counsel and Secretary of AT&T Latin
America after the merger. Mr. Canfield became General Counsel of FirstCom in May
2000. Prior to joining FirstCom,
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Mr. Canfield was counsel in the New York office of Debevoise & Plimpton where he
practiced for nine years in the area of international business transactions,
particularly in Latin America.
Carlos Fernandez will be Chief Executive Officer of AT&T Latin
America -- Chile. He has been chief executive officer of FirstCom Chile S.A.
since March 1998. Prior to joining FirstCom, Mr. Fernandez had over seventeen
years of experience as an international communications executive with IBM Chile.
From 1981 to 1997, Mr. Fernandez held various positions, including, director of
IBM Chile, corporate and business affairs manager and commercial manager.
Carlos Ferrer will be Chief Executive Officer of AT&T Latin
America -- Colombia. He has been Chief Executive Officer -- Colombia of FirstCom
since August 1999. From August 1995 to July 1999, Mr. Ferrer worked as Chief
Operating Officer for Emtelco S.A. Prior to joining Emtelco, Mr. Ferrer held key
positions at Celsa and Empresas Publicas de Medellin
Jose Gandullia will be Chief Executive Officer of AT&T Latin
America -- Peru. Mr. Gandullia joined FirstCom -- Peru as Chief Financial
Officer in October 1998 and in April 1999 was named FirstCom Peru's Chief
Executive Officer. Prior to joining FirstCom, Mr. Gandullia served as General
Manager of Los Portales Consorcio Hotelero, S.A. From 1991 to 1997, he served as
Executive Director of Kong Corporate Group in Guatemala. Mr. Gandullia has 20
years of experience in international communications, having held management
positions in the United States, Venezuela, Mexico, Peru and Central America.
Rodrigo Garcia will be Vice President of Network Services for AT&T Latin
America. He is currently Vice-President -- Engineering of FirstCom. Mr. Garcia
was an Engineering and Development Director of FirstCom Networks, S.A., a
subsidiary of FirstCom Chile S.A., which he became in 1998. He was a technical
manager for Hewster Chile S.A., now known as FirstCom Networks S.A, since 1992.
Prior to joining FirstCom, Mr. Garcia served as telecommunications advisor to
the Department of Interior of Chile and network administrator for the Presidency
of the Republic of Chile.
Edgardo Lertora will be Vice President of Corporate Communications and
Brand Strategy for AT&T Latin America. Mr. Lertora has over 25 years of
experience in sales, marketing, communications and public affairs throughout
Latin America, Asia and Africa. In 1992, Mr. Lertora joined AT&T Corp. as Public
Relations and Marketing Communications - Vice President for Latin America and
Africa. Prior to his joining AT&T Corp., Mr. Lertora held an executive
management position at DuPont.
Marco A. Northland will be Vice President of Product Marketing and Business
Development for AT&T Latin America. He has been Vice-President of Product
Marketing and Business Development of FirstCom since June 1999. He previously
was Vice-President -- Internet Services and Business Development and acting
Chief Executive Officer of FirstCom's Colombian operations. In 1997, Mr.
Northland founded @Phone, S.A., a start up telecommunications/Internet company
based in Lima, Peru. Prior to founding @Phone, Mr. Northland was Vice President
of Marketing, Sales and Business Development of AmericaTel from 1991. Mr.
Northland has also held executive positions with Panamsat and Hughes Network
Systems. Mr. Marco A. Northland is the brother of Mr. Patricio E. Northland.
Jay A. Pierce will be Vice President of Sales and Customer Care for AT&T
Latin America. In March 2000, Mr. Pierce was named Senior Vice President of
Sales for FirstCom. Prior to joining FirstCom, Mr. Pierce held various positions
at Johnson & Johnson Professional Group Latin America. He had been a Vice
President/General Manager there since 1998 and previously served as a Managing
Director.
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Jorge M. Rodriguez was named Vice President of Corporate Operations of AT&T
Latin America in March 2000. From January 1999 to February 2000, Mr. Rodriguez
was the Revenue Integrity Director of AT&T Corp. Prior to that, he held various
management positions at AT&T Corp., where he worked for more than ten years,
including Director of Business Planning and Operations from November 1996 to
January 1998 and National Sales and Marketing Manager from July 1994 to October
1996.
Alejandro O. Rossi is Chief Executive Officer of Keytech LD, which will be
renamed AT&T Argentina. He had been Chief Executive Officer of Keytech LD prior
to AT&T Latin America's acquisition of Keytech. Prior to joining Keytech, Mr.
Rossi was an assistant General Manager at ING Barings from March 1996 to April
1998. From October 1993 to February 1996, he was a Vice President, Investment
Banking at Goldman Sachs.
Marie Santana will be Vice President of Human Resources for AT&T Latin
America. Since July 1999, Ms. Santana has served as Vice President of Human
Resources for International Operations for AT&T Corp. From April 1996 to 1999,
she served as Vice-President for International Human Resources for the
Caribbean, Latin America, Brazil, Mexico, Canada and U.S.-based international
employees for AT&T Corp. Prior to that, after having held various other human
resources management positions with AT&T Corp., Ms. Santana was Director of
Global Human Resources for AT&T Corp. in Mexico from December 1994 to April
1996.
Fernando Vicuna will be Chief Information Officer for AT&T Latin America.
Since January 2000, he has been Chief Information Officer at FirstCom. Prior to
joining FirstCom, Mr. Vicuna had served as Sales Manager and Technology Advisor
to management at Telco since 1994.
CURRENT CHIEF FINANCIAL OFFICER
Frank J. Voytek has been the chief financial and accounting officer of AT&T
Latin America since May, 2000. AT&T Latin America expects to name a new chief
financial officer about the time of the merger. Mr. Voytek was recently named
President of AT&T Corp.'s Americas International Ventures Organization. Prior to
that he was President of Latin America ventures for AT&T Corp. since January
2000. From May 1998 to January, 2000, Mr. Voytek was vice president of AT&T
Corp., Channel and Venture Management. Mr. Voytek has also been Chief Financial
Officer of the AT&T Corp. Latin America region since March 1995.
PROPOSED COMPOSITION OF AT&T LATIN AMERICA'S COMMITTEES
The three disinterested directors on AT&T Latin America's board will also
serve on an audit committee and designated board members will also serve on a
compensation committee.
COMPENSATION OF AT&T LATIN AMERICA'S NAMED EXECUTIVE OFFICERS
At December 31, 1999, AT&T Latin America had officers but no employees.
None of its officers received any compensation for services rendered to AT&T
Latin America. AT&T Latin America had no retirement, incentive, bonus,
stock-based or other employee benefit plans. At December 31, 1999, no person who
will serve as a director or an executive officer of AT&T Latin America had
received any compensation for services rendered to AT&T Latin America.
LONG-TERM INCENTIVE PLAN
Following the merger, AT&T Latin America expects that its board of
directors will adopt and subsequently submit to its stockholders for their
approval a long-term incentive plan. The purpose of
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the plan will be to encourage eligible participants to acquire a proprietary and
vested interest in the growth and performance of AT&T Latin America, as well as
to generate an increased incentive to contribute to its future success and
prosperity. This should enhance the value of AT&T Latin America for the benefit
of its shareholders, and enhance its ability to attract and retain individuals
of exceptional managerial talent. The terms of the plan have not been finalized
but material provisions of the intended plan are summarized below.
TYPES OF AWARDS. The plan will provide for the award of:
- stock options, including incentive stock options within the meaning of
Section 422 of the Internal Revenue Code;
- stock appreciation rights;
- restricted stock and restricted units;
- performance stock and performance units;
- deferred stock units;
- cash performance bonuses; and
- other awards as the compensation committee of the board of directors may
from time to time determine.
ELIGIBILITY. Any director, officer or employee of AT&T Latin America or
any of its affiliates, including any prospective employee, and any consultant or
contractor to AT&T Latin America or any of its affiliates selected by the
compensation committee will be eligible for awards. The number of participants
in the plan will vary from year to year.
SHARES SUBJECT TO THE LONG TERM INCENTIVE PLAN. Initially, approximately
15% of the total outstanding shares of AT&T Latin America's Class A common stock
upon completion of the merger will be authorized to be issued under the plan. On
each January 1st of the fifth year through the tenth year in which the plan is
in effect, the number of shares authorized to be issued under the plan will be
increased by 3% of the total outstanding shares on December 31 of the prior
year. If shares subject to an award under the plan are no longer subject to that
award as a result of forfeiture, or if an award otherwise terminates without a
payment being made to the participant in the form of Class A common stock, the
shares will again be available for future award under the plan. If a participant
tenders shares to exercise any award, or if AT&T Latin America withholds shares
to pay withholding taxes, only the net number of shares issued to the
participant will be counted against the number of shares reserved for awards
under the plan. If there is a change in the number or kind of outstanding shares
of common stock by reason of any recapitalization, reorganization, merger,
consolidation, stock split or any similar change affecting the Class A common
stock, the compensation committee will make appropriate adjustments to the type
and number of shares covered by awards then outstanding under the plan, the
exercise or reference price of outstanding awards and the shares that remain
available for award under the plan.
LIMITATIONS ON AWARDS. The maximum number of shares of AT&T Latin America
Class A common stock with respect to which AT&T Latin America may grant awards
to any one person in a calendar year will be 3,000,000. The maximum cash award
that AT&T Latin America may award to any individual in a calendar year will be
$2,000,000.
ADMINISTRATION. The compensation committee will administer the plan. It
will be authorized to delegate its authority except to the extent that it
relates to the compensation of AT&T Latin America's chief executive officer, its
four other most highly compensated executive officers or any
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other individual whose compensation the board of directors or compensation
committee believes may become subject to Section 162(m) of the Internal Revenue
Code. The compensation committee will have the authority to construe, interpret
and implement the plan and any agreements evidencing any awards under the plan,
and to prescribe, amend and rescind rules and regulations relating to the plan.
The determination of the compensation committee on all matters relating to the
plan or any award agreement will be final and binding.
STOCK OPTIONS. The compensation committee will be authorized to grant
options to purchase shares of common stock that are either "qualified," which
includes those awards that satisfy the requirements of Section 422 of the
Internal Revenue Code for incentive stock options, or "nonqualified," which
includes those awards that are not intended to satisfy the requirements of
Section 422 of the Internal Revenue Code. These awards will be subject to such
terms and conditions, if any, as the compensation committee deems appropriate.
Under the terms of the intended plan, the exercise price of the options will,
unless the compensation committee determines otherwise, not be less than the
fair market value of the common stock at the time of grant. The options will
generally have a term of ten years, unless the compensation committee specifies
a shorter term, and will vest and become exercisable at such times and subject
to such conditions as the compensation committee will determine.
AT&T Latin America may authorize the compensation committee to permit a
participant to deliver shares of Class A common stock to exercise an option. The
compensation committee may provide that, if a participant does so when the
market value of the common stock exceeds the exercise price of the option, he or
she will be automatically granted new "reload options" for the number of shares
delivered to exercise the option. Reload options will be subject to the same
terms and conditions as the related option except that the exercise price will
be the fair market value on the date the reload option is granted and such
reload options will not be exercisable for six months.
STOCK APPRECIATION RIGHTS. The compensation committee will be authorized
to grant stock appreciation rights either alone or in addition to other awards
granted under the intended plan. These awards will be subject to such terms and
conditions, if any, as the compensation committee deems appropriate. Under the
terms of the intended plan, the reference price of a stock appreciation right
will, unless the compensation committee determines otherwise, not be less than
the fair market value of the stock on the date of grant. Upon exercise of a
stock appreciation right, a participant will receive an amount in cash, its
equivalent or stock that is equal to the fair market value on the date of
exercise over the reference price. Stock appreciation rights will generally have
a term of ten years, unless the compensation committee specifies a shorter term,
and will vest and become exercisable at such times and subject to such
conditions as the compensation committee will determine.
RESTRICTED STOCK AND RESTRICTED UNITS. The compensation committee will be
authorized to award restricted stock and restricted units. For purposes of the
intended plan, restricted stock will be an award of common stock and a
restricted unit will be a contractual right to receive common stock or cash
based on the fair market value of common stock. These awards will be subject to
such terms and conditions, if any, as the compensation committee deems
appropriate. Restricted stock and restricted units will generally become vested
and nonforfeitable and the restriction period will lapse at such times and
subject to such conditions as the compensation committee will determine.
PERFORMANCE STOCK AND PERFORMANCE UNITS. The compensation committee will
also be authorized to award performance stock and performance units. For
purposes of the intended plan, performance stock will be an award of common
stock and a performance unit will be a contractual right to receive common stock
or cash based on fair market value of common stock. These awards will be
contingent upon the attainment, in whole or in part, of certain performance
objectives over a period to be determined by the compensation committee. The
performance objectives may include
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cash generation targets, profits, revenue and market share targets,
profitability targets as measured through return ratios, shareholder returns and
economic value added or other similar measure of economic profit. The
performance objectives may be measured on an absolute basis versus predetermined
targets, on a relative basis versus peer companies or an external index. With
regard to a particular performance period, the compensation committee will have
the discretion, subject to the plan's terms, to determine the terms and
conditions of awards, including the performance objectives to be achieved during
the performance measurement period and the determination of whether and to what
degree the specified objectives have been attained.
DEFERRED STOCK. The compensation committee will also be authorized to
award deferred stock units, which confer upon a participant the right to receive
shares of common stock at the end of a specified deferral period. In addition, a
participant in the plan may elect to receive deferred stock units in lieu of
annual compensation and/or annual bonus, and the committee may grant to each
individual who makes such an election supplemental deferred stock units. The
committee will determine when deferred stock units will vest.
CASH PERFORMANCE BONUS. The compensation committee will also be authorized
to award short-term or long-term cash performance bonuses to AT&T Latin
America's chief executive officer, its four other most highly compensated
executive officers or any other individual whose compensation the board of
directors or compensation committee believes may become subject to Section
162(m) of the Internal Revenue Code. These awards may be contingent upon the
attainment, in whole or in part, of certain performance objectives over a period
to be determined by the compensation committee. The performance objectives may
include cash generation targets, profits, revenue and market share targets,
profitability targets as measured through return ratios, shareholder returns and
economic value added or similar measure of economic profit. The performance
objectives may be measured on an absolute basis versus predetermined targets, on
a relative basis versus peer companies or an external index. With regard to a
particular performance period, the compensation committee will have the
discretion, subject to the plan's terms, to determine the terms and conditions
of awards, including the performance objectives to be achieved during the
performance measurement period and the determination of whether and to what
degree the specified objectives have been attained. If a participant's
employment terminates because of death, disability, early retirement (with the
compensation committee's consent) or normal retirement, he or she will be
entitled to a prorated portion of the annual bonus for that part of the year
that he or she was still employed by the company.
DIVIDEND EQUIVALENTS. The compensation committee will determine whether
participants will be entitled to receive either currently or at a future date,
dividends or other distributions paid with respect to awards and, if and to the
extent determined by the compensation committee, either will be credited with or
receive currently an amount equal to dividends paid with respect to the
corresponding number of shares covered by awards.
NONTRANSFERABILITY OF AWARDS. Awards under the plan will generally not be
assignable or transferable other than by will or by the laws of descent and
distribution, and all awards and rights will be exercisable during the life of
the participant only by the participant or his or her legal representative. The
compensation committee may, upon such terms and conditions as it determines
appropriate, permit transfers to the participant's family members or to entities
of which the participant or his or her family members are the sole beneficiaries
or owners.
STATUS OF PARTICIPANTS. The participants in the plan will be unsecured
general creditors of AT&T Latin America and any of its affiliates. Unless
otherwise provided in an award agreement, a participant will have no rights as a
stockholder with respect to any shares covered by any award until the underlying
shares are delivered. An award will not confer on a participant any right to
continued
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employment. Unless otherwise required by law or determined by the compensation
committee, awards under the plan will not be taken into account for purposes of
any other compensation or benefit plan or arrangement of AT&T Latin America and
any of its affiliates.
TAX WITHHOLDING. AT&T Latin America and any of its affiliates will be
entitled to withhold from any payment any required withholding or other taxes,
and may require that the participant provide sufficient funds to AT&T Latin
America and any of its affiliates to satisfy any required withholding tax
obligations before any delivery of shares or other payment to the participant.
The compensation committee may permit a participant to satisfy any required
withholding tax obligations by delivering shares of common stock previously
owned by the participant or by withholding a number of shares of common stock
otherwise deliverable to the participant, in each case having a fair market
value at the time equal to the amount of the required withholding taxes, and
upon such other terms and conditions as the compensation committee determines
appropriate.
TERM AND AMENDMENT. The intended plan will have a ten year term. The board
of directors or the compensation committee will be authorized to amend, suspend
or terminate the plan. The expiration of the term of the plan, or any amendment,
suspension or termination will not adversely affect any outstanding award held
by a participant without the consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of
the material U.S. federal income tax consequences that may arise with respect to
awards under the intended plan.
The grant of an option will give rise to no tax consequences for the
participant or AT&T Latin America and any of its affiliates. Upon exercising an
option, other than an incentive stock option, the participant will generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the shares acquired on the date of exercise, and AT&T
Latin America and any of its affiliates generally will be entitled to a tax
deduction in the same amount. A participant generally will not recognize taxable
income upon exercising an incentive stock option and AT&T Latin America and any
of its affiliates will not be entitled to any tax deduction with respect to an
incentive stock option if the participant holds the shares for the applicable
periods specified in the Internal Revenue Code.
With respect to other awards, upon the payment of cash or the issuance of
shares or other property that is either not restricted as to transferability or
not subject to a substantial risk of forfeiture, the participant will generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property delivered. AT&T Latin America and any of its affiliates will
be entitled to a deduction in an amount equal to the ordinary income recognized
by the participant.
CHANGE OF CONTROL. Under the terms of the intended plan, if there is a
change of control of AT&T Latin America, all awards that are not then vested or
for which the restrictions have not yet lapsed will, unless otherwise determined
by the compensation committee, either become vested and any restrictions or
limitations will lapse or be assumed or replaced by the acquiring entity. If the
awards are assumed by the acquiring entity and the participant's employment is
terminated within 18 months after the change of control, the awards will be
immediately vested and any restrictions or limitations will lapse. For these
purposes, a "change of control" means the occurrence of any of the following
events:
- the members of the board of directors at the beginning of any two year
period, referred to as the incumbent directors, cease for any reason
other than death or disability to constitute at least a majority of the
board of directors, provided that any director whose election, or
nomination for election by AT&T Latin America's stockholders, was
approved by a vote of at least a majority of the members of the board of
directors then still in office who were
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Incumbent Directors, other than as a result of a proxy contest, or any
agreement arising out of an actual or threatened proxy contest, will be
treated as an Incumbent Director;
- any person, but excluding AT&T Corp., AT&T Latin America, any of their
affiliates or any of their employee benefit plans, becomes the
"beneficial owner" (as defined in Rule 13(d)(3) or 14(d)(2) under the
Securities Exchange Act of 1934) of securities of AT&T Latin America
representing more than the greater of 35% of the combined voting power of
AT&T Latin America's then outstanding securities or the percentage share
then held by AT&T Corp. or its affiliates; or
- provided such transaction is consummated, the stockholders of AT&T Latin
America approve a definitive agreement for the merger or other business
combination of AT&T Latin America with or into another corporation (other
than AT&T Corp., AT&T Latin America or any of their affiliates), or the
sale or other disposition of all or substantially all of the assets of
AT&T Latin America to any other entity (other than AT&T Corp. or any of
its affiliates), a majority of the directors of which were not directors
of AT&T Latin America immediately prior to the merger and in which the
stockholders of AT&T Latin America immediately prior to the effective
date of such merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of the voting
power they owned in AT&T Latin America immediately prior to such
transaction; or
SHAREHOLDER APPROVAL. AT&T Corp. has informed AT&T Latin America that it
will vote to approve the long-term incentive plan.
As of June 5, 2000, AT&T Latin America has promised to grant, as soon as
practicable after the merger, options to purchase approximately 850,000 shares
of its Class A common stock under the long-term incentive plan to current and
future employees of it and its subsidiaries.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The agreements that AT&T Latin America will enter into with AT&T Corp., its
controlling stockholder, in connection with the merger, are described under
"Other Material Agreements and Arrangements -- Regional Vehicle Agreement with
AT&T Corp.," "-- Service Mark License Agreement with AT&T Corp." and "-- Credit
Facility."
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OWNERSHIP OF AT&T CORP. SECURITIES
The following table sets forth, as of June 30, 2000, information regarding
the beneficial ownership of the common stock of AT&T Corp., AT&T Latin America's
parent, by:
- each of AT&T Latin America's directors, nominees for directors and named
executive officers who own its shares; and
- all current directors and executives as a group.
<TABLE>
<CAPTION>
SECURITIES OF AT&T CORP.*
-----------------------------------
AT&T CORP. AT&T WIRELESS
NAME OF BENEFICIAL OWNER COMMON SHARES GROUP COMMON SHARES
------------------------ ------------- -------------------
<S> <C> <C>
Edward M. Dwyer............................................ 115,742(1) 7,500
John Haigh................................................. 5,933 2,000
Timothy L. Murray.......................................... 51,311 0
John C. Petrillo........................................... 311,048(2) 5,000
Gary Weis.................................................. 15,600 10,000
Directors and officers as a group.......................... 549,634 36,500
</TABLE>
---------------
* No beneficial owner listed in this table owns more than 1% of any class of
securities presented nor do the directors and executive officers as a group.
(1) Includes 49,211 shares that may be purchased upon the exercise of
outstanding options.
(2) Includes 311,048 shares that may be purchased upon the exercise of
outstanding options.
PRINCIPAL STOCKHOLDERS OF AT&T LATIN AMERICA
The following table sets forth, as of June 30, 2000, information regarding
the beneficial ownership of AT&T Latin America's common stock by:
- each person that is known by AT&T Latin America to own beneficially more
than five percent of the outstanding shares of AT&T Latin America;
- each of AT&T Latin America's directors and named executive officers who
own its shares; and
- all current directors and executive officers as a group.
The table also sets forth the voting power for each of these persons and
groups as of June 30, 2000. With respect to the percentage of voting power set
forth in the following table:
- each holder of Class A common stock is entitled to one vote per share;
and
- each holder of Class B common stock is entitled to ten votes per share.
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The table also sets forth expected beneficial ownership and voting
information with respect to the same parties as of August 31, 2000 giving effect
to the merger.
<TABLE>
<CAPTION>
PRE-MERGER
PRE-MERGER PERCENTAGE OF TOTAL EXPECTED
PRE-MERGER PERCENTAGE OF SHARES VOTING POWER POST-MERGER
NUMBER OF SHARES BENEFICIALLY ON A NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIALLY OWNED/ FULLY-DILUTED BENEFICIALLY
BENEFICIAL OWNER OWNED ECONOMIC INTEREST BASIS OWNED(1)
------------------- ------------------ -------------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
AT&T Corp.(2)................. 72,763,384 90% 99% 73,086,240
shares of Class B
common stock
SL Participacoes(3)........... 8,084,820 10% 1% 8,120,693
shares of Class A
common stock
All directors and executive
officers as a group.......... N/A N/A N/A N/A
<CAPTION>
EXPECTED
POST-MERGER
EXPECTED POST-MERGER PERCENTAGE OF
PERCENTAGE OF TOTAL VOTING
SHARES BENEFICIALLY POWER ON A
NAME AND ADDRESS OF OWNED/ECONOMIC FULLY-DILUTED
BENEFICIAL OWNER INTEREST BASIS
------------------- -------------------- --------------------
<S> <C> <C>
AT&T Corp.(2)................. 59% 93%
SL Participacoes(3)........... 7% 1%
All directors and executive
officers as a group.......... N/A N/A
</TABLE>
---------------
(1) Includes shares that will be issued at the closing of the merger. As
permitted under the merger agreement, ATTLA Holding Corp. and SL
Participacoes are entitled to receive as of the merger, pro rata in
accordance with their respective ownership interests, an aggregate number of
shares of AT&T Latin America common stock equal to 2.077 times the number of
paid-in-kind share dividends accrued with respect to the Series A
convertible preferred stock of FirstCom from November 1, 1999 up to the
closing date of the merger.
(2) Includes the shares owned by ATTLA Holding Corp., a wholly-owned subsidiary
of AT&T Corp. The address of AT&T Corp. and ATTLA Holding Corp. is 295 North
Maple Avenue, Basking Ridge, New Jersey 07920.
(3) The address of SL Participacoes, an affiliate of Promon Ltda., is Avenida
Juscelino Kubitschek, 1830, 14o. andar, Torre 4, CEP 04543-900, Sao Paulo
SP, Brazil.
DESCRIPTION OF FIRSTCOM
GENERAL. FirstCom provides broadband communications services primarily to
business customers in four major metropolitan business centers:
- Santiago, Chile;
- Lima/Callao, Peru;
- Bogota, Colombia; and
- Cali, Colombia.
FirstCom primarily targets business customers and other communications
carriers and other high volume users by offering a wide range of broadband
services including:
- data;
- Internet;
- voice;
- video conferencing; and
- audio services.
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Specific service offerings vary depending on the current concessions held
by FirstCom in each particular country, as well as local laws and regulations
and the infrastructure in each country.
Until November 1996, FirstCom was a development stage company whose
activities primarily consisted of the acquisition of licenses, concessions and
rights-of-way in selected Latin American communications markets. Since that
time, it has focused on the development and operation of high-capacity fiber
optic networks in Latin American business centers.
CHILE. In Chile, FirstCom currently holds concessions to provide the
following services:
- data and voice transmission services and value-added services on a
private line basis;
- public switched domestic and international long distance services; and
- public switched local services.
FirstCom also maintains a concession to own and operate satellite earth
stations throughout Chile.
Through FirstCom's Chilean subsidiaries, FirstCom currently provides its
corporate customers in Santiago with the following broadband communications
services:
- high-quality voice and high-speed data communications services on a
private line basis, interconnections between local networks, dedicated
channels for access to local information warehouses (e.g., credit
bureaus, etc.), access to remote terminals and connections to various
customer locations;
- domestic and international long distance services, switched and
transported, in part, through FirstCom's own gateway switch and satellite
earth station, as well as through interconnections with other Chilean
long distance carriers; and
- high-speed Internet access services including value-added services such
as web hosting.
PERU. In Peru, FirstCom currently holds concessions to provide the
following services:
- data and voice transmission services and value-added services over
private lines;
- public switched domestic and international long distance services; and
- public switched local services.
Through its Peruvian subsidiary, FirstCom currently provides its corporate
customers in Lima and Callao with the following broadband communications
services:
- high-quality voice and high-speed data communications services on a
private line basis, interconnections between local networks and access
from outside locations;
- domestic and international long distance services through
interconnections with Telefonica del Peru;
- local voice services through Telefonica del Peru (service to begin in
2000); and
- high-speed Internet access services.
COLOMBIA. In Colombia, FirstCom currently holds concessions to provide
data and voice transmission services and value-added services on a private line
basis.
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Through its Colombian operations, FirstCom currently provides to its
corporate customers in Bogota and Cali with the following broadband
communications services:
- high-quality voice and high-speed data communications services over
private lines, interconnections between local networks and access to
remote terminals;
- high-speed Internet access services.
FirstCom entered the Colombian market in February 1999 with the acquisition
of approximately 76% of Teleductos S.A., now known as FirstCom Colombia S.A.,
and has a presence in Bogota and Cali. In October 1999 FirstCom increased its
ownership of FirstCom Colombia to approximately 86%.
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INDUSTRY OVERVIEW
GENERAL
Liberalization of the global communications industry and technological
change have resulted in an increasingly data-intensive business environment. In
Latin America, regulatory, technological, marketing and competitive trends have
expanded opportunities in the converging voice and data communications markets.
Liberalization of the communications industry in Latin America is also leading
to expanded opportunities in the local communications services market. AT&T
Latin America believes there is significant unmet demand for advanced
communications services, including
- reliable, high capacity data circuits;
- Internet access;
- private local area networks; and
- domestic and international long distance.
AT&T Latin America believes that deregulation of the communications sector
in many Latin American countries, coupled with technological innovation, will
lead to market developments similar to those that have occurred in the United
States. These developments would include an increase in traffic volume and the
market entry of new communications service providers. In Latin America the
regulatory and market environments differ from country to country and differ
from those in the United States.
AT&T Latin America believes that demand for broadband transmission capacity
will continue to increase as customers require increased capability to handle
complex data, Internet, voice and video communications and that its high-speed
data networks and Internet platform are well suited to satisfy these
requirements. In Latin America, many incumbents and other communications
carriers continue to use older technologies for parts of their networks that are
designed primarily for voice services, although many are using fiber optic
technology to expand their networks.
INDUSTRY TRENDS
Recent growth in the Latin American communications industry, and
particularly in broadband communications services, has been shaped by a number
of underlying trends, including those listed below. AT&T Latin America believes
that these trends are likely to cause this growth to continue.
- Market liberalization. Privatization and the related breakup of
monopolies in the Latin American telecommunications market has resulted
in increased competition for substantially all products and services.
Governments within the region are increasingly demonstrating a pro-
competition approach to the market. In addition, Argentina, Brazil,
Chile, Colombia and Peru are each signatories to the World Trade
Organization Agreement on Basic Telecommunications Services, which
mandates liberalization. Competition has facilitated the development and
availability of more advanced telecommunications services to the Latin
American business market, and generally reduced prices, which has in turn
increased demand.
- Globalization of corporations. As corporations in more developed markets
expand into Latin American growth markets, AT&T Latin America believes
that the need for private network services and broadband capacity between
and within the major cities in these markets will grow. In addition, as
Latin American companies develop into more global enterprises, AT&T
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Latin America believes that their need for broadband connections will
increase and their adoption of bandwidth intensive applications is likely
to accelerate.
- Increased development of technologically advanced communications
infrastructure. Historically, Latin American markets have depended upon
the communications infrastructure of incumbent operators, which typically
does not permit the transmission of large amounts of data traffic. Due to
the poor transmission quality of the regional telecommunications
infrastructure, Latin American business customers have been slower to
adopt data intensive applications than similar customers in more
developed markets. AT&T Latin America believes that the demand for
broadband services will increase as infrastructure improves and the use
of data intensive applications becomes more feasible and economical in
more markets in Latin America.
- Increasing worldwide use of the Internet. AT&T Latin America believes
that the Latin American Internet market has lagged behind the market in
the United States in its use of Internet-related services. As Internet
use increases, corporations will accelerate their adoption of additional
new technologies and applications, thereby increasing demand for
broadband services.
ARGENTINA
Country Overview. Argentina, a new market for AT&T Latin America following
its acquisition of Keytech LD, is the third largest country in South America
with an estimated population of approximately 36 million at December 1999.
Greater Buenos Aires, the country's primary economic center, has a population of
approximately 13.9 million. From 1994 through 1999, real GDP increased by an
average annual growth rate of approximately 2.8%.
Market Overview. Argentina has one of the most developed communications
markets in Latin America due, in part, to its early privatization efforts.
According to Pyramid Research, Argentina's telephone subscribers grew from an
estimated 6.8 million as of year end 1997 to an estimated 7.6 million in 1999.
As is generally the case throughout Latin America, Argentina has a relatively
low penetration, or usage, rate per 100 inhabitants of approximately 21.2 lines
in service at the end of 1999. AT&T Latin America believes that Argentina's
continued growth in demand for communication services primarily will be
influenced by the full liberalization of the market in November 2000 and demand
of business customers for broadband communications services.
Competition. AT&T Latin America believes that its principal competitors in
Argentina will be Telecom Soluciones S.A. and Advance Telecomunicaciones S.A.,
which are data transmission companies controlled by Telecom Argentina S.A. and
Telefonica de Argentina S.A., respectively. Telecom Argentina and Telefonica de
Argentina are the incumbents in northern and southern Argentina, respectively.
Together these companies dominate the Argentine communications markets. Keytech
LD, which AT&T Latin America acquired in June 2000, is not yet fully operational
and its market share is not significant. Telecom Soluciones and Advance
Telecomunicaciones use the infrastructure of their incumbent owners to deliver
services to their customers. AT&T Latin America anticipates increased
competition from both the incumbent operators, as well as new market entrants,
once Argentina's communications market is liberalized in November 2000.
Telecommunications Laws and Regulations. The Argentine government's
liberalization of the telecommunications sector began in 1989 with the
restructuring of ENTEL (Empresa Nacional de Telecomunicaciones), the state-owned
monopoly telecommunications operator, into two regional telecommunications
service providers. Two consortia purchased these regional providers: Telecom
Argentina (Telecom Italia and France Telecom) which operates in the northern
region of Argentina and Telefonica de Argentina (Telefonica de Espana and
financial partners) which operates in the
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southern region of the country. The exclusivity in basic telephone services
enjoyed by the incumbents ended in 1999 when two consortia headed by Movicom
(Compania de Radio Comunicaciones Moviles S.A. (a BellSouth affiliate)) and CTI
(Compania de Telefonos del Interior S.A. (a GTE Mobile Communication
International affiliate)) respectively, were authorized to offer nationwide
local and long distance services.
In March 1998, the Argentine government announced a liberalization plan for
the telecommunications market, which will result in the full liberalization of
services by November 2000. The following companies have been granted licenses
for the provision of local and long distance telephone services and are
presently allowed to offer those services: Keytech LD, Impsat S.A. and Comsat
S.A. Techtel S.A., MetroRED S.A. and Diveo S.A. have been granted licenses for
the provision of local and long distance telephone services beginning in
November 2000.
The Argentine data sector was not included in the exclusivity granted to
the incumbents. Any telecommunications provider may apply for licenses to
provide data services. At least eight companies, including Telefonica de
Argentina, Telecom Soluciones, Keytech and Impsat, have recognized the
opportunity and the growth potential of this market and have initiated
operations to provide these data services.
BRAZIL
Country Overview. Brazil is the largest country in South America with an
estimated population of approximately 164 million at December 1999. Sao Paulo,
its largest city, has a population of approximately 10 million. From 1994
through 1999, real GDP increased by an average annual growth rate of
approximately 2.8%.
Market Overview. One of the stated goals of the Brazilian government in
privatizing Brazil's former local and long distance incumbent, Telebras, in 1998
was to expand significantly the national communications network and improve
service quality. According to Pyramid Research, Brazil's total number of lines
in service has increased since the privatization of Telebras from approximately
17.0 million in 1997 to approximately 25.7 million in 1999. However, Brazil
continues to have a relatively low penetration rate per 100 inhabitants of
approximately 15.7 lines in service as of the end of 1999. AT&T Latin America
believes that continued growth in demand for communication services in Brazil
will be influenced by the level of growth of the Brazilian economy, demand of
business customers for broadband communications services, foreign investment and
international trade and the continued expansion of the Brazilian communications
infrastructure.
Competition. Brazil's communications market today is dominated by the
incumbent carriers, which are former Telebras operating companies, including
Embratel and the three regional local carriers, Telefonica, TeleCentroSul and
TeleNorteLeste. Telefonica (formerly TeleSP), the largest of the local carriers,
is controlled by Telefonica de Espana S.A. Embratel, which has operated
historically as Brazil's long distance carrier, is controlled by a consortium
led by Worldcom. Netstream started operations in 1998, and does not yet have a
significant market share.
In the privatization of the Telebras operating companies in 1998, the
Brazilian government divided Telebras' wireline communications business into
three incumbent local carriers, each serving a defined geographic area and one
national and international long distance carrier. Following the privatization of
the Telebras operating companies, the Brazilian government then sold at auction
"mirror" licenses to provide communications services over public switched
networks in each of the three areas served by the incumbent local carriers and
the long distance carrier. A public switched network is a network available to
all users and not dedicated to a particular user. The auction of the four mirror
licenses produced "mirror companies," named Vesper (with two regional local
licenses),
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Global Village Telecom and Intelig. Each of the mirror companies is able to
offer the same public switched services as the incumbent carrier serving the
same geographic area or scope. Although the public mirror companies are now
constructing modern communications networks, AT&T Latin America believes that
they are focused mainly on competing with the incumbent local carriers by
increasing market share in basic telephone services.
Following the July 1998 deregulation of local and domestic and
international long distance, competition in these services increased due to the
arrival of new entrants, including communications carriers that also provide
services in other countries. AT&T Latin America believes that the incumbent
communications service providers have established customer relationships, as
well as other capabilities and resources to expand their current service
offerings. The existing service providers include local carriers, wireless
telephone operators, providers of data services, cable television network
operators and operators of private networks, such as utilities and railroads.
Telecommunications Laws and Regulations. See the discussion of Brazilian
telecommunications laws and regulations under "The Companies -- Description of
AT&T Latin America -- Regulation and Licenses."
CHILE
Country Overview. Chile is a highly urbanized country, with an estimated
population of approximately 15 million as of December 1999. Santiago, the
capital of Chile and a major international economic center, has a population of
approximately 5.1 million. The Chilean government has implemented a strategy to
encourage foreign investment in Chile. It has privatized and deregulated many
industries, including transportation, energy and communications. From 1994
through 1999, real GDP increased by an average annual rate of 5.6%. Inflation
has been significantly reduced, falling from 15.4% per annum in 1992 to 3.3% per
annum in 1999.
Market Overview. As the first Latin American communications market to
begin to deregulate, Chile's communications sector has grown substantially.
According to Pyramid Research, Chile's lines in service have increased from
approximately 2.7 million in 1997 to approximately 3.4 million in 1999,
indicating a penetration rate of approximately 23 per 100 inhabitants.
Competition. Chile's communications market is extremely competitive. Chile
opened its local and long distance markets to competition in 1994, with the only
constraint being a four-year long distance market share cap imposed on Chile's
former local services monopoly, Compania de Telecomunicaciones de Chile. There
are currently five communications groups that provide both local and long
distance services. Three of them also provide data services. There are three
other licensed providers of local telephone services and four other licensed
providers of domestic and international long distance services. AT&T Latin
America believes that the main competitors in Chile in data and Internet
services and in long distance and local services, Compania de Telecomunicaciones
de Chile and Entel, have a significantly greater market share than FirstCom,
which entered the market in 1996.
Telecommunications Laws and Regulations. The Ley General de
Telecomunicaciones, Law No. 18.168 (1982) and various decrees issued by the
Ministry of Transportation and Telecommunications and other Chilean governmental
authorities, constitute the legal and regulatory framework for providing
services in Chile.
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In 1994, the Chilean telecommunications law was amended to promote greater
competition in the communications sector and to establish a framework for a
multicarrier dialing system. The most significant amendments were:
- in the case of local telephone carriers, only their affiliates or other
related companies, rather than the local telephone carriers themselves,
can now provide public long distance services; and
- the establishment of all carriers' maximum market shares in the domestic
long distance market for a four-year period and in the international long
distance market for three years, each period measured from the inception
of the multicarrier dialing system. Companies that carry traffic above
these units will be subject to substantial financial penalties and the
Chilean Undersecretary of Telecommunications may suspend their service.
The Chilean telecommunications law also requires providers of public
telephone services to conform to a multicarrier system in which end-users,
rather than local telephone carriers, will determine on a call-by-call or
contractual basis the long distance carrier they want to use. In addition, long
distance carriers are authorized to establish direct connections to end users
through their own networks.
The Chilean telecommunications law provides for substantial fines, the
suspension of service and other penalties for violations of the multicarrier
dialing system. The routing of calls by a local telephone company to a long
distance carrier other than the carrier selected by the end user or the
obstruction or delay of an interconnection between the local telephone carrier
and any long distance carrier would constitute violations, and the local
telephone carrier may be required to indemnify the provider of long distance
services for any such violations.
COLOMBIA
Country Overview. Colombia is the second largest country in South America
with an estimated population of approximately 39 million. Bogota, the capital of
Colombia, has a population of approximately 6.3 million. Cali and Medellin, the
two next largest cities in Colombia, have populations of approximately 1.6
million and 2.2 million, respectively. From 1994 through 1999, GDP grew at an
average annual rate of 1.9%. Inflation continuously dropped each year from 22.8%
in 1994 to 10.9% in 1999.
Market Overview. As Colombia continues to deregulate its communications
market, the country has continued to experience significant growth in
communications revenue and telephone density. With new competitors entering the
local market, local operators are marketing aggressively to obtain subscribers.
According to Pyramid Research, total lines in service in Colombia have increased
from approximately 5.4 million in 1997 to approximately 7.4 million in 1999,
indicating a penetration rate of approximately 18 per 100 inhabitants.
In the data communications industry, the addition of new operators has
increased the selection of services available to the business community.
Significant growth of the communications industry has taken place in Colombia.
This is the result of increasing demand for local and wide area networks and
value-added data and Internet services. Internet is the fastest growing data
communications service in the Colombian market. The increasing demand for
Internet access and services has encouraged a greater number of Internet service
providers to enter the market.
Competition. Colombia's communications market has been dominated by the
incumbent long distance operator, TELECOM (Empresa Nacional de
Telecomunicaciones). However, TELECOM
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has limited local network presence compared with Empresa de Telecomunicaciones
de Santafe de Bogota, Empresas Publicas de Medellin and EMCATEL, in Bogota,
Medellin and Cali, respectively.
There are several companies that provide value-added services to corporate
customers, although their traditional focus has been domestic satellite-based
solutions. In the metropolitan areas, specifically in Bogota, there appears to
be a limited number of high-speed communication service providers. However,
there has been increased competition from Emtelco and Teledatos in Bogota in the
provision of connections from customers' locations to the principal networks
over which communication services travel.
AT&T Latin America believes that its main competitors in Colombia in data
and Internet services are TELECOM and Impsat. In long distance and local
services, it believes that its main competitors are TELECOM Empresa de
Telecomunicaciones de Santafe de Bogota and Empresas Publicas de Medellin.
FirstCom, which entered the market in 1999 when it acquired Teleductos S.A., a
last mile access provider, has a significantly smaller share of these markets.
Telecommunications Laws and Regulations. The principal components of
Colombia's regulation of communications services include Decree 1990 issued in
1990, Law 142 enacted in 1994 and various other decrees issued by Colombian
governmental authorities. These laws and the governmental authorities that
regulate the communications industry constitute the legal and regulatory
framework for providing services in Colombia.
The Ministry of Communications regulates certain areas of the
communications sector, including the administration, regulation and control of
radioelectric spectrum and frequencies and the physical infrastructure in
Colombia. Law 142 was issued to develop policies and regulations related to
certain public services and includes the regulation of local and long distance
public switched fixed telephone services, both national and international. Law
142 created the Superintendency of Public Services and the Commission for the
Regulation of Telecommunications. The Superintendency oversees the management
and performance of utilities and has the power to impose sanctions for
non-compliance with regulations. The Commission performs the regulatory function
within the communications industry with the stated purpose of promoting
competition and improving efficiency and quality of service.
Finally, Colombian law obligates all network operators to make their
networks available for interconnection with other networks.
PERU
Country Overview. Peru is the fourth largest country in South America with
an estimated population of 26 million at December 1999. Lima, the capital of
Peru and the major economic center in Peru, has a population of approximately
6.3 million. In 1990, the Peruvian government embarked on a series of economic
and political measures to curtail inflation and restore economic stability. From
1994 through 1999, GDP increased by an average annual growth rate of 5.5%.
Market Overview. Demand for telephone service in Peru has historically
been unmet due to lack of investment, high prices, poor service and long waiting
periods for service. One of the stated goals of privatizing Peru's former local
and long distance incumbent, Telefonica del Peru, was to expand significantly
the national communications network and improve service quality. The number of
lines in service has increased since the privatization from approximately 1.1
million in 1995 to approximately 1.6 million in 1999. Notwithstanding the
significant recent growth in lines in service, Peru continues to have a
relatively low penetration rate of 6.5 lines in service per 100 inhabitants as
of the end of 1999. AT&T Latin America believes that continued growth in demand
for communication services in Peru will be influenced by the growth of the
Peruvian economy, foreign
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investment and international trade, the continued expansion of the
communications network and the re-balancing of tariffs. AT&T Latin America
considers Peru's communications market to be an excellent environment for the
growth of communications business. It also believes the Peruvian economy is a
potential source of increasing demand for communication services with growing
domestic and multinational businesses attracting significant foreign investment.
Competition. Telefonica del Peru dominates Peru's communications market.
Telefonica del Peru was formed by the merger in 1994 of the former local
telephone service incumbent, Compania Peruana de Telefonos, and ENTEL, the
former long distance telephone service incumbent. Telefonica del Peru is owned
by Telefonica de Espana S.A. BellSouth, which formerly operated as Tele2000, is
also an important competitor. BellSouth provides cellular, public pay phone and
cable television services in Lima and other Peruvian cities. BellSouth also owns
and operates a small fiber optic loop over which it offers frame relay services.
Frame relay services are delivered using the frame relay transfer mode designed
for transmission of data over digital networks in packets of varying length.
FirstCom has a relatively small market share, having entered the market in 1998.
Following the August 1998 deregulation of local and domestic and
international long distance, competition in these services is arising from a
variety of new entrants. They include communications carriers that provide
services in other countries as well as companies currently providing services in
other industries previously liberalized in Peru. In addition to the public
switched long distance concession granted to FirstCom, other entities, including
BellSouth, have been granted such a concession. Also, existing communications
service providers, including local carriers, wireless telephone operators, the
providers of data services, cable television network operators and operators of
private networks, may have established customer relationships as well as other
capabilities and resources to expand their current service offerings.
Telecommunications Laws and Regulations. The principal features of
Peruvian regulation of communications services include the General
Telecommunications Law, the General Regulation to the Telecommunications Law and
the Regulation for the Organization for Supervision of Private Investments in
Telecommunications.
The Peruvian telecommunications law sets out the basic framework for the
provision and regulation of communications services, and has the stated
objective of providing a competitive market in communications. The law grants
the Peruvian government the ability to oversee communications services through
the Ministry of Transportation, Communications, Housing and Construction. The
Ministry has the authority to
- grant, renew and cancel concessions, authorizations, permits and
licenses;
- approve communications policy;
- manage the electric spectrum and approve the assignment of frequencies;
and
- discontinue the rendering of value added services offered by
concessionaires when such services cause any damage or harm to the public
communications network.
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DESCRIPTION OF AT&T LATIN AMERICA'S CAPITAL STOCK
The following is a discussion of the material terms of AT&T Latin America's
Class A common stock and other capital stock as it will exist upon completion of
the merger. For a more detailed description, see the forms of AT&T Latin
America's amended and restated certificate of incorporation and bylaws attached
as exhibits to the merger agreement, which is attached as Annex A to this proxy
statement/prospectus, and the applicable provisions of Delaware law.
AUTHORIZED CAPITAL STOCK
AT&T Latin America is authorized to issue 460 million shares of capital
stock, consisting of 300 million shares of Class A common stock, par value
$0.0001 per share, 150 million shares of Class B common stock, par value $0.0001
per share, and 10 million shares of preferred stock, par value $0.001 per share.
COMMON STOCK
VOTING RIGHTS. Holders of AT&T Latin America's Class A common stock have
one vote per share, and holders of Class B common stock have ten votes per
share, on all matters to be voted on by stockholders, including the election of
directors.
Generally, except as required by law, all matters to be voted on by
stockholders must be approved by a majority of the votes that holders of Class A
and Class B shares present in person or represented by proxy are entitled to
cast, voting together as a single class, subject to any voting rights granted to
holders of any preferred stock of AT&T Latin America. Except as otherwise
provided by law or in AT&T Latin America's certificate of incorporation, and
subject to any voting rights granted to holders of any outstanding preferred
stock, amendments to AT&T Latin America's certificate of incorporation need the
approval of a majority of the votes entitled to be cast by all holders of Class
A and Class B shares voting as a single class. Amendments that would alter or
change the relative powers, preferences or special rights of the Class A shares
or the Class B shares in an adverse manner, however, also must be approved by a
majority of the votes entitled to be cast by the holders of the class so
affected, voting as a separate class. Separate class votes are not required for
amendments to decrease or increase the authorized shares of any class so long as
adequate shares are reserved for issuance upon conversion of the Class B shares
or any shares of preferred stock. Stockholders may not act by written consent.
DIVIDENDS. Holders of AT&T Latin America's Class A and Class B shares
share equally on a per share basis in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends to holders of shares of Class A common stock or Class B common
stock consisting of shares of common stock or options or other securities
convertible into shares of common stock may be paid only in shares of Class A
common stock or options or other securities convertible into Class A common
stock.
AT&T Latin America may not split, reclassify, subdivide or combine shares
of either class of common stock without at the same time proportionally
reclassifying, subdividing or combining shares of the other class.
ISSUANCE OF SHARES OF CLASS B COMMON STOCK, OPTIONS OR WARRANTS. AT&T Latin
America may not issue additional shares of Class B common stock, or issue
options, rights or warrants to subscribe for additional shares of Class B common
stock, except in connection with a pro rata offer to all holders of its common
stock of rights to purchase additional shares of the class of common stock held
by them. The Class A shares and the Class B shares will be treated equally with
respect to any offer
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AT&T Latin America makes to holders of common stock of options, rights or
warrants to subscribe for any of its other capital stock.
MERGER OR CONSOLIDATION. In the event of a merger or consolidation, the
holders of Class A shares and Class B shares will be entitled to receive the
same per share consideration, if any.
CONVERSION OF CLASS B SHARES. Class B shares are convertible into Class A
shares on a share-for-share basis at the option of the holder at any time, or
automatically upon transfer to a person or entity which is not a permitted
transferee. Permitted transferees include AT&T Corp. and any person or entity in
which it owns directly or indirectly 50% or more of the equity securities.
LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of AT&T Latin America, subject to the rights of any
shares of preferred stock, the net assets of AT&T Latin America available for
distribution to holders of equity securities will be distributed pro rata to the
holders of shares of common stock. The holders of shares of Class A common stock
and Class B common stock will be entitled to any of those distributions on an
equal basis.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of AT&T Latin America's common
stock do not have any preemptive rights under the certificate of incorporation,
bylaws or Delaware law to subscribe for any additional shares of, or other
obligations convertible into or exercisable for shares of, AT&T Latin America's
capital stock in connection with any future issuance by AT&T Latin America. No
shares of common stock are subject to redemption.
NASDAQ LISTING. AT&T Latin America has received approval to list shares of
its Class A common stock on the Nasdaq National Market under the trading symbol
"ATTL." The shares of Class B common stock will not be publicly listed or
traded.
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following discussion describes the material United States federal
income and estate tax consequences of the ownership and disposition of shares of
AT&T Latin America Class A common stock by non-U.S. holders. A non-U.S. holder
is any person or entity that holds common stock, other than:
- a citizen or resident of the United States,
- a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any state of
the United States,
- an estate whose income is includable in gross income for U.S. federal
income tax purposes regardless of its source or
- a trust, if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and (2) at least
one U.S. person has authority to control all substantial decisions of the
trust.
This discussion is based on provisions of the Internal Revenue Code,
existing and proposed Treasury regulations and administrative and judicial
interpretations, all as of the date of this proxy statement/prospectus. All of
these are subject to change, possibly on a retroactive basis.
The tax treatment of a particular non-U.S. holder may vary depending on the
holder's particular situation. This discussion does not include any description
of the tax laws of any state, local or non-U.S. government that may be
applicable to a particular non-U.S. holder. This discussion also does
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not address the tax consequences to holders of shares of AT&T Latin America
Series A convertible preferred stock.
PROSPECTIVE HOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS WITH RESPECT
REGARDING THE SPECIFIC U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM
OF THE OWNERSHIP AND DISPOSITION OF AT&T LATIN AMERICA COMMON STOCK IN LIGHT OF
THEIR PARTICULAR INDIVIDUAL CIRCUMSTANCES, AS WELL AS THE TAX CONSEQUENCES UNDER
STATE, LOCAL, NON-U.S. AND OTHER U.S. FEDERAL TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGES IN TAX LAWS.
INCOME TAX
DIVIDENDS. Generally, dividends paid on common stock to a non-U.S. holder
are subject to U.S. federal income tax. Except for dividends that are
effectively connected with a non-U.S. holder's conduct of a trade or business
within the United States, this tax is imposed and collected by withholding at
the rate of 30% of the amount of the dividend, unless reduced by an applicable
income tax treaty. Currently, dividends paid to an address in a country other
than the United States are presumed to be paid to a resident of such country in
determining the applicability of a treaty for such purposes.
However, under Treasury regulations relating to withholding of tax on
non-U.S. persons, which by their terms apply to dividend and other payments made
after December 31, 2000, a non-U.S. holder who is the beneficial owner within
the meaning of those regulations of dividends paid on common stock and who
wishes to claim the benefit of an applicable treaty is generally required to
satisfy certain certification and documentation requirements. Special rules
apply to claims for treaty benefits made by non-U.S. persons that are entities
rather than individuals and to beneficial owners of dividends paid to entities
in which such beneficial owners are interest holders.
Except as may be otherwise provided in an applicable income tax treaty,
dividends paid on common stock to a non-U.S. holder that are effectively
connected with the holder's conduct of a trade or business within the United
States are subject to tax at ordinary U.S. federal income tax rates, which tax
is not collected by withholding (except as described below in "Backup
Withholding and Information Reporting"). All or part of any effectively
connected dividends received by a non-U.S. corporation 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. A
non-U.S. holder who wishes to claim an exemption from withholding for
effectively connected dividends is generally required to satisfy certain
certification and documentation requirements.
If AT&T Latin America meets certain foreign business requirements,
including that at least 80 percent of its gross income constitutes active
foreign business income over the relevant testing period, a percentage of its
dividends that is equal to the percentage of total gross income represented by
active foreign business income will not be subject to U.S. withholding tax. AT&T
Latin America is unable to predict whether, or for what years, if any, it may
satisfy such requirements.
A non-U.S. holder that is eligible for a reduced rate of U.S. withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts withheld
by filing an appropriate claim for refund with the Internal Revenue Service.
DISPOSITION OF COMMON STOCK. Generally, non-U.S. holders will not be
subject to U.S. federal income tax or withholding in respect of gain recognized
on a disposition of common stock unless:
- the gain is effectively connected with the holder's conduct of a trade or
business within the United States (in which case the "branch profits" tax
described above may also apply if the holder is a non-U.S. corporation);
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- in the case of a holder who is a nonresident alien individual and holds
common stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale and certain
other conditions are met;
- AT&T Latin America is or has been a "United States real property holding
corporation" for U.S. federal income tax purposes and the holder has held
directly or constructively more than 5% of the outstanding common stock
within the five-year period ending on the date of the disposition. AT&T
Latin America does not believe it has been or is currently a United
States real property holding corporation; or
- the holder is an individual who lost U.S. citizenship within the 10-year
period immediately preceding the close of the taxable year of such
disposition, unless such loss of citizenship did not have a U.S. tax
avoidance purpose.
ESTATE TAX
If an individual non-U.S. holder owns, or is treated as owning, AT&T Latin
America Class A common stock at the time of his or her death, such stock would
be subject to U.S. federal estate tax imposed on the estates of nonresident
aliens, in the absence of a contrary provision contained in an applicable tax
treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. Under current law, dividends paid on common stock to a non-U.S.
holder at an address outside the United States are generally exempt from backup
withholding tax and U.S. information reporting requirements but not from regular
withholding tax, as discussed above. For dividends paid after December 31, 2000,
a non-U.S. person must generally provide proper documentation indicating
non-U.S. status to a withholding agent in order to avoid backup withholding tax.
However, dividends paid to certain exempt recipients, not including individuals,
will not be subject to backup withholding even if such documentation is not
provided. This is true so long as the withholding agent is allowed to rely on
certain regulatory presumptions concerning the recipient's non-U.S. status
including payment to an address outside the United States.
Broker Sales. Payments of proceeds from the sale of common stock by a
non-U.S. holder made to or through a U.S. office of a broker are generally
subject to both information reporting and backup withholding at a rate of 31%
unless the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes entitlement to an exemption. Payments of proceeds from the
sale of common stock by a non-U.S. holder made to or through a non-U.S. office
of a broker generally will not be subject to information reporting or backup
withholding. However, payments made to or through certain non-U.S. offices,
including the non-U.S. offices of a U.S. broker, are generally subject to
information reporting but not backup withholding unless the holder certifies its
non-U.S. status under penalties of perjury or otherwise establishes entitlement
to an exemption.
A non-U.S. holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing an appropriate claim for refund with the
Internal Revenue Service.
PREFERRED STOCK
GENERALLY. AT&T Latin America's board of directors may, without approval
of its stockholders, issue a number of shares of preferred stock in one or more
series that does not together with the shares of existing outstanding preferred
stock exceed the amount established by the certificate of incorporation, which
currently is 10,000,000 shares. The board of directors may fix the numbers of
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shares of each series and the designation, powers, preferences and rights and
the qualifications, limitations and restrictions of the shares of each series.
The specific matters that the board of directors may determine include the
following:
- the designation of each series;
- the voting rights, if any, of each series;
- the rate of any dividends;
- redemption rights, if any, of each series;
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of AT&T Latin
America;
- rights and terms of any conversion or exchange;
- dividend, distribution, redemption or purchase limitations and
restrictions relating to other capital stock, if any, while any shares of
such series are outstanding;
- restrictions on the creation of indebtedness or the issuance of shares of
the same series or any other series; and
- the ranking of a series compared to other classes or series as to the
payment of dividends, the distribution of assets and all other matters.
SERIES A CONVERTIBLE PREFERRED STOCK. Upon completion of the merger, each
outstanding FirstCom Series A convertible preferred share will convert into a
share of AT&T Latin America Series A convertible preferred stock.
Rights of the holders of shares of Series A convertible preferred stock of
AT&T Latin America will include:
Conversion. Shares of Series A convertible preferred stock will be
convertible at the option of the holder into one share of Class A common stock,
subject to adjustment. The shares of Series A convertible preferred stock will
automatically convert at any time after the second anniversary of the merger
that the closing trading price of shares of AT&T Latin America's Class A common
stock is greater than $15 for thirty consecutive trading days.
Dividends. Holders of Series A convertible preferred stock receive in-kind
stock dividends at the annual rate of 15%, payable quarterly until June 30,
2001, and are entitled to receive other dividends paid from time to time to
common shareholders and all accrued and unpaid dividends.
Liquidation. Upon any voluntary or involuntary liquidation, dissolution or
winding up, or specified changes of control, of AT&T Latin America, holders of
shares of Series A convertible preferred stock will be entitled to receive
$8.00, plus all accrued and unpaid dividends.
Voting. Holders of shares of Series A convertible preferred stock will be
entitled to one vote for each share of Series A common stock of AT&T Latin
America into which the share of Series A convertible preferred stock is
convertible. As of the merger, this exchange ratio will be one-for-one and the
holders of shares of Series A convertible preferred stock will be entitled to
one vote per share.
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Special Required Approval. The certificate of designation for the Series A
convertible preferred stock will provide that without the approval of 75% of the
outstanding shares of Series A convertible preferred stock, voting together as a
class, AT&T Latin America may not:
- amend, repeal, alter or waive its certificate of incorporation or bylaws
if it would have a material adverse effect on the rights, preferences or
privileges of the Series A convertible preferred stock;
- authorize or issue any new or existing capital stock (including
securities convertible or exchangeable into capital stock) with superior
or on parity preferences or priorities or rights as to dividends,
liquidation preference, assets or voting, or preemptive rights;
- redeem, purchase or otherwise acquire any shares of AT&T Latin America
other than the Series A convertible preferred stock; and
- authorize or pay dividends or other distributions on any shares of AT&T
Latin America other than the Series A convertible preferred stock.
Redemption by AT&T Latin America. AT&T Latin America may redeem all of
outstanding shares of Series A convertible preferred stock at any time after
July 30, 2001 for an amount that would result in the holders of the Series A
convertible preferred stock receiving a 25% internal rate of return on their
original investment.
Redemption by Holders. Holders of shares of Series A convertible preferred
stock at any time will be able to redeem any portion of their outstanding shares
at a price equal to $8.00, plus all accrued and unpaid dividends. There will be
no restrictions on the repurchase or redemption of shares of Series A
convertible preferred stock during any period in which AT&T Latin America does
not declare dividends on time.
FirstCom and AT&T Latin America have been in discussions with the holders
of the FirstCom Series A convertible preferred shares regarding the possible
conversion of these preferred shares into FirstCom common shares shortly before
the merger. Those discussions contemplate that, in connection with this
conversion, FirstCom will accelerate all future paid-in-kind dividends on these
preferred shares. Assuming this acceleration occurs, the holders of the
preferred shares would receive 1,666,667 shares of AT&T Latin America Class A
common stock in the merger.
15% SERIES B PREFERRED STOCK. In connection with the financing of the
FirstCom tender offer and consent solicitation for FirstCom's 14% senior notes
due 2007, AT&T Latin America will issue shares of its 15% Series B preferred
stock to a subsidiary of AT&T Corp, which are non-participating and
non-convertible.
Rights of the holders of shares of Series B preferred stock of AT&T Latin
America will include:
Dividends. Holders of shares of 15% Series B preferred stock will be
entitled to receive dividends at an annual rate of 15%, payable semi-annually.
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Liquidation. Upon any voluntary or involuntary liquidation, dissolution or
winding up, holders of shares of 15% Series B preferred stock will be entitled
to receive their investment, plus all accrued and unpaid dividends.
Redemption. The 15% Series B preferred stock will be redeemable, at AT&T
Latin America's option or the option of the holder, at any time beginning on the
fourth anniversary of the issue date at a redemption price equal to the
liquidation value.
Repurchase upon a change of control. AT&T Latin America will be obligated
to offer to repurchase shares of the 15% Series B preferred stock upon a change
of control of AT&T Latin America at a redemption price equal to 101% of the
liquidation value.
Voting. Holders of shares of 15% Series B preferred stock will generally
not be entitled to vote on any matter required or permitted to be voted upon by
our stockholders. However, in specified circumstances, holders of 15% Series B
preferred stock, voting as a separate class, will be entitled to elect two
members of the AT&T Latin America board of directors. These circumstances are if
AT&T Latin America:
- has not paid cash dividends on the shares of 15% Series B preferred stock
for three or more semi-annual dividend periods;
- fails to discharge any redemption obligation with respect to the stock;
- fails to make an offer to purchase following a change of control; or
- breaches other material provisions of the 15% Series B preferred stock.
Special Required Approval. The certificate of designation for the 15%
Series B preferred stock will provide that without the approval of a majority of
the outstanding shares of Series B preferred stock, voting together as a class,
AT&T Latin America may not:
- authorize or issue any 15% Series B preferred stock, any stock that is
senior or equal to the 15% Series B preferred stock or any security
exchangeable or convertible into a stock that does not rank below the 15%
Series B preferred stock, or reclassify any security into a stock that
does not rank below;
- amend, alter or revoke AT&T Latin America's certificate of incorporation
or bylaws if it would modify the rights, preferences or privileges of the
15% Series B preferred stock; or
- amend or modify the rights, preferences or privileges of the Series A
convertible preferred stock if it would have an adverse effect on the
holders of the 15% Series B preferred stock.
PROVISIONS OF AT&T LATIN AMERICA'S CERTIFICATE OF INCORPORATION AND BYLAWS THAT
COULD DELAY, DEFER OR PREVENT CHANGES OF CONTROL
Some provisions of AT&T Latin America's certificate of incorporation and
bylaws could delay, defer or prevent a change in control of AT&T Latin America
that might be otherwise beneficial to a stockholder. These provisions include:
- unequal voting rights per share between the shares of Class A common
stock and shares of Class B common stock, which are held by AT&T Corp.;
- a prohibition on stockholder action by written consent;
- advance notice requirements for stockholder proposals for special
meetings; and
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- the authority of the board of directors to issue without stockholder
approval shares of preferred stock with such terms as the board may
determine.
OTHER PROVISIONS OF AT&T LATIN AMERICA'S CERTIFICATE OF INCORPORATION AND BYLAWS
BOARD OF DIRECTORS; DISINTERESTED DIRECTORS. When the merger is completed,
AT&T Latin America will have nine directors, including three disinterested
directors. Disinterested directors are people who are not
- directors, officers or employees of AT&T Corp. or any of its affiliates
or
- officers or employees of AT&T Latin America.
Promon's affiliate may designate its chief executive officer as a director until
an underwritten primary offering of Class A shares, so long as Promon's
affiliate and its permitted transferees hold at least 5% of the outstanding
common stock of AT&T Latin America. However, Promon's affiliate has indicated to
AT&T Latin America that it does not plan to exercise this right. The total
number of AT&T Latin America directors may be increased, but only if approved
by:
- the existing disinterested directors, if the total number of
disinterested directors is fewer than five; or
- at least 80% of the disinterested directors, if the total number of
disinterested directors is five or more.
BOARD POLICY. Before the merger, the board of directors of AT&T Latin
America will adopt a policy relating to specified corporate opportunities. The
form of this board policy is an exhibit to the merger agreement included in this
proxy statement/prospectus as Annex A. This policy provides that AT&T Corp. and
its affiliates will only be required to make a corporate opportunity available
to AT&T Latin America if it:
- directly relates to the services that AT&T Latin America may provide
under the regional vehicle agreement;
- directly relates to AT&T Latin America's region;
- can, in the good faith judgment of AT&T Corp., be financed by AT&T Latin
America without the issuance of additional debt or equity to AT&T Corp.
or one of its affiliates; and
- has been presented to:
- an AT&T Latin America officer or director, who is not also an officer or
director of AT&T Corp. or one of its affiliates;
- an AT&T Latin America officer or director, who is also an officer or
director of AT&T Corp. or one of its affiliates, specifically in his or
her capacity as an officer or director of AT&T Latin America; or
- a senior employee of AT&T Corp., specifically for consideration by AT&T
Latin America.
The board policy provides that AT&T Corp. and its affiliates need not
present to AT&T Latin America any opportunity other than those described above
and AT&T Corp. and its affiliates may pursue, or direct to any other person, any
opportunity presented to, and not pursued by, AT&T Latin America's board of
directors.
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This board policy may not be amended without the approval of a majority of
the disinterested directors of AT&T Latin America.
TRANSACTIONS WITH AT&T CORP. AFFILIATES. AT&T Latin America's bylaws
provide that no transaction between AT&T Latin America and AT&T Corp. or its
affiliates will be void or voidable solely because any directors or officers of
AT&T Corp. or the relevant affiliate are present at or participate in the AT&T
Latin America board of directors or committee meeting that approves the
transaction or solely because his or their votes are counted for the approval,
if:
- the material facts about the transaction are disclosed or known to the
AT&T Latin America board of directors or relevant committee and the board
of directors or, alternatively, that committee, and a majority of the
AT&T Latin America's disinterested directors have approved of it;
- the transaction is approved by the holders of a majority of the
outstanding AT&T Latin America shares entitled to vote on the transaction
that are not owned by AT&T Corp. or one of its affiliates, other than
AT&T Latin America or its controlled subsidiaries, voting together as a
single class;
- the transaction is approved in accordance with arrangements, standards or
guidelines that were approved as set forth above; or
- the transaction is fair to AT&T Latin America at the time AT&T Latin
America enters into it.
AT&T Latin America directors who are not disinterested directors may be
counted in determining the quorum for any approvals of the AT&T Latin America
board of directors or its committees that are made in accordance with the
requirements listed above. AT&T Latin America shares owned by AT&T Corp. or its
affiliates, other than AT&T Latin America or its controlled subsidiaries, may be
counted in determining quorum for any approvals by AT&T Latin America
stockholders that are made in accordance with the requirements described above.
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COMPARISON OF RIGHTS OF FIRSTCOM SHAREHOLDERS
AND AT&T LATIN AMERICA STOCKHOLDERS
As a result of the merger, your FirstCom common shares will be exchanged
for AT&T Latin America Class A common stock. The amended and restated
certificate of incorporation and bylaws of AT&T Latin America then in effect
will govern the rights of those Class A shares. AT&T Latin America is
incorporated in Delaware, and FirstCom is incorporated in Texas. In addition, as
AT&T Latin America stockholders, the Delaware General Corporation Law will
govern your rights instead of the Texas Business Corporation Act, which governs
your rights as FirstCom shareholders. The following description discusses the
material differences between your current rights as common shareholders of
FirstCom and the rights you will have after the merger as holders of AT&T Latin
America Class A common stock.
VOTING RIGHTS; QUORUM
FIRSTCOM. Holders of each outstanding FirstCom common share are entitled
to one vote per share on each matter submitted to a shareholder vote. Holders of
a majority of the outstanding stock of FirstCom entitled to vote at a meeting
constitute a quorum.
AT&T LATIN AMERICA. Holders of shares of AT&T Latin America Class A common
stock, which you will receive in the merger, have one vote per share for each
matter submitted to a stockholder vote. Holders of shares of Class B common
stock, which AT&T Corp. owns, have ten votes per share. One-third of the
outstanding shares of voting stock entitled to vote at an AT&T Latin America
stockholders' meeting constitutes a quorum.
NUMBER AND ELECTION OF DIRECTORS
FIRSTCOM. The FirstCom board of directors consists of at least five but
not more than nine directors. Directors serve until the next annual meeting of
shareholders or until their successors are elected and qualified. Vacancies in
the FirstCom board of directors may be filled by the affirmative vote of a
majority of the remaining directors, although less than a quorum, or by election
at an annual shareholders meeting or at a special shareholders meeting called
for that purpose.
FirstCom's bylaws require advance notice of nominations by shareholders for
election of directors or other business brought before an annual meeting by a
shareholder.
AT&T LATIN AMERICA. Upon the merger, the AT&T Latin America certificate of
incorporation will provide for a board of directors consisting of nine
directors, including three disinterested directors. Disinterested directors are
people who are not (a) directors, officers or employees of AT&T Corp. or any of
its affiliates or (b) officers or employees of AT&T Latin America. The total
number of AT&T Latin America directors may be increased, but only if approved
by:
- the existing disinterested directors, if the total number of
disinterested directors is fewer than five; or
- at least 80% of the disinterested directors, if the total number of
disinterested directors is five or more.
The process for filling vacancies in the AT&T Latin America board of
directors is the same as for filling vacancies in the FirstCom board of
directors. In addition, if the remaining directors are less than a quorum, a
Delaware court may, upon the request of the holders of least 10% of the
stockholders entitled to vote for the directors, order a special election to
fill the vacancies.
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Unlike FirstCom's organizational documents, AT&T Latin America's bylaws do
not require advance notice of nominations by stockholders for election of
directors or other business brought before an annual meeting of stockholders.
However, advance notice of the purpose or purposes of a special meeting of the
stockholders is required.
INDEMNIFICATION
FIRSTCOM. Under the Texas Business Corporation Act, a corporation may
indemnify a director if the director:
- conducted himself in good faith;
- reasonably believed while conducting business in his official capacity
that his conduct was in the corporation's best interests and otherwise
that his conduct was not opposed to the corporation's best interests; and
- in the case of a criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful.
However, directors may not be indemnified for a proceeding if the director
is found liable on the basis that he received an improper benefit or is found
liable to the corporation, except for reasonable expenses actually incurred by
the director in connection with the proceeding. In no case may a corporation
indemnify a director if he is found liable for willful or intentional misconduct
in the performance of his duty to the corporation. Under its articles of
incorporation, FirstCom may indemnify any person, including present or former
directors, officers, trustees, employees or agents of FirstCom or any person
serving at the request of FirstCom as a director, officer, employee or agent of
another person, to the extent permitted by the Texas Business Corporation Act.
AT&T LATIN AMERICA. AT&T Latin America's bylaws provide that it will
indemnify any person made a party to a third-party action as a result of being a
director or officer of AT&T Latin America. Also, it may indemnify any other
person party to a third-party action as a result of being an employee of AT&T
Latin America, against expenses, judgment, fines and amount paid in settlement
actually and reasonably incurred. Similar to FirstCom, AT&T Latin America will
provide indemnification only upon a determination that the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of AT&T Latin America, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. This determination for AT&T Latin America is made, in the case of an
individual who is a director or officer at the time of the determination, by:
- a majority of its directors not a party to the action, even though less
than a quorum;
- a committee of those directors designated by a majority vote of those
directors, even though less than a quorum;
- independent legal counsel in a written opinion; or
- a majority vote of the stockholders, at a meeting at which a quorum is
present.
In derivative actions, indemnification will be limited to expenses actually
and reasonably incurred by the indemnified party. Without court approval, no
indemnification for derivative actions may be made if the person is found liable
to AT&T Latin America.
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Delaware law permits a corporation to advance expenses relating to the
defense of any proceeding to directors and officers contingent upon that
individuals' commitment to repay any advances unless it is determined ultimately
that indemnification is proper.
VOTING RIGHTS ON BUSINESS COMBINATIONS; TRANSACTIONS WITH INTERESTED
STOCKHOLDERS
FIRSTCOM. FirstCom is subject to Part 13 of the Texas Business Corporation
Act, which prohibits a Texas corporation from engaging in a business combination
with an affiliated shareholder, defined generally as a person owning 20% or more
of a corporation's outstanding voting stock, for three years after becoming an
affiliated shareholder unless:
- the board of directors approved the business combination or the
transaction in which the affiliated shareholder became an affiliated
shareholder before the person became an affiliated shareholder; or
- holders of two-thirds of the outstanding voting stock of the corporation
not owned by the affiliated shareholder approve the business combination
at least six months after the person became an affiliated shareholder.
AT&T LATIN AMERICA. AT&T Latin America is subject to Section 203 of the
Delaware General Corporation Law which governs transactions with interested
stockholders. Part 13 of the Texas Business Corporation Act and Section 203 of
the Delaware General Corporation Law are similar. However, Delaware law
generally defines interested stockholders as persons owning 15% or more of a
corporation's outstanding voting stock, a lower ownership requirement than the
20% threshold required for a person to be an affiliated shareholder under Texas
law. Also, the exceptions to the limit on interested stockholder transactions
under Delaware law are different from the exceptions to the limit on affiliated
shareholder transactions under Texas law. An interested stockholder is prevented
from engaging in a business combination with the corporation for three years
after becoming an interested stockholder unless:
- the board of directors approved the business combination itself or the
transaction in which the interested stockholder became an interested
stockholder;
- the interested stockholder owns more than 85% of the stock after the
consummation of the transaction in which the stockholder became
interested; or
- the board of directors approves the business combination and two-thirds
of the outstanding voting stock of the corporation not owned by the
interested stockholder approves the business combination.
RIGHT TO CALL SPECIAL MEETINGS
FIRSTCOM. FirstCom's bylaws authorize each of the board of directors, any
person expressly authorized to call a special meeting by the board of directors
and the holders of not less than 10% of all the shares entitled to vote at a
proposed special meeting to call a special meeting. Additionally, Texas law
allows the president of FirstCom to call a special meeting of shareholders.
AT&T LATIN AMERICA. AT&T Latin America's bylaws also permit special
meetings of stockholders to be called at any time by the president or the board
of directors. Stockholders may also call a special meeting of the AT&T Latin
America stockholders, but only upon the written request of a majority of the
entire capital stock of AT&T Latin America entitled to vote at any stockholders
meeting.
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SHAREHOLDER ACTION BY WRITTEN CONSENT
FIRSTCOM. FirstCom's articles of incorporation permit shareholder action
by written consent of shareholders having at least the number of votes that
would be necessary at a shareholders' meeting to take the shareholder action .
AT&T LATIN AMERICA. The AT&T Latin America certificate of incorporation
prohibits action by written consent of AT&T Latin America's stockholders.
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION AND BYLAWS
FIRSTCOM. FirstCom's articles of incorporation provide that a majority of
the outstanding shares entitled to vote on a matter must approve an amendment to
FirstCom's articles of incorporation. The FirstCom board of directors may amend
or repeal FirstCom's bylaws, or adopt new bylaws, unless the FirstCom
stockholders, in amending, repealing or adopting a particular bylaw provision,
expressly provide that the board of directors may not amend or repeal that
bylaw. Under Texas law, FirstCom stockholders also have the power to amend or
repeal the bylaws.
AT&T LATIN AMERICA. Amendments to AT&T Latin America's certificate of
incorporation also requires approval of a majority of the outstanding stock
entitled to vote on an amendment. Any proposed amendment that would alter or
change the relative powers, preferences or participating, option or other
special rights of the shares of the AT&T Latin America Class A common stock will
require a vote of a majority of the holders of Class A Common Stock, voting as a
class. Also, holders of the outstanding shares of any class of AT&T Latin
America stock are entitled to vote as a class upon a proposed amendment to the
charter if the amendment would change the aggregate number of authorized shares
or the par value of shares of that class.
AT&T Latin America's board of directors or its stockholders may amend,
alter or repeal AT&T Latin America's bylaws. AT&T Latin America bylaws relating
to the existence of disinterested directors and to transactions with affiliates
may not be amended by:
- the board of directors without the consent of all the disinterested
directors, if there are four or fewer, or 80% of the disinterested
directors, if there are more than four; or
- the stockholders, without the approval of the holders of Class A common
stock voting as a class.
DISSENTERS' RIGHTS
FIRSTCOM. Under the Texas Business Corporation Act, FirstCom shareholders
generally have the right to dissent and demand payment of the fair value of
their shares in connection with mergers and the sale, lease, exchange or other
disposition of all or substantially all of the property and assets of the
corporation if that action requires the special authorization of the
corporation's shareholders, or any plan of exchange in which the shareholders'
shares are to be acquired. However, a shareholder does not have dissenters'
rights to any plan of merger if there is a single surviving or new domestic or
foreign corporation, or from any plan of exchange, if:
- the shares held by the shareholder are part of a class or series listed
on a national securities exchange, listed on a Nasdaq market, designated
as a national market security on an interdealer quotation system by the
National Association of Securities Dealers, or the NASD, or held of
record on the applicable record date by not less than 2,000 holders;
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<PAGE> 139
- the shareholder is not required by the terms of the plan of merger or
exchange to accept for the shareholder's shares any consideration that is
different than the consideration to be provided to any other holder of
shares of the same class or series; and
- the shareholder is not required by the terms of the plan of merger or
exchange to accept for his or her shares any consideration other than:
(a) shares of a corporation that, immediately after the merger or
exchange, will be a part of a class or series listed, or authorized
for listing on a national securities exchange, approved for
quotation as a national market security on an interdealer quotation
system by the NASD, or held of record by not less than 2,000
holders;
(b) cash in lieu of fractional shares; or
(c) a combination of subsections (a) and (b) above.
FirstCom's shareholders will not have dissenters' rights as a result of the
merger.
AT&T LATIN AMERICA. Stockholders of AT&T Latin America have the right
under Delaware law to dissent and demand payment of the fair value of their
stock in a merger or consolidation, except that these rights are not available
for shares that, among other things, are:
- listed on a national securities exchange or designated on a national
market system security or an interdealer quotation system by the NASD; or
- held by more than 2,000 stockholders;
unless the corporation's stockholders are required to accept for such stock
anything other than:
- stock of the surviving corporation;
- stock of any corporation either listed on a national securities exchange
or designated on a national market system security or an interdealer
quotation system by the NASD or held by more than 2,000 stockholders;
- cash in lieu of fractional shares of corporations described in the two
immediately preceding bullet points; or
- a combination of the stock or cash described in the three immediately
preceding bullet points.
PAYMENT OF DIVIDENDS
FIRSTCOM. FirstCom's board of directors may authorize a corporation to
make distributions to its stockholders out of its surplus, subject to the rights
of holders of any preferred stock. FirstCom may not make distributions if the
distributions would exceed its surplus or would render it insolvent.
AT&T LATIN AMERICA. AT&T Latin America's board of directors may authorize
dividends and other distributions to its stockholders, either out of surplus or,
if there is no surplus, out of net profits for the fiscal year in which the
board of directors declares the dividend and/or the preceding fiscal year. It
may not make distributions out of net profits, however, if, following the
distribution, its capital would be less than the aggregate amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Dividends declared by the AT&T Latin
America board will also be subject to the rights of the Series A preferred stock
and Series B preferred stock and any other preferred stock approved by the board
of directors.
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SHAREHOLDER RIGHTS PLAN
FIRSTCOM. FirstCom has adopted a shareholder rights plan pursuant to a
rights agreement with American Stock Transfer & Trust Company as rights agent.
As the result of an amendment to the rights plan, the merger will not trigger
the distribution of rights under the rights plan. FirstCom's shareholder rights
plan was designed to deter third parties from making an unsolicited attempt to
acquire FirstCom. The plan seeks to achieve this objective by granting
FirstCom's shareholders, other than the party seeking to gain control, the right
to acquire FirstCom common shares at a substantial discount. These rights are
triggered under the following circumstances:
- when a third party acquires or obtains the right to acquire 20% or more
of FirstCom's common shares;
- 10 business days after a third party acquires at least 10% of FirstCom's
common shares and the FirstCom board determines that such person's
ownership interest would adversely impact the business or prospects of
FirstCom or its shareholders; or
- 10 business days after a third party commences a tender or exchange offer
which would result in such person falling within either of the categories
described in the bullet points above.
The rights issued under this plan may be redeemed at a nominal price or the
plan may be amended by the FirstCom board if it determines to approve the
transaction that would otherwise trigger the rights.
AT&T LATIN AMERICA. AT&T Latin America does not have a stockholder rights
plan.
LEGAL MATTERS
Debevoise & Plimpton, New York, New York, counsel to AT&T Corp. and AT&T
Latin America, will pass upon the validity of the issuance of shares of AT&T
Latin America common stock being offered by this document. Baker & McKenzie, New
York, New York, counsel to FirstCom, will be delivering an opinion concerning
federal income tax consequences of the merger to FirstCom shareholders.
Debevoise & Plimpton also will be delivering an opinion concerning federal
income tax consequences of the merger to AT&T Latin America. See "The Merger --
Material U.S. Federal Income Tax Consequences" on page 46. A member of Baker &
McKenzie beneficially owns 250,000 shares of FirstCom common stock and is a
member of the board of directors of FirstCom.
EXPERTS
The financial statements of AT&T Latin America Corp. as of December 31,
1999 and for the period from inception (October 13, 1999) through December 31,
1999 included in this proxy statement/prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on their authority as experts in accounting and auditing.
The financial statements of FirstCom Corporation incorporated in this proxy
statement/prospectus by reference to the Annual Report on Form 10-K for the year
ended December 31, 1997, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent certified public accountants, have audited
FirstCom's consolidated financial statements included in the FirstCom Annual
Report on Form 10-K/A for the
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years ended December 31, 1999 and 1998, as set forth in their report, which is
incorporated by reference in this proxy statement/prospectus and elsewhere in
the registration statement. FirstCom's consolidated financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Ernst & Young Auditores Independentes S.C., independent auditors, have
audited the Netstream Telecom Ltda. financial statements at September 30, 1999
and December 31, 1998, and for the nine months ended September 30, 1999 and the
eleven months ended December 31, 1998, as set forth in their report. The
Netstream Telecom Ltda. financial statements are included in the proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Ernst & Young Auditores Independentes S.C.'s report, given on their authority as
experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
AT&T Latin America has filed with the SEC a registration statement under
the Securities Act that registers the distribution to FirstCom shareholders of
shares of AT&T Latin America common stock and Series A convertible preferred
stock to be issued in the merger. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
FirstCom and AT&T Latin America. The rules and regulations of the SEC allow us
to omit some information included in the registration statement from this
document.
In addition, FirstCom files reports, proxy statements and other information
with the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Chicago Regional Office
Public Reference Room New York Regional Office Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, including
FirstCom and AT&T Corp., which file electronically with the SEC. The address of
that site is http://www.sec.gov. You can also inspect reports, proxy statements
and other information about FirstCom at the offices of the Nasdaq Stock Market,
20 Broad Street, New York, New York 10005.
The SEC allows FirstCom to "incorporate by reference" information into this
document. This means that the companies can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
FirstCom has previously filed with the SEC. They contain important information
about FirstCom and its financial condition. Some of these filings have been
amended by later filings, which are also listed.
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 0-25194) PERIOD/DATE FILED
------------------------------ -----------------
<S> <C>
Annual Report on Form 10-K........... December 31, 1999 (filed February 23, 2000)
Annual Report on Form 10-K/A
(No. 1)............................ December 31, 1999 (filed May 12, 2000)
Annual Report on Form 10-K/A
(No. 2)........................... December 31, 1999 (filed June 27, 2000)
Current Reports on Form 8-K.......... February 1, 2000 (filed February 3, 2000)
February 22, 2000 (filed February 25, 2000)
March 6, 2000 (filed March 7, 2000)
Subsequently filed reports........... All documents filed by FirstCom under
Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of
this prospectus and prior to the
termination of this offering
</TABLE>
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FirstCom incorporates by reference additional documents that it may file
with the SEC between the date of this document and the date of the FirstCom
special meeting. These documents include periodic reports, including Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through FirstCom, or from the SEC through the SEC's web site at the
address provided above. Documents incorporated by reference are available from
FirstCom without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from FirstCom at the following
address:
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 459-6300
Attention: General Counsel
If you would like to request documents, please do so by August 21, 2000 to
receive them before the special meeting. If you request any incorporated
documents from FirstCom, it will mail them to you by first class mail, or
another equally prompt means, within one business day after FirstCom receives
your request.
FirstCom has not authorized anyone to give any information or make any
representation about the merger or FirstCom that differs from, or adds to, the
information in this document or in FirstCom's documents that are publicly filed
with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
document or to ask for proxies, or if you are a person to whom it is unlawful to
direct these activities, then the offer presented by this document does not
extend to you.
The information contained in this document speaks only as of its date
unless the information specifically indicates that another date applies.
Information in this document about FirstCom has been supplied by FirstCom.
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AT&T LATIN AMERICA CORP.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
AND FOR THE THREE-MONTH PERIOD THEN ENDED
F-1
<PAGE> 145
CONTENTS
<TABLE>
<S> <C>
Unaudited Consolidated Balance Sheets....................... F-3
Unaudited Consolidated Statement of Operations.............. F-4
Unaudited Consolidated Statement of Shareholders' Equity.... F-5
Unaudited Consolidated Statement of Cash Flows.............. F-6
Notes to Unaudited Consolidated Financial Statements........ F-7
</TABLE>
F-2
<PAGE> 146
AT&T LATIN AMERICA CORP.
UNAUDITED CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 279 $ 24,223
Account receivable........................................ 3,606 1,286
Prepaid expenses and recoverable taxes.................... 3,872 2,109
Investments............................................... 30,636 27,078
Other receivables......................................... 30 118
---------- --------
TOTAL CURRENT ASSETS.............................. 38,423 54,814
Plan and equipment, net................................... 86,051 68,269
Goodwill and other intangible assets, net................. 259,764 261,345
---------- --------
TOTAL ASSETS...................................... $ 384,238 $384,428
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 3,184 $ 1,414
Current portion of obligations under capital leases....... 340 317
Trade accounts payable.................................... 7,281 5,339
Social charges payable.................................... 1,182 865
Other current liabilities................................. 6,426 161
Employee bonus............................................ 1,990 531
---------- --------
TOTAL CURRENT LIABILITIES......................... 20,403 8,627
Non-current portion of obligations under capital leases..... 411 383
Deferred tax liability...................................... 1,624 1,624
Commitments and contingencies (Note 4)...................... -- --
---------- --------
TOTAL LIABILITIES................................. 22,438 10,634
---------- --------
Shareholders' equity:
Common stock.............................................. -- --
Additional paid-in capital................................ 376,566 376,566
Accumulated deficit....................................... (15,341) (4,124)
Accumulated other comprehensive income.................... 575 1,352
---------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 361,800 373,794
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 384,238 $384,428
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 147
AT&T LATIN AMERICA CORP.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue..................................................... $ 4,364
Operating costs and expenses:
Cost of revenues.......................................... 6,921
Selling, general and administrative....................... 4,232
Depreciation and amortization............................. 6,160
---------
TOTAL OPERATING COSTS AND EXPENSES................ 17,313
---------
LOSS FROM OPERATIONS................................... (12,949)
Other interest income....................................... 1,018
Foreign exchange gain, net.................................. 714
---------
NET LOSS............................................... $ (11,217)
---------
Basic and diluted loss per share............................ $ (280.43)
---------
Weighted average shares outstanding......................... 40,000
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 148
AT&T LATIN AMERICA CORP.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
NUMBER COMMON STOCK PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
OF SHARES AT PAR CAPITAL DEFICIT INCOME EQUITY
--------- ------------ ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999............... 40,000 $ -- $376,566 $ (4,124) $ 1,352 $373,794
Currency translation adjustments........... (777) (777)
Net loss for the period.................... (11,217) (11,217)
------- -------- -------- -------- -------- --------
Comprehensive net loss..................... (11,217) (777) (11,994)
------- -------- -------- -------- -------- --------
BALANCE AT MARCH 31, 2000.................. 40,000 $ -- $376,566 $(15,341) $ 575 $361,800
------- -------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 149
AT&T LATIN AMERICA CORP.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Loss.................................................. $(11,217)
Adjustments to reconcile net loss cash provided by
operating activities:
Depreciation and amortization expense.................. 6,160
Other.................................................. (777)
Changes in operating assets and liabilities:
Accounts receivable.................................... (2,320)
Recoverable taxes...................................... (1,763)
Other receivables...................................... 88
Trade accounts payable................................. 1,942
Payroll and related charges............................ 1,776
Other current liabilities.............................. 6,266
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 155
--------
Cash flows from investing activities:
Investments in short-term securities...................... (3,558)
Purchases of property and equipment....................... (19,853)
Goodwill and other intangible assets...................... (2,458)
--------
NET CASH USED IN INVESTING ACTIVITIES................ (25,869)
--------
Cash flows from financing activities:
Short-term debt........................................ 1,770
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 1,770
--------
NET DECREASE IN CASH................................. (23,944)
Cash at beginning of period................................. 24,223
--------
CASH AT END OF PERIOD................................ $ 279
--------
Supplemental information on cash disclosures:
Interest paid............................................. $ --
--------
Taxes paid................................................ $ --
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 150
AT&T LATIN AMERICA CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by AT&T Latin America Corp. ("the Company"). The foregoing statements
contain all adjustments, consisting only of normal recurring adjustments which
are, in the opinion of the Company's management, necessary to present fairly the
consolidated financial position of the Company as of March 31, 2000 and the
consolidated results of its operations and its consolidated cash flows for the
three-month period ended March 31, 2000. Result of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results of
operations for the full year.
Certain information and footnote disclosure normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the instructions, rules
and regulations prescribed by the Securities and Exchange Commission ("the
Commission"). Although the Company believes the disclosures provided are
adequate to make the information presented not misleading, it strongly
recommends that these unaudited condensed consolidated financial statements be
read in conjunction with the audited consolidated financial statements and the
footnotes for the year ended December 31, 1999.
2. PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
MARCH 31,
DESCRIPTION 2000
----------- ---------
<S> <C>
Switching equipment......................................... $ 2,576
Transmission equipment...................................... 34,085
Cables...................................................... 3,271
Underground installation.................................... 25,884
Other plant and equipment................................... 12,438
Construction in progress.................................... 715
Client network deployment................................... 12,035
--------
91,004
Less accumulated depreciation and amortization............ 4,953
--------
PLANT AND EQUIPMENT, NET............................... $ 86,051
========
</TABLE>
Depreciation expense related to the plant and property was $2,121 for the
three-month period ended March 31, 2000.
3. ACQUISITION AGREEMENT
On February 23, 2000, the Company agreed to acquire 100% of Keytech LD,
S.A., a development stage broadband communications company based in Argentina.
As of December 31, 1999, Keytech's net loss and total assets were approximately
$1,554 and $2,322, respectively. The purchase price for Keytech LD is 1,178,689
shares of the Company's Class A common stock (of which 550,000 shares will be
placed in escrow to cover indemnity obligations of the seller), plus $5 million
in cash. The Company will also pay up to an additional $1.5 million to the
Keytech LD shareholders one year after the acquisition if business milestones
specified in the stock purchase agreement are accomplished. The Company believes
this transaction to be immaterial.
F-7
<PAGE> 151
AT&T LATIN AMERICA CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
4. COMMITMENTS AND CONTINGENCIES
In accordance with the legislation in force in Brazil, tax registers
related to federal, state and municipal taxes are subject to examination by the
respective tax authorities from 5 to 30 years.
In March 2000, Netstream entered into an import financing loan with
Dresdner Bank with principal amount of $1,755 at an interest rate of 0.8% plus
LIBOR for one year.
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. Although there can be no assurance that
the Company will prevail in every case, management does not believe that the
ultimate disposition of known legal contingencies will have a material effect on
the Company's financial condition, results of operations or cash flows.
F-8
<PAGE> 152
AT&T LATIN AMERICA CORP.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
AND FROM THE DATE OF INCEPTION
(OCTOBER 13, 1999) THROUGH DECEMBER 31, 1999
F-9
<PAGE> 153
CONTENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-11
Audited Financial Statements
Consolidated Balance Sheet................................ F-12
Consolidated Statement of Operations...................... F-13
Consolidated Statement of Shareholders' Equity............ F-14
Consolidated Statement of Cash Flows...................... F-15
Notes to Consolidated Financial Statements................ F-16
</TABLE>
F-10
<PAGE> 154
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
AT&T Latin America Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of AT&T
Latin America Corp. and its subsidiaries (the "Company") at December 31, 1999,
and the results of their operations and their cash flows for the period from
inception (October 13, 1999) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
----------------------------------------
Florham Park, New Jersey
February 25, 2000
F-11
<PAGE> 155
AT&T LATIN AMERICA CORP.
CONSOLIDATED BALANCE SHEET
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2)........................ $ 24,223
Account receivable........................................ 1,286
Recoverable taxes......................................... 2,109
Investments............................................... 27,078
Other receivables......................................... 118
--------
TOTAL CURRENT ASSETS.............................. 54,814
Plant and equipment, net (Notes 2 and 3).................... 68,269
Goodwill and other intangible assets, net (Notes 2 and 4)... 261,345
--------
TOTAL ASSETS...................................... $384,428
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 1,414
Current portion of obligations under capital leases....... 317
Trade accounts payable.................................... 5,339
Social charges payable.................................... 865
Other current liabilities................................. 161
Employee bonus............................................ 531
--------
TOTAL CURRENT LIABILITIES......................... 8,627
Non-current portion of obligations under capital leases..... 383
Deferred tax liability...................................... 1,624
Commitments and contingencies (Note 7)...................... --
--------
TOTAL LIABILITIES................................. 10,634
--------
Shareholders' equity:
Common stock.............................................. --
Additional paid-in capital................................ 376,566
Accumulated deficit....................................... (4,124)
Accumulated other comprehensive income.................... 1,352
--------
TOTAL SHAREHOLDERS' EQUITY........................ 373,794
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $384,428
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 156
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue..................................................... $ 802
Operating costs and expenses:
Cost of revenues.......................................... 865
Selling, general and administrative....................... 2,164
Depreciation and amortization............................. 1,707
--------
TOTAL OPERATING COSTS AND EXPENSES................ 4,736
--------
LOSS FROM OPERATIONS................................... (3,934)
Foreign exchange loss....................................... 190
--------
NET LOSS............................................... $ (4,124)
--------
Basic and diluted loss per share............................ $(103.10)
--------
Weighted average shares outstanding......................... 40,000
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 157
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
NUMBER COMMON STOCK PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
OF SHARES AT PAR CAPITAL DEFICIT INCOME EQUITY
--------- ------------ ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Original share issuance.................... 1,000 $ -- $ -- $ -- $ -- $ --
Additional capital increase................ 39,000 -- 376,566 -- -- 376,566
Currency translation adjustments........... 1,352 1,352
Net loss for the period.................... (4,124) (4,124)
------- -------- -------- -------- -------- --------
Comprehensive net loss..................... (2,772)
------- -------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1999.............. 40,000 $ -- $376,566 $ (4,124) $ 1,352 $373,794
======= ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 158
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,124)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense.................. 1,707
Interest, net.......................................... 87
Changes in operating assets and liabilities:
Accounts receivable.................................... (415)
Recoverable taxes...................................... (82)
Other receivables...................................... (11)
Trade accounts payable................................. 2,777
Payroll and related charges............................ 284
Other current liabilities.............................. (309)
Taxes payable.......................................... 103
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 17
---------
Cash flows from investing activities:
Investments in short-term securities...................... (27,078)
Purchases of property and equipment....................... (6,422)
Acquisition of Netstream, net of cash acquired............ (320,287)
---------
NET CASH USED IN INVESTING ACTIVITIES.................. (353,787)
---------
Cash flows from financing activities:
Short-term debt........................................... 1,414
Capital infusion.......................................... 376,566
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 377,980
NET INCREASE IN CASH................................... 24,210
Cash at inception........................................... 13
CASH AT END OF YEAR.................................... $ 24,223
---------
Supplemental information on cash disclosures:
Interest paid............................................. $ --
---------
Taxes paid................................................ $ --
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 159
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
AT&T Latin America Corp. ("the Company" or "ATTLA") was incorporated on
October 13, 1999, organized under the laws of the State of Delaware. ATTLA is
currently a provider of broadband communications services mainly to business and
government customers throughout Brazil. However, the Company's target regions
also include most countries in South America and the Caribbean.
Through its operating subsidiary, Netstream Telecom Ltda. ("Netstream"),
ATTLA provides data, voice, video conferencing, Internet and electronic commerce
services to its Brazilian markets.
The consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles and include the results of
Netstream for the period December 8 through December 31, 1999 and any activity
in the various holding companies within the ATTLA company structure. (See Note
4, Acquisition and Intangible Assets, for additional information related to the
Netstream acquisition.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the estimates, The most
significant estimates relate to the useful lives of the property and equipment
and intangible assets, including goodwill.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and securities, held by
major financial institutions with favorable credit ratings, with original
maturities of three months or less.
PLANT AND EQUIPMENT
Plant and equipment are stated on the basis of cost. Construction,
engineering and labor costs directly related to the development of the Company's
networks are capitalized. The Company begins depreciating these costs when the
networks become commercially operational. Plant and equipment are depreciated
using the straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Switching equipment......................................... 5
Transmission equipment...................................... 7
Cables...................................................... 10
Underground installation.................................... 25
Other plant and equipment................................... 3 to 10
</TABLE>
F-16
<PAGE> 160
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of assets acquired from
Netstream over the fair value at the date of acquisition and is being amortized
using the straight-line method over 20 years. Amortization expense related to
goodwill was $1,073 in 1999.
Intangible assets, which are recorded at cost, include a contract with
America On-Line Brazil and the work force in place. Amortization is provided by
the straight-line method over three years. Amortization expense related to the
intangible assets was $122 in 1999.
INCOME TAX
The Company is not a separate taxable entity for Federal and state income
tax purposes and the results of the Company's operations are included in the
Federal and state tax returns of AT&T Corp. and its affiliates. In these
financial statements, the Company has provided for income taxes as if it were a
separate taxpayer.
Deferred income taxes have been accounted for under the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes", whereby deferred
taxes and liabilities are established for the differences between the financial
reporting and income tax basis of assets and liabilities, as well as net
operating losses and tax credit carryforwards. Deferred tax assets are reduced
by a valuation allowance when in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
FOREIGN CURRENCY TRANSACTIONS
The Company accounts for foreign currency transactions in accordance with
Financial Accounting Standards Board (FASB) Statement No. 52, "Foreign Currency
Translation" -- The Company and its foreign operating subsidiary's functional
currency is the U.S. dollar. Foreign currency transactions are transactions
denominated in a currency other than the entity's functional currency. Foreign
currency transactions may produce receivables or payables that are fixed in
terms of the amount of foreign currency that will be received or paid. A change
in exchange rates between the functional currency and the currency in which a
transaction is denominated increases or decreases the expected amount of
functional currency cash flows upon settlement of the transaction. That increase
or decrease in expected functional currency cash flows is a foreign currency
transaction gain or loss (measured from the transaction date or the most recent
intervening balance sheet date, whichever is later) that is included in
determining net income for the period in which the exchange rate changes.
REVENUE RECOGNITION
Revenues are recognized as services are provided.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and were $56 for
the initial operating period from October 13, through December 31, 1999.
F-17
<PAGE> 161
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are calculated in accordance with FASB Statement
No. 128, "Earnings Per Share".
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximated fair value based on the short maturity of these financial
instruments.
3. PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31
DESCRIPTION 1999
----------- -----------
<S> <C>
Switching equipment......................................... $ 2,223
Transmission equipment...................................... 24,243
Cables...................................................... 2,350
Underground installation.................................... 19,821
Other plant and equipment................................... 17,311
Construction in Progress.................................... 5,368
-------
71,316
Less accumulated depreciation and amortization............ 3,047
-------
PLANT AND EQUIPMENT, NET............................... $68,269
=======
</TABLE>
Depreciation expense related to the plant and property was $512 in 1999.
4. ACQUISITION AND INTANGIBLE ASSETS
On December 8, 1999, AT&T Corp. acquired 100% of the issued and outstanding
capital stock of Netstream Telecom Ltda. ("Netstream") pursuant to a cash
purchase agreement. Netstream was in the development stage until May 1999, when
it began providing service in Brazil's two largest cities, Rio de Janeiro and
Sao Paulo. The Company plans to extend services to other Brazilian cities in
2000. Netstream operates under specialized circuit and network services licenses
provided by the Brazilian National Telecommunicacoes Agency (Agencia Nacional de
Telecomunicacoes or "ANATEL"), which are granted for an indefinite term.
Netstream was originally formed in February 1998 as a division of Promon
Tecnologia S.A. ("Promon"), a Brazilian engineering company. The Netstream
division of Promon primarily consisted of certain general and administrative
costs incurred in connection with the commencement of operations. Netstream was
formed on July 14, 1998 as a wholly owned subsidiary of Promon and the Netstream
division of Promon was subsequently transferred. Promon and other affiliated
companies provided various financing and management services for Netstream.
On August 20, 1999, the owners of Netstream entered into a definitive sale
agreement with an indirect wholly owned subsidiary of AT&T Corp., for the sale
of 100% of the capital of Netstream, including settlement of the due to Promon
and other affiliates' outstanding balances, This transaction required approval
by ANATEL which was granted on November 12, 1999.
F-18
<PAGE> 162
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
The Netstream transaction closed on December 8, 1999. ATTLA accounted for
the acquisition under the purchase method of accounting for financial reporting
purposes. Accordingly, the purchase price of $322,500 has been allocated to the
identifiable assets and liabilities based on fair values at the acquisition
date. The excess of the purchase price over the value of the identifiable net
assets in the amount of $257,600 and $4,900 has been classified as goodwill and
other intangibles, respectively. Goodwill is amortized on a straight-line basis
over 20 years. The other intangible assets represent the fair value of a
contract with America On-Line Brazil of $3,600 and the work force in place of
$1,300 that are amortized on a straight-line basis over three years.
ATTLA evaluates the amortization period and the carrying value of
intangibles, including goodwill, on a periodic basis, including evaluating the
performance of the underlying business which gave rise to such amount to
determine whether events or circumstances warrant revised estimates of useful
lives or whether impairment exists. In performing the review of recoverability,
ATTLA estimates future undiscounted cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount, an impairment
is recognized based on the difference between the estimated fair value and the
carrying value. Management believes that no impairment existed at December 31,
1999.
The net purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Working capital, other than cash............................ $ (1,000)
Property and equipment...................................... 61,000
Goodwill and other intangibles.............................. 262,500
--------
PURCHASE PRICE, NET OF CASH RECEIVED................. $322,500
========
</TABLE>
The results of operations of ATTLA include the operating results of
Netstream for the period from December 8 through December 31, 1999. The pro
forma results of operations for the current period as though the companies had
been combined at the beginning of the period are as follows:
<TABLE>
<CAPTION>
UNAUDITED
---------
<S> <C>
Revenues, net............................................... $ 1,993
Net loss.................................................... (36,961)
Net loss per share.......................................... (924)
</TABLE>
5. INCOME TAXES
As of December 31, 1999, the components of the tax effects of temporary
differences that give rise to the deferred income tax assets/(liabilities) are
as follows:
<TABLE>
<CAPTION>
NON-CURRENT
-----------
<S> <C>
Net operating loss carryforwards............................ $ 1,771
Pre-operating expenses deferred for tax purposes............ 4,489
Capital leases.............................................. 78
Intangible assets........................................... (1,775)
---------
4,563
Less: valuation allowance................................... (6,187)
---------
NET DEFERRED TAX LIABILITY........................... $ (1,624)
=========
</TABLE>
F-19
<PAGE> 163
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding the future realization of the net
deferred tax asset.
Income tax expense for the initial operating period from October 13, 1999
through December 31, 1999 differed from the amounts computed by applying the
applicable statutory income tax rate in which the Company operates as a result
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Statutory federal tax provision/(benefit)................... $(1,402)
State and local taxes expense............................... 3
Non deductible goodwill..................................... 364
-------
Unutilized foreign losses................................... $(1,035)
-------
Net income tax provision (benefit).......................... $ (12)
=======
</TABLE>
At December 31,1999, the Company has foreign net operating loss
carryforwards of approximately $5,366 million. These carryforwards are available
to offset up to 30% future taxable income and do not expire.
6. RELATED PARTY TRANSACTIONS
DUE TO AFFILIATED COMPANIES
Loans from affiliated companies, which result from the acquisition of plant
and equipment and payment of expenses by the affiliates on behalf of the
Company, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
SLE Participacoes S.A....................................... $149
</TABLE>
Promon and its subsidiaries act as general contractor for the construction
and installation of Netstream's broadband network.
The following amounts were charged to Netstream by Promon and are included
in plant and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Engineering services........................................ $276
Construction management fee................................. 24
</TABLE>
Engineering services and certain general and administrative expenses are
charged to Netstream at cost. Construction management fees charged to Netstream
are based on rates similar to those charged by Promon to unrelated companies for
similar services. General and administrative expenses charged by Promon during
the period were immaterial.
F-20
<PAGE> 164
AT&T Latin America Corp.
Notes to Consolidated Financial Statements
Expressed in thousands of U.S. dollars, except share and per share data
--------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and facilities under noncancelable
lease arrangements. Future minimum payments under capital leases and operating
leases with initial terms of one year or more at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
2000........................................................ $ 362 8,625
2001........................................................ 366 591
2002........................................................ 11 504
2003........................................................ -- 429
2004........................................................ -- 202
------ -------
TOTAL MINIMUM LEASE PAYMENTS...................... 739 $10,351
=======
Less amount representing interest........................... (94)
------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS, INCLUDING
CURRENT MATURITIES OF $294............................. $ 645
======
</TABLE>
Operating leases includes $8,024 minimum obligation on fines for
interruption on leased line contracts, signed with several telecommunications
companies in Brazil. These contracts expire from 1 to 3 years and the fines vary
up to 50% of the total payments until the end of the contract.
Plant and equipment includes the following amounts for capitalized leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Equipment................................................... $ 521
Less allowances for amortization............................ (128)
--------
$ 393
========
</TABLE>
Rent expense for the initial operating period from October 13 through
December 31, 1999 was $97.
OTHER
In accordance with the legislation in force in Brazil, tax registers
related to federal, state and municipal taxes are subject to examination by the
respective tax authorities from 5 to 30 years.
Commitments for construction or purchase of plant and equipment
approximated $1,759 at December 31, 1999.
In December 1999, Netstream entered into an import financing loan with
Dresdner Bank with principal amount of $1,414 at a 7.28% fixed rate interest for
one year.
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. Although there can be no assurance that
the Company will prevail in every case,
F-21
<PAGE> 165
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
--------------------------------------------------------------------------------
management does not believe that the ultimate disposition of known legal
contingencies will have a material effect on the Company's financial condition,
results of operations or cash flows.
8. SUBSEQUENT EVENTS
On February 23, 2000, the Company agreed to acquire 100% of Keytech LD,
S.A., a development stage broadband communications company based in Argentina.
As of September 30, 1999, Keytech's net loss and total assets were approximately
$1,000 and $1,800, respectively. The purchase price for Keytech LD is 1,178,689
shares of the Company's Class A common stock (of which 550,000 shares will be
placed in escrow to cover indemnity obligations of the seller), plus $5 million
in cash. The Company will also pay up to an additional $1.5 million to the
Keytech LD shareholders one year after the acquisition if certain business
milestones specified in the stock purchase agreement are accomplished. The
Company believes this transaction to be immaterial.
F-22
<PAGE> 166
NETSTREAM TELECOM LTDA.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
ELEVEN MONTHS ENDED DECEMBER 31, 1998 WITH
REPORT OF INDEPENDENT AUDITORS
F-23
<PAGE> 167
NETSTREAM TELECOM LTDA.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND ELEVEN MONTHS ENDED DECEMBER 31, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-25
Audited Financial Statements Balance Sheets................. F-26
Statements of Operations.................................... F-27
Statements of Quotaholders' Equity.......................... F-28
Statements of Cash Flows.................................... F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-24
<PAGE> 168
REPORT OF INDEPENDENT AUDITORS
The Quotaholders
Netstream Telecom Ltda.
We have audited the accompanying balance sheets of Netstream Telecom Ltda.
as of September 30, 1999 and December 31, 1998, and the related statements of
operations, statements of quotaholders' equity, and statements of cash flows for
the nine months ended September 30, 1999 and the eleven months ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Netstream Telecom Ltda. at
September 30, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the nine months ended September 30, 1999 and the eleven
months ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young Auditores Independentes S.C.
Pedro L. Siqueira Farah
Partner
Sao Paulo, Brazil
November 26, 1999
F-25
<PAGE> 169
NETSTREAM TELECOM LTDA.
BALANCE SHEETS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT QUOTA DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 29 $ 2
Account receivable........................................ 284 --
Recoverable taxes......................................... 1,855 65
Other receivables......................................... 141 271
------- -------
TOTAL CURRENT ASSETS.............................. 2,309 338
------- -------
PLANT AND EQUIPMENT, NET.................................... 47,484 12,212
RECOVERABLE TAXES........................................... -- 430
------- -------
TOTAL ASSETS...................................... $49,793 $12,980
======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES AND QUOTAHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases....... $ 307 $ 137
Trade accounts payable:
Plant and equipment.................................... 1,977 --
Other.................................................. 330 392
Social charges payable.................................... 681 185
Other current liabilities................................. 744 37
Due to affiliated companies............................... 29,400 13,267
-------- -------
TOTAL CURRENT LIABILITIES......................... 33,439 14,018
-------- -------
NON-CURRENT LIABILITIES:
Obligations under capital leases.......................... 375 457
-------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
QUOTAHOLDERS' EQUITY:
Capital, par value R $1.00, authorized and outstanding
quotas -- 50,000,000 in 1999 and 1,264,127 in 1998..... 26,540 1,082
Additional paid-in capital................................ 2,309 831
Accumulated deficit....................................... (15,443) (3,442)
Accumulated other comprehensive income.................... 2,573 34
-------- -------
15,979 (1,495)
-------- -------
TOTAL LIABILITIES AND QUOTAHOLDERS' EQUITY........ $ 49,793 $12,980
======== =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 170
NETSTREAM TELECOM LTDA.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND ELEVEN MONTHS ENDED DECEMBER 31, 1998
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT QUOTA AND PER QUOTA DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
GROSS REVENUE............................................... $ 533 $ --
Sales taxes................................................. 138 --
---------- ----------
NET REVENUE................................................. 395 --
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of revenues.......................................... 1,768 --
Selling, general and administrative....................... 9,691 3,848
Depreciation and amortization............................. 1,511 --
---------- ----------
12,970 3,848
---------- ----------
LOSS FROM OPERATIONS........................................ 12,575 3,848
Foreign exchange loss....................................... 254 6
Interest expense............................................ 51 --
---------- ----------
LOSS BEFORE INCOME TAXES.................................... 12,880 3,854
Income tax benefit.......................................... 879 412
---------- ----------
NET LOSS.................................................... $ 12,001 $ 3,442
========== ==========
BASIC LOSS PER QUOTA........................................ $ 5.13 $ 2.72
========== ==========
WEIGHTED AVERAGE QUOTAS OUTSTANDING......................... 2,339,183 1,264,127
========== ==========
</TABLE>
See accompanying notes.
F-27
<PAGE> 171
NETSTREAM TELECOM LTDA.
STATEMENTS OF QUOTAHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND ELEVEN MONTHS ENDED DECEMBER 31, 1998
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT QUOTA AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
NUMBER OF PAID-IN ACCUMULATED COMPREHENSIVE QUOTAHOLDERS'
QUOTAS CAPITAL CAPITAL DEFICIT INCOME EQUITY
---------- ------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ORIGINAL QUOTA ISSUANCE......................... 1,264,127 1,082 -- -- -- 1,082
Additional capital increase..................... -- -- 831 -- -- 831
Net loss........................................ -- -- -- (3,442) -- (3,442)
Currency translation adjustments................ -- -- -- -- 34 34
-------
Comprehensive loss............................ -- -- -- -- -- (3,408)
---------- ------ ----- ------- ----- -------
BALANCES AT DECEMBER 31, 1998................... 1,264,127 1,082 831 (3,442) 34 (1,495)
Capital increase on September 24, 1999.......... 48,735,873 25,458 -- -- -- 25,458
Additional capital increase..................... -- -- 1,478 -- -- 1,478
Net loss........................................ -- -- -- (12,001) -- (12,001)
Currency translation adjustments................ -- -- -- -- 2,539 2,539
-------
Comprehensive loss............................ -- -- -- -- -- (9,462)
---------- ------ ----- ------- ----- -------
BALANCES AT SEPTEMBER 30, 1999.................. 50,000,000 26,540 2,309 (15,443) 2,573 15,979
========== ====== ===== ======= ===== =======
</TABLE>
See accompanying notes.
F-28
<PAGE> 172
NETSTREAM TELECOM LTDA.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
AND ELEVEN MONTHS ENDED DECEMBER 31, 1998
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(12,001) $(3,442)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization expense................ 1,511 --
Unrealized foreign exchange loss..................... 235 6
Expenses contributed by affiliated company........... 1,478 831
Changes in operating assets and liabilities:
Accounts receivable.................................. (362) --
Other current liabilities............................ 37 (278)
Trade accounts payable............................... 106 403
Social charges payable............................... 721 190
Other current liabilities............................ 352 38
Due to affiliated companies.......................... 7,950 2,245
-------- -------
Net cash provided by (used in) operating activities.... 27 (7)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Initial capital contribution.............................. -- 9
-------- -------
Net cash provided by investing activities.............. 9
-------- -------
Net increase in cash........................................ $ 27 $ 2
Cash at beginning of period................................. 2 --
-------- -------
Cash at end of period....................................... $ 29 $ 2
======== =======
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING
ACTIVITIES
Plant and equipment and recoverable taxes acquired through
increase in due to affiliated companies................... $ 51,065 $12,260
======== =======
Plant and equipment acquired through capital leases......... 135 524
======== =======
Increase in capital through conversion of due to affiliated
companies balances........................................ 25,458 1,073
======== =======
Plant and equipment included in current liabilities......... 3,093 --
======== =======
Capital lease payment financed through due to affiliated
companies................................................. $ 46 $ --
======== =======
</TABLE>
See accompanying notes.
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 173
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Netstream Telecom Ltda. ("the Company" or "Netstream") is a limited
liability company organized under the laws of Brazil. The Company provides
broadband telecommunication services to business and government customers in
Brazil. The Company was in the development stage until May 1999, when it began
providing service in Brazil's two largest cities, Rio de Janeiro and Sao Paulo.
The Company plans to extend services to other Brazilian cities, including Belo
Horizonte, Brasilia, Campinas, Curitiba, Porto Alegre and Salvador, in 1999 and
2000. The Company operates under specialized circuit and network services
licenses provided by the Brazilian National Telecommunications Agency (Agencia
Nacional de Telecomunicacoes or "ANATEL"), which are granted for an indefinite
term.
Netstream was originally formed in February 1998 as a division of Promon
Tecnologia S.A. ("Promon"), a Brazilian engineering company. The Netstream
division of Promon primarily consisted of certain general and administrative
costs incurred in connection with the start-up of operations. The Company was
formed on July 14, 1998 as a wholly owned subsidiary of Promon and the Netstream
division of Promon was subsequently transferred to the Company. Promon and other
affiliated companies provide various financing and management services for the
Company. See related party transactions Note 5.
Promon is controlled by Promon Ltda., a limited liability company owned by
certain individuals (the "Controlling Owners"), along with minority interests
held by the current and former employees of Promon or its other affiliates. Such
individuals and current and former employees are referred to herein as the
"Owners".
On August 20, 1999, the Controlling Owners entered into a definitive sale
agreement with an indirect wholly owned subsidiary of AT&T Corp. for the sale of
100% of the capital of the Company, including settlement of the due to Promon
and other affiliates' outstanding balances. This transaction requires approval
by ANATEL. Such approval was granted on November 12, 1999. This transaction is
expected to close during December 1999.
In connection with the sale agreement, SL Participacoes S.A. was created to
hold the direct ownership interests of the Owners. On September 24, 1999, the
capital of the Company was increased through the conversion of Netstream's
liabilities to Promon into 48.7 million quotas. As of September 30, 1999, the
Company's capital consisted of 50,000,000 registered quotas of R$ 1.00 each, of
which one quota is held by Promon Ltda. and the remainder are held by SL
Participacoes S.A.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include the
combined results of the Company and the Netstream division of Promon.
Substantially all transactions of the Company were funded by Promon through
the due to affiliates account. The cash flow statement reflects only the cash
receipts and disbursements which were effected through Netstream's bank account.
Other transactions which were effected through Promon's bank accounts are
considered non-cash transactions and are reported as supplemental information to
the cash flow statement.
F-30
<PAGE> 174
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Additional paid-in-capital of $ 1,478 and $ 831 in 1999 and 1998,
respectively, represents certain general and administrative costs absorbed by
Promon on behalf of the Company, net of the related income tax benefits of $ 879
and $ 412 which will be realized by Promon.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Currency translation
The financial statements have been translated into U.S. dollars from the
Company's functional currency, the Brazilian Real, in accordance with Financial
Accounting Standards Board (FASB) Statement No. 52, "Foreign Currency
Translation." Assets and liabilities have been translated using exchange rates
in effect at the balance sheet dates. Statement of operations amounts have been
translated using average exchange rates for the reporting periods. Translation
gains and losses are included in accumulated other comprehensive income within
quotaholders' equity.
(b) 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 in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
(c) Plant and equipment
Plant and equipment are stated on the basis of cost. Construction,
engineering and labor costs directly related to the development of the Company's
networks are capitalized. The Company begins depreciating these costs when the
networks become commercially operational. Plant and equipment are depreciated
using the straight-line method over estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Switching equipment......................................... 5
Transmission equipment...................................... 7
Cables...................................................... 10
Underground installation.................................... 25
Other plant and equipment................................... 3 to 10
</TABLE>
(d) Income taxes
Income and social contribution taxes have been provided using the liability
method in accordance with FASB Statement No. 109, "Accounting for Income Taxes."
(e) Revenue recognition
Revenues are recognized as services are provided.
F-31
<PAGE> 175
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
(f) Advertising and promotional costs
Advertising and promotional costs are expensed as incurred and were $739
and $450 in 1999 and 1998, respectively.
(g) Earnings (loss) per quota
Earnings (loss) per quota are calculated in accordance with FASB Statement
No. 128, "Earnings Per Share."
(h) Fair value of financial instruments
The carrying amount of cash, accounts receivable and accounts payable
approximated fair value based on the short maturity of these financial
instruments. The fair value of the due to affiliated companies' balances is not
estimable as the timing and manner of settlement is uncertain in the absence of
the successful completion of the sale agreement referred to in Note 1.
3. PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1999 1998
----------- ------------- ------------
<S> <C> <C>
Switching equipment......................................... $ 2,160 $ --
Transmission equipment...................................... 17,281 --
Cables...................................................... 2,053 --
Underground installation.................................... 15,772 --
Other plant and equipment................................... 10,470 --
Construction in progress.................................... 1,259 12,212
------- -------
48,995 12,212
Less accumulated depreciation and amortization.............. 1,511 --
------- -------
Plant and equipment, net.................................... $47,484 $12,212
======= =======
</TABLE>
4. INCOME TAXES
The Company is subject to income taxes but has not incurred a liability for
such taxes due to losses incurred. At September 30, 1999 the Company has tax
loss carryforwards of approximately $269. These carryforwards are available to
offset up to 30% future taxable income and do not expire.
F-32
<PAGE> 176
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
The tax effects of temporary differences that give rise to deferred tax
assets are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Net operating loss carryforwards............................ $ 89 $ --
Pre-operating expenses deferred for tax purposes............ 2,692 839
Depreciation................................................ 446 --
Capital leases.............................................. 84 --
------- -----
3,311 839
Less: valuation allowance................................... (3,311) (839)
------- -----
Net deferred tax asset...................................... $ -- $ --
======= =====
</TABLE>
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding the future realization of the net
deferred tax asset.
Income tax expense for the periods ended September 30, 1999 and December
31, 1998 differed from the amounts computed by applying the applicable statutory
income tax rate in which the Company operates as a result of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Computed "expected" tax benefit............................. $4,766 $1,271
Effect of increase in social contribution rate.............. (515) --
Increase in valuation allowance............................. (3,376) (839)
Other....................................................... 4 (20)
------ ------
$ 879 $ 412
====== ======
</TABLE>
5. RELATED PARTY TRANSACTIONS
(a) Due to affiliated companies
Loans from affiliated companies, which result from the acquisition of plant
and equipment and payment of expenses by the affiliates on behalf of the
Company, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Promon Tecnologia S.A....................................... $ 7,204 $ --
Promon Engenharia Ltda...................................... 663 --
Promon Eletronica Ltda...................................... 21,384 13,267
SL Participacoes S.A........................................ 149 --
------- -------
$29,400 $13,267
======= =======
</TABLE>
Loans from affiliated companies are non interest bearing and are due to be
repaid by December 31, 1999. Repayment is expected to occur in connection with
the closing of the sale of the Company referred to in Note 1. In the absence of
this closing prior to December 31, 1999, the affiliated companies have indicated
they will extend the repayment terms of the above balances to December 31, 2000.
F-33
<PAGE> 177
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
(b) Plant and equipment acquisitions and operating expenses
Promon and its subsidiaries act as general contractor for the construction
and installation of Netstream's broadband network and also have incurred certain
operating expenses on Netstream's behalf.
The following amounts were charged to Netstream by Promon and are included
in plant and equipment and recoverable taxes:
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Purchases of property and equipment, including value-added
taxes..................................................... $41,782 $11,819
Engineering services........................................ 1,534 441
Construction management fee................................. 7,749 --
</TABLE>
Substantially all of the operating expenses of Netstream were funded
through the due to affiliated companies' balances.
The purchases of property and equipment, including value-added taxes,
engineering services and the operating expenses were charged to Netstream at
cost. Construction management fees changed to Netstream were based on rates
similar to those charged by Promon to unrelated companies for similar services.
General and administrative expenses include finance, legal, facilities and
systems. These expenses were allocated to the Company based on utilization or
other methods which management believes to be reasonable.
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and facilities under noncancelable
lease arrangements. Future minimum payments under capital leases and operating
leases with initial terms of one year or more at September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
FOR THE 12 MONTH PERIODS ENDED CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
------------------------------ ------- ---------
<S> <C> <C>
2000........................................................ $331 $ 593
2001........................................................ 366 567
2002........................................................ 103 515
2003........................................................ -- 439
2004........................................................ -- 265
2005........................................................ -- 11
---- ------
Total minimum lease payments...................... 800 2,390
======
Less amount representing interest......................... (118)
----
Present value of net minimum lease payments, including
current maturities of $307............................. $682
====
</TABLE>
Installments under the capital leases are indexed to the U.S. dollar.
F-34
<PAGE> 178
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Plant and equipment includes the following amounts for capitalized leases:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Equipment................................................... $504 $588
Less allowances for amortization............................ (78) --
---- ----
$426 $588
==== ====
</TABLE>
Rent expense for the periods ended September 30, 1999 and December 31, 1998
was $276 and $123, respectively.
OTHER
In accordance with the legislation in force in Brazil, tax registers
related to federal, state and municipal taxes are subject to examination by the
respective tax authorities for 5 to 30 years.
Commitments for construction or purchase of plant and equipment
approximated $8,552 at September 30, 1999.
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. Although there can be no assurance that
the Company will prevail in every case, management does not believe that the
ultimate disposition of known legal contingencies will have a material effect on
the Company's financial condition, results of operations or cash flows.
F-35
<PAGE> 179
ANNEX A
<PAGE> 180
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
AT&T CORP.,
KIRI INC.,
FRANTIS, INC.
AND
FIRSTCOM CORPORATION
DATED AS OF NOVEMBER 1, 1999
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................................ 2
1.1. The Merger.................................................. 2
1.2. Closing..................................................... 2
1.3. Effective Time of the Merger................................ 2
1.4. Certificate of Incorporation and By-Laws.................... 2
1.5. Directors; Officers......................................... 2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES........................................ 2
2.1. Effect on Capital Stock..................................... 2
2.2. Delivery of Certificates.................................... 3
2.3. Company Stock Options....................................... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................... 6
3.1. Representations and Warranties of the Company............... 6
3.2. Representations and Warranties of Parent.................... 16
ARTICLE IV COVENANTS............................................................ 19
4.1. No Solicitation............................................. 19
4.2. Conduct of Business......................................... 20
4.3. Filings; Other Action....................................... 24
4.4. Access to Information; Pre-Closing Review................... 24
4.5. Publicity................................................... 25
4.6. Further Action.............................................. 25
4.7. Insurance; Indemnity........................................ 26
4.8. Shareholder Approval; Preparation of Proxy Statement........ 26
4.9. Certain Tax Matters......................................... 27
4.10. Senior Notes................................................ 27
4.11. Ancillary Agreements........................................ 28
4.12. Netstream Purchase Price Adjustment......................... 28
4.13. Conduct of Business of RV and Netstream..................... 28
4.14. RV Public Shares............................................ 30
4.15. Credit Facility............................................. 30
ARTICLE V CONDITIONS............................................................ 30
5.1. Conditions to Each Party's Obligations...................... 30
Additional Conditions to Obligations of Parent, RV and
5.2. Merger Sub.................................................. 31
5.3 Additional Conditions to Obligations of the Company......... 32
ARTICLE VI TERMINATION.......................................................... 33
6.1. Termination................................................. 33
6.2. Effect of Termination....................................... 34
</TABLE>
i
<PAGE> 182
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII GENERAL PROVISIONS.................................................. 34
7.1. Nonsurvival of Representations and Warranties............... 34
7.2. Amendment................................................... 34
7.3. Extension; Waiver........................................... 34
7.4. Notices..................................................... 35
7.5. Assignment; Binding Effect.................................. 35
7.6. Entire Agreement............................................ 35
7.7. Fees and Expenses........................................... 35
7.8. Governing Law............................................... 36
7.9. Headings.................................................... 36
7.10. Interpretation.............................................. 36
7.11. Investigations.............................................. 36
7.12. Severability................................................ 36
7.13. Enforcement of Agreement.................................... 37
7.14. Counterparts................................................ 37
Schedule A Definitions
Exhibit A Certificate of Incorporation and By-Laws of RV and of Merger Sub
Exhibit B Form of RV Board Policy
Exhibit C-1 Forms of Amended and Restated Certificate of Incorporation of RV
Exhibit C-2 Form of Amended and Restated By-Laws of RV
Exhibit D Form of Service Mark License Agreement
Exhibit E Form of RV Agreement
Exhibit F Terms of Credit Facility
Exhibit G Form of Certificate of Designation
Annex A Representation Letters
</TABLE>
ii
<PAGE> 183
AGREEMENT AND PLAN OF MERGER, dated as of November 1, 1999 ("Agreement"),
among AT&T Corp., a New York corporation ("Parent"), Kiri Inc., a Delaware
corporation ("RV"), Frantis, Inc., a Delaware corporation and wholly-owned
subsidiary of RV ("Merger Sub"), and FirstCom Corporation, a Texas corporation
(the "Company"). Certain capitalized terms used herein are defined in Schedule A
attached hereto.
RECITALS
A. Each of Parent, RV, Merger Sub and the Company desire to enter into the
business combination transaction described herein, in which the Company would
merge with and into Merger Sub (the "Merger").
B. The Boards of Directors of Parent and the respective Boards of Directors
or shareholders (as the case may be) of each of RV and Merger Sub have duly
adopted resolutions approving the transactions contemplated hereby.
C. The Board of Directors of the Company, acting on the recommendation of a
special committee of independent directors, has approved this Agreement and the
Merger, has determined by unanimous resolution that the Merger is in the best
interests of the Company and its shareholders and intends to recommend to the
shareholders of the Company that they vote to approve the Merger.
D. Concurrently with the execution of this Agreement and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
shareholders of the Company have entered into a voting agreement, dated as of
the date hereof (the "Voting Agreement"), among Parent and the several
shareholders named therein, providing, among other things, that such
shareholders will vote in favor of the Merger.
E. JAMTIS, Inc., a Delaware corporation ("Jamtis"), and an indirect
wholly-owned subsidiary of Parent, has entered into agreements (the "Netstream
Acquisition Agreements") to acquire quotas (the "Netstream Shares") representing
100% of the outstanding equity interest in Netstream Telecom Ltda., a Brazilian
company ("Netstream").
F. Parent intends to cause Jamtis to merge with a wholly-owned subsidiary
of RV, such that, following such merger, (i) Jamtis will be a direct
wholly-owned subsidiary of RV, and (ii) Netstream will be an indirect
wholly-owned subsidiary of RV.
G. Pursuant to the Netstream Acquisition Agreements, Promon Tecnologia
S.A., a Brazilian corporation (sociedade anonima) (together with its affiliates,
"Promon") has agreed to purchase, prior to the Closing a 10% interest in the
capital of RV, in the form of RV Class A Shares.
H. Each of Parent, RV, Merger Sub and the Company intend that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
I. Each of Parent, RV, Merger Sub and the Company intend that, immediately
following the Effective Time, on a fully-diluted basis, (i) the former
shareholders of the Company will own, collectively, approximately 34% of the
shares of common stock of RV, in the form of RV Class A Common Stock or RV
Preferred Stock, as the case may be, (ii) Promon will own, directly or
indirectly, approximately 6% of the shares of common stock of RV, in the form of
RV Class A Common Stock, and (iii) Parent will own, directly or indirectly,
approximately 60% of the shares of common stock of RV, in the form of RV Class B
Common Stock (as defined herein).
<PAGE> 184
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. On the terms and subject to the conditions set forth in
this Agreement, and in accordance with applicable state corporation laws, the
Company shall be merged with and into Merger Sub at the Effective Time (as
defined in Section 1.3 below). Upon the Effective Time, the separate existence
of the Company shall cease, and Merger Sub shall continue as the surviving
corporation (the "Surviving Corporation").
1.2. Closing. Unless this Agreement shall have been terminated pursuant to
Section 6.1, and subject to the satisfaction or waiver of the conditions set
forth in Article V, the closing of the Merger (the "Closing") shall take place
as promptly as practicable (and in any event within two business days) following
satisfaction or waiver of the conditions set forth in Article V (the "Closing
Date"), at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New
York 10022, unless another date or place is agreed to in writing by the parties
hereto.
1.3. Effective Time of the Merger. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article V, the Surviving
Corporation shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the Delaware General
Corporation Law ("DGCL"). The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time thereafter as is provided in the Certificate of
Merger (the "Effective Time").
1.4. Certificate of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation following the Merger, until amended in accordance with the
DGCL.
1.5. Directors; Officers. (a) The directors of Merger Sub at the Effective
Time shall be the initial directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
(b) The officers of Merger Sub at the Effective Time shall be the officers
of the Surviving Corporation, until the earlier of their resignation or removal
or until their respective successors are duly elected and qualified, as the case
may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any further act or deed on the part of Parent, RV, Merger
Sub, the Company or any holder of any of the following securities:
(a) Common Stock of the Company. Each issued and outstanding share of
common stock, par value $0.001 per share, of the Company (together with any
rights appurtenant thereto, "Company Common Stock") shall be converted into
the right to receive one fully paid and non-
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assessable share of Class A common stock, par value $0.01 per share, of RV
("RV Class A Common Stock").
(b) Preferred Stock of the Company. Each issued and outstanding share
of Series A convertible preferred stock, par value $0.001 per share, of the
Company ("Preferred Stock") shall be converted into the right to receive
one fully paid and non-assessable share of Series A convertible preferred
stock, par value $0.001 per share, of RV ("RV Preferred Stock").
2.2. Delivery of Certificates. (a) Exchange Agent; Exchange Fund. As of
the Effective Time, Parent and the Company shall cause to be deposited, with a
bank or trust company designated by Parent (and reasonably acceptable to the
Company) (the "Exchange Agent"), for exchange in accordance with this Article
II, through the Exchange Agent, for the benefit of the holders of shares of
Company Common Stock, certificates representing the shares of RV Class A Common
Stock issuable pursuant to Section 2.1 in exchange for issued and outstanding
shares of Company Common Stock. All of such deposited certificates representing
shares of RV Class A Common Stock, collectively, together with any dividends or
distributions with respect thereto, are referred to hereinafter as the "Exchange
Fund."
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock
(collectively, the "Certificates"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in form and have such other provisions as Parent and
the Company may reasonably specify) and (ii) instructions to effect the
surrender of the Certificates in exchange for certificates representing shares
of RV Class A Common Stock. Upon surrender of one or more Certificates for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary or other reasonable documents as may be
required pursuant to such instructions, the holder of such Certificates shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of RV Class A Common Stock which such holder has the right to
receive in respect of the Certificates surrendered by such holder pursuant to
the provisions of this Article II, and the Certificates so surrendered shall
forthwith be cancelled. In the event of transfer of ownership of Company Common
Stock which is not registered in the transfer of records of the Company, a
certificate representing the proper number of shares of RV Class A Common Stock
may be issued to a transferee if the Certificate representing such Company
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to present only the right to receive upon such
surrender a certificate representing shares of RV Class A Common Stock, and cash
in lieu of any fractional shares of RV Class A Common Stock as contemplated by
this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to RV Class
A Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of RV Class A
Common Stock represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(e) until the
holder of such Certificate shall have duly surrendered such Certificate in
accordance with Section 2.2(b). Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificates representing whole shares of RV Class A Common Stock issued
in exchange therefor, without interest, (i) at the time of such surrender or as
promptly thereafter as practicable, the amount of any cash payable with respect
to a fractional share of RV Class A Common Stock to
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which such holder is entitled pursuant to Section 2.2(e) and the amount of
dividends or other distributions, if any, with a record date after the Effective
Time theretofore paid with respect to such whole shares of RV Class A Common
Stock, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of RV Class A Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of RV
Class A Common Stock issued upon conversion of shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.2(c) or 2.2(e)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Company Common Stock, and there shall be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(e) Treatment of Fractional Shares. (i) No certificates or scrip
representing fractional shares of RV Class A Common Stock shall be issued upon
the surrender for exchange of Certificates, and such fractional interests will
not entitle the owner thereof to vote or to any rights of a stockholder of the
Surviving Corporation.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent will determine the excess of (x) the aggregate number of shares of RV
Class A Common Stock delivered to the Exchange Agent over (y) the aggregate
number of whole shares of RV Class A Common Stock to be distributed in
connection with the Merger (such excess being referred to herein as the "Excess
Shares"). Following the Effective Time, Parent and RV will cause the Exchange
Agent, on behalf of the former stockholders of the Company, to sell the Excess
Shares at then-prevailing prices on the securities exchange on which they are
listed in the manner provided in clause (iii) of this Section.
(iii) The sale of the Excess Shares by the Exchange Agent will be executed
through one or more member firms and will be executed in round lots to the
extent practicable. The Exchange Agent will use reasonable efforts to complete
the sale of the Excess Shares as promptly following the Effective Time, as, in
its sole judgment, is practicable consistent with obtaining the best execution
of such sales in light of prevailing market conditions. Until the net proceeds
of such sale or sales have been distributed to the former stockholders of the
Company, the Exchange Agent will hold such proceeds in trust for such holders
(the "Excess Shares Trust"). All commissions, transfer taxes and other
out-of-pocket transaction costs incurred in connection with such sale of Excess
Shares shall be paid by RV. The Exchange Agent will determine the portion of the
Excess Shares Trust to which each holder of Company Common Stock, is entitled,
if any, by multiplying the amount of the aggregate proceeds comprising the
Excess Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of Company Common Stock is
entitled (after taking into account all such shares held at the Effective Time
by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Company Common Stock are
entitled pursuant to the Merger are entitled pursuant to the Merger provided,
that no holder of Company Common Stock will be entitled to receive cash in an
amount equal to or greater than the value of one full share of RV Class A Common
Stock.
(iv) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock with respect to fractional
share interests, the Exchange Agent will make available such amounts to such
holders.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the stockholders of the Company for six months after
the Effective Time shall be delivered to RV upon demand, and any stockholders of
the Company who have not theretofore complied with this Article II shall
thereafter look only to RV for payment of their claim for RV Class A Common
Stock, any cash in lieu of fractional shares of RV Class A Common Stock and any
dividends or distributions with respect to RV Class A Common Stock.
(g) No Liability. None of Parent, RV and the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock or RV Class A Common
Stock, as the case may be, for such shares (or dividends or distributions with
respect thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. RV or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts as the
Surviving Corporation or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law, or any court order. To the extent that amounts
are so withheld by RV or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock in respect of which such deduction and
withholding was made by RV or the Exchange Agent.
2.3. Company Stock Options. (a) Each option (each, a "Company Stock
Option" and collectively, the "Company Stock Options") to purchase shares of
Company Common Stock granted under the Company's long-term incentive plans and
directors stock option plans or pursuant to the authority of the Board of
Directors of the Company that is outstanding immediately prior to the Closing
Date shall be deemed to constitute an option to acquire one share of RV Class A
Common Stock (each, an "Assumed Award"), provided that any fractional share of
RV Class A Common Stock resulting from an aggregation of all of the shares of a
holder subject to Company Stock Options shall be rounded to the nearest whole
share, and provided, further, that, for any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422 through 424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424 of the Code.
Each such Assumed Award, to the extent permissible under Section 424(a) of the
Code, shall thereafter be exercisable until the end of the period during which
the Company Stock Option was exercisable and shall otherwise have terms no less
favorable to the holder thereof than the original Company Stock Option.
(b) RV shall take such actions as are necessary for the assumption of
Company Stock Options pursuant to this Section 2.3, including the reservation,
issuance and listing of RV Class A Common Stock as is necessary to effectuate
the transactions contemplated by this Section 2.3. RV shall prepare and file
with the SEC a registration statement on an appropriate form, or a
post-effective amendment to a registration statement previously filed under the
Securities Act (as defined herein), with respect to the shares of RV Class A
Common Stock subject to the Assumed Awards and, where applicable, shall use its
reasonable best efforts to have such registration statement declared effective
by Closing Date and to maintain the effectiveness of such Assumed Awards (and to
maintain the current status of the prospectus contained therein) for so long as
such Assumed Awards remain outstanding. With respect to those individuals, if
any, who, subsequent to the Closing, will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, RV shall
use its reasonable efforts to administer Company Stock Options assumed pursuant
to this Section 2.3 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act (as defined herein).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent, RV and Merger Sub as of the date hereof and
as of the Closing Date as follows:
(a) Existence; Good Standing; Corporate Authority. Each of the Company
and its Subsidiaries is (i) a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation
and (ii) duly licensed or qualified to do business as a foreign corporation
and is in good standing under the laws of any other state of the United
States or (to the extent the concepts of "qualified to do business" and
"good standing" exist) any other jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its
business makes such licensure, qualification or good standing necessary,
except where the failure to be so in good standing or to be so licensed or
qualified, individually or in the aggregate, would not have a material
adverse effect on (x) the business, operations, results of operations,
assets or financial condition of the Company or any Subsidiary, or (y) the
ability of the Company to perform its obligations under this Agreement or
any Ancillary Agreement (any of the foregoing events or circumstances being
referred to herein as a "Material Adverse Effect"). Each of the Company and
its Subsidiaries has the requisite corporate power and authority to own,
operate and lease its properties and assets and carry on its business as
now conducted and proposed to be conducted as discussed in the Company
Reports (as defined below). The Company has delivered to Parent true and
correct copies of the Certificate of Incorporation and By-Laws of the
Company and of the comparable organizational documents of each Subsidiary
of the Company, each of which is in full force and effect.
(b) Authorization, Validity and Effect of Agreements. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Company
of this Agreement and such Ancillary Agreements, the performance of its
obligations hereunder and thereunder and the consummation by the Company of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Company, and no other action on
the part of the Company or any shareholder thereof is necessary to
authorize the execution and delivery by the Company of this Agreement or
such Ancillary Agreements, to perform the obligations hereunder or
thereunder or to consummate the transactions contemplated hereby or thereby
(other than the approval of this Agreement and the Merger by the holders of
a majority of the shares of Company Common Stock). The Board of Directors
of the Company, acting on the recommendation of a duly constituted special
committee of independent directors, has duly adopted resolutions
determining that the Merger is advisable and the terms of this Agreement
and the Merger are fair to, and in the best interests of, the Company and
the Company's shareholders. This Agreement has been, and upon execution as
contemplated herein, each Ancillary Agreement to which the Company is a
party, will have been, duly and validly executed and delivered by the
Company, and (assuming due execution and delivery of this Agreement and
each of such Ancillary Agreements by each other party hereto and thereto)
constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
(c) Compliance with Laws. Except as set forth on Schedule 3.1(c) of
the Disclosure Letter, neither the Company nor any of its Subsidiaries is
in violation of any foreign, federal, state or local law, statute,
ordinance, rule, regulation, order, judgment, ruling or decree ("Laws") of
any foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory
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body or authority or any court, arbitration, board or tribunal (each such
entity, a "Governmental Entity") applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, except for
violations which, individually or in the aggregate, would not have a
Material Adverse Effect.
(d) Capitalization of the Company. (i) As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 shares of
Company Common Stock and 10,000,000 shares of Preferred Stock and (A)
24,376,556 shares of Company Common Stock are issued and outstanding, (B)
1,313,086 shares of Preferred Stock are issued and outstanding, (C) options
to purchase an aggregate of 10,578,500 shares of Company Common Stock are
outstanding (the "Options"), 10,578,500 shares of Company Common Stock are
reserved for issuance upon the exercise of outstanding Options and 300,000
shares are reserved for future grants under all stock option or other
incentive plans or arrangements of the Company (the "Company Stock Plans"),
and there are no stock appreciation rights or limited stock appreciation
rights or other equity-related rights or awards outstanding other than the
Options, (D) warrants to purchase 5,758,771 shares of Company Common Stock
are outstanding (the "Warrants"), and 5,758,771 shares are reserved for
issuance upon the exercise of the Warrants, and (E) no shares of Company
Common Stock or Preferred Stock are held by the Company's Subsidiaries or
in treasury. Except for the Warrants, the Options and the shares of
Preferred Stock outstanding, the Company has no outstanding bonds,
debentures, notes or other obligations, instruments or securities entitling
the holders thereof to vote (or which are convertible into or exercisable
for securities having the right to vote) with the shareholders of the
Company on any matter. Schedule 3.1(d) of the Disclosure Letter sets forth
for each Option and Warrant outstanding as of the date hereof, (I) its
exercise price, (II) its expiration date, (III) the first date upon which
it becomes exercisable, and (IV) the number of shares of Company Common
Stock (or other securities) for which it is exercisable.
(ii) Except as set forth on Schedule 3.1(d)(ii), of the Disclosure
Letter, since June 30, 1999 the Company has not (A) issued any shares of
its capital stock, (B) granted any options or warrants to purchase any
shares of its capital stock or (C) split, combined or reclassified any
shares of its capital stock. All issued and outstanding shares of Company
Common Stock and Preferred Stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights.
(iii) Except for the Options, the Warrants, the outstanding shares of
Preferred Stock and the rights (the "Company Rights") distributed to
holders of Company Common Stock pursuant to the Rights Agreement, dated as
of April 1, 1998 (in the form attached as Exhibit 2.1 to the SEC Form 8-A
filed by the Company on April 3, 1998), between the Company and American
Stock Transfer & Trust Company (the "Rights Agreement"), and except as set
forth in this Section 3.1(d) or in Schedule 3.1(d) of the Disclosure
Letter, there are no other shares of capital stock of the Company, no
securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company, and no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock of, or
equity interests in, the Company or any of its Subsidiaries. Except as set
forth in the certificate of designation relating to the outstanding shares
of Preferred Stock, there are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company and, other than outstanding Options,
there are no awards outstanding under any Company Stock Plans or any other
outstanding stock-related awards. There are no voting agreements, voting
trusts or other agreements or understandings to which the Company or any of
its Subsidiaries is a party (or, to
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the knowledge of the Company, to which any two or more shareholders are
parties, other than the Voting Agreement) with respect to the voting of
capital stock of the Company or any of its Subsidiaries.
(e) Subsidiaries. Schedule 3.1(e) of the Disclosure Letter sets forth
for each Subsidiary of the Company: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
or equity capital; (iii) the number of issued and outstanding shares of
capital stock or equity capital; and (iv) the legal and beneficial owner or
owners of such shares. Except as set forth on Schedule 3.1(e) of the
Disclosure Letter, each of the outstanding shares of capital stock or other
equity interest of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances (collectively, "Encumbrances").
Except for interests in the Company's Subsidiaries or as set forth on
Schedule 3.1(e) of the Disclosure Letter, neither the Company nor any of
its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, firm, partnership, limited
liability company, joint venture, business, association, trust, business
trust or other entity (each individually, along with any natural person and
any Government Entity, a "Person").
(f) No Violation; Consents. (i) Except as set forth on Schedule 3.1(f)
of the Disclosure Letter, neither the execution, delivery or performance by
the Company of this Agreement or any of the Ancillary Agreements nor the
consummation by the Company of the transactions contemplated hereby or
thereby will: (A) violate, conflict with or result in a breach of any
provisions of the Certificate of Incorporation or By-Laws (or comparable
organizational documents) of the Company or any of its Subsidiaries; (B)
violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit
obtainable under, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any Encumbrance upon any
of the properties or assets of the Company or any of its Subsidiaries
under, or result in there being declared void, voidable, subject to
withdrawal, or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, Permit, lease, contract, plan, agreement or other
instrument, commitment or obligation to which the Company or any of its
Subsidiaries is a party, by which the Company or any of its Subsidiaries or
any of their respective properties is bound, or under which the Company or
any of its Subsidiaries or any of their respective properties is entitled
to a benefit (each of the foregoing, to the extent the same have any
continuing force or effect, a "Contract" and collectively, "Contracts"),
except for any of the foregoing matters which, individually or in the
aggregate, would not have a Material Adverse Effect or prevent or
materially delay the consummation of the transactions contemplated hereby
(a "Material Delaying Effect"); or (C) violate any Laws applicable to the
Company, any of its Subsidiaries or any of their respective assets or
properties, except for violations which, individually or in the aggregate,
would not have a Material Adverse Effect.
(ii) Except as set forth on Schedule 3.1(f) of the Disclosure Letter,
and other than the filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Securities Exchange Act of
1934, as amended (together with the rules and regulations promulgated
thereunder, the "Exchange Act"), the Securities Act of 1933, as amended
(with respect to the Registration Statement) or filings in connection with
the maintenance of qualification to do business in other jurisdictions (the
filings disclosed in the Disclosure Letter relating to this clause (ii),
the other filings referred to in this clause (ii) and
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the Other Antitrust Filings and Consents required or permitted to be made
or obtained, collectively, the "Regulatory Filings"), neither the
execution, delivery or performance by the Company of this Agreement or any
of the Ancillary Agreements nor the consummation by the Company of the
transactions contemplated hereby or thereby will require any consent,
approval or authorization of, or declaration, filing or registration with,
(A) any Governmental Entity, including any such consent, approval,
authorization, declaration, filing or registration under any Laws of any
foreign jurisdiction relating to antitrust matters or competition ("Foreign
Antitrust Laws"), (B) any other Law of any foreign jurisdiction, or (C) any
other Person, except for those consents, approvals, authorizations,
declarations, filings or registrations the failure of which to obtain or
make, individually or in the aggregate, would not have a Material Adverse
Effect or a Material Delaying Effect.
(g) Company Reports; Absence of Undisclosed Liabilities. (i) Each
registration statement, report (including annual and quarterly reports),
proxy statement or information statement (as defined under the Exchange
Act) and all attachments and exhibits thereto prepared by the Company or
relating to its securities or properties since January 1, 1997, each in the
form (including all exhibits and amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively, as amended or
restated, the "Company Reports"), as of their respective dates (or the
respective dates of the latest amendments thereto or restatements thereof),
(A) complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act") and the Exchange Act and (B)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets included
in or incorporated by reference in the Company Reports fairly presented the
financial position of the entity or entities to which it relates as of its
date, and each of the consolidated statements of results of operations and
consolidated statements of cash flows included in or incorporated by
reference in the Company Reports fairly presented the results of operations
or cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein, in each case in accordance with
United States generally accepted accounting principles consistently applied
during the periods involved.
(ii) Except as set forth on Schedule 3.1(g) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether liquidated, accrued, contingent or otherwise, except
(x) liabilities and obligations in the respective amounts reflected or
reserved against in the consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 1999 included in the Company Reports and (y)
liabilities and obligations incurred in the ordinary course of business
since that date which individually or in the aggregate would not have a
Material Adverse Effect.
(h) Rights Agreement; Absence of Affiliated Shareholder. (i) The
Company has duly amended the Rights Agreement to provide that none of the
approval, execution or delivery of this Agreement or the consummation of
the Merger will cause (x) the Company Rights to become exercisable under
the Rights Agreement, (y) Parent or Merger Sub (or any of their respective
affiliates), to be deemed an "Acquiring Person" (as defined in the Rights
Agreement), or (z) result in the occurrence of a "Distribution Date" or
"Triggering Event" (as defined, respectively, in the Rights Agreement).
(ii) No shareholder of the Company is or, at any time during the
three-year period preceding the date hereof or the Effective Time, has
been, an "affiliated shareholder" of the Company as such term is defined in
Part Thirteen of the Texas Business Corporation Act.
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(i) Litigation. Except as disclosed in the Company Reports, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
audits (collectively, "Litigation") by a third party (including a
Governmental Entity) pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, other than those
which, individually or in the aggregate, would not have a Material Adverse
Effect. Except as disclosed in the Company Reports, no Governmental Entity
has advised the Company or any of its Subsidiaries of an intention to
conduct any audit, investigation or other review with respect to the
Company or any of its Subsidiaries that the Company reasonably believes
would be material.
(j) Absence of Certain Changes. Except as set forth in the Company
Reports or on Schedule 3.1(j) or 3.1(d) of the Disclosure Letter, since
June 30, 1999, the Company and its Subsidiaries have conducted their
business only in the ordinary course of such business consistent with past
practices, and there has not occurred (i) any Material Adverse Effect; (ii)
any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company or any of its
Subsidiaries (other than Subsidiaries that, at all times since June 30,
1999, have been wholly-owned, directly or indirectly, by the Company) or
any repurchase, redemption or any other acquisition by the Company or any
of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries; (iii) any change in accounting principles, practices or
methods used by the Company or any of its Subsidiaries; (iv) any entering
into or amendment of any employment agreement, which is, or would be
required to be, set forth on Schedule 3.1(m), with, or any increase in the
rate or terms (including, without limitation, any acceleration of the right
to receive payment) of compensation payable, or to become payable, by the
Company or any of its Subsidiaries to, their respective directors, officers
or employees; (v) any entering into or amendment of any increase in the
rate or terms (including, without limitation, any acceleration of the right
to receive payment) of any bonus, insurance, pension or other employee
benefit plan or arrangement covering any such directors, officers or
employees; (vi) any revaluation by the Company or any of its Subsidiaries
of any of their respective assets except for write-downs and write-offs not
exceeding $500,000 or equivalent in the aggregate or for which specific
reserves were made in the preparation of the consolidated balance sheet of
the Company and its Subsidiaries, as at June 30, 1999, included in the
Company Reports; (vii) any transaction or commitment made by the Company or
any of its Subsidiaries to buy or sell any assets that are or would be
material to the Company's business; or (viii) any other transaction or
event that, had it occurred after the date of this Agreement, would
constitute a breach of the covenant set forth in Section 4.2(b).
(k) Taxes. Except as set forth on Schedule 3.1(k) of the Disclosure
Letter:
(i)(A) All Tax Returns relating to the Company and each of its
Subsidiaries or the business or assets thereof that were required to be
filed on or before the Closing Date have been duly and timely filed and
are correct and complete in all material respects, (B) all Taxes shown
as owing on such Tax Returns have been paid, and (C) neither the Company
nor any of its Subsidiaries is currently the beneficiary of any
extension of time within which to file any Tax Return which has not been
filed.
(ii)(A) All material Taxes that are or may become payable by the
Company or any of its Subsidiaries or chargeable as an Encumbrance upon
the assets thereof as of the Closing Date for which the filing of a Tax
Return is not required have been duly and timely paid, (B) the Company
and each of its Subsidiaries has duly and timely withheld all material
Taxes required to be withheld in connection with the business or assets
of such person, and such withheld Taxes have been either duly and timely
paid to the proper governmental authorities or properly set aside in
accounts for such purpose, and (C) the Company
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Reports reflect an adequate reserve for all material Taxes payable or
asserted to be payable by the Company or any of its Subsidiaries for all
taxable periods or portions thereof through the date of the most recent
financial statements set forth therein.
(iii) There has been no claim or issue (other than a claim or issue
that has been finally settled) concerning any liability for Taxes of the
Company or any of its Subsidiaries asserted, raised or, to the knowledge
of the Company, threatened by any taxing authority.
(iv) Schedule 3.1(k) of the Disclosure Letter lists all Income Tax
Returns that have been filed with respect to the Company and any of its
Subsidiaries for taxable periods ended on or after January 1, 1992 and
that have not yet been audited or are currently the subject of audit.
(v) Neither the Company nor any of its Subsidiaries has (A) waived
any statute of limitations, (B) agreed to any extension of the period
for assessment or collection or (C) executed or filed any power of
attorney with respect to Taxes, which waiver, agreement or power of
attorney is currently in force.
(vi)(A)There are no outstanding adjustments under Section 481 of
the Code (or similar or analogous provision of state, local or foreign
law) for Income Tax purposes applicable to the Company or any of its
Subsidiaries required as a result of changes in methods of accounting
effected on or before the Closing Date, and (B) no material elections
for Income Tax purposes have been made by the Company or any of its
Subsidiaries that are currently in force or by which the Company or any
of its Subsidiaries is bound.
(vii) Neither the Company nor any of its Subsidiaries (A) is a
party to or bound by or has any obligation under any Tax allocation,
sharing, indemnity or similar agreement or arrangement, or (B) is or has
been a member of any group of companies filing a consolidated, combined
or unitary Income Tax Return.
(l) Employee Benefit Plans. (i) Schedule 3.1(l) of the Disclosure
Letter lists all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option plans, or any other employee
benefit plan, program, agreement, or arrangement, whether written or
unwritten and regardless of whether they are funded or unfunded or U.S. or
non-U.S., with, for the benefit of, or covering employees or former
employees of the Company and its Subsidiaries whether maintained by the
Company or its Subsidiaries or with respect to which the Company or its
Subsidiaries have any liability, including any "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Company Benefit Plans"). The
Company has provided Parent with a true and correct copy of each of the
Company Benefit Plans (or a true and correct description of any unwritten
Company Benefit Plan) and all contracts relating thereto, or to the funding
thereof, and the two most recent annual reports and actuarial valuations
(if applicable) relating to each Company Benefit Plan.
(ii) The Company is not aware that any officer, executive or key
employee or any group of employees of the Company or any of its
Subsidiaries has any plans to terminate his, her or its employment.
(iii) Each Company Benefit Plan and Employment Agreement conforms in
all material respects to, and its administration is in conformity in all
material respects with, all applicable laws. No material liability has been
or is expected to be incurred by the Company or any of its
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Subsidiaries with respect to any Company Benefit Plan and Employment
Agreement except for benefits payable or contributions due under the terms
of such plans or agreements, and full payment has been made of all amounts
that the Company or any of its Subsidiaries is required to have paid as
contributions to each Company Benefit Plan and Employment Agreement. All
Company Benefit Plans intended and Employment Agreements to satisfy
applicable tax qualification requirements or other requirements necessary
to secure favorable tax or other legal treatment comply in all material
respects with such requirements, and adequate accruals for all obligations
under the Company Benefit Plans and Employment Agreements are reflected in
the financial statements of the Company. Neither the Company nor any of its
Subsidiaries nor any of their ERISA Affiliates has ever maintained,
contributed to or incurred or expects to incur any liability under Title IV
of ERISA. Except as set forth on Schedule 3.1(l) of the Disclosure Letter,
(A) the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any benefit
plan, policy, arrangement or agreement or any trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any employee and
(B) no payment or benefit which will or may be made by the Company, any of
its Subsidiaries or Parent with respect to any employee, officer or
director will constitute an "excess parachute payment" within the meaning
of Section 280G(b)(1) of the Code.
(iv) Except as described in the Company Reports or listed on Schedule
3.1(l) of the Disclosure Letter, neither the Company nor any of its
Subsidiaries maintains or contributes to any plan or arrangement which
provides or has any liability to provide life insurance or medical or other
employee welfare benefits to any employee or former employee upon his or
her retirement or termination of employment, and neither the Company nor
any of its Subsidiaries has ever represented, promised or contracted
(whether in written form or, to the knowledge of the Company, in unwritten
form) to any employee or former employee that such benefits would be
provided. None of the Company Benefit Plans is a Multiemployer Plan or a
Single Employer Plan within the meaning of ERISA.
(m) Labor and Employment Matters. (i) Schedule 3.1(m) of the
Disclosure Letter lists, as of October 15, 1999, each officer and employee
of the Company and any of its Subsidiaries. Not more than 30 additional
employees were hired by the Company and its Subsidiaries between October
15, 1999 and the date hereof. Except as set forth on Schedule 3.1(m) of the
Disclosure Letter, (i) neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement or other
Contracts or understanding with a labor union or labor organization; and
(ii) there is no (x) unfair labor practice, labor dispute (other than
routine individual grievances) or labor arbitration proceeding pending or,
to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries, (y) activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or any of
its Subsidiaries, or (z) lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to such employees. The Company and each
of its Subsidiaries is in substantial compliance with all Laws regarding
employment, employment practices, terms and conditions of employment and
wages and hours.
(ii) There are no pending or, to the knowledge of the Company,
threatened claims for indemnification by the Company or any of its
subsidiaries in favor of directors, officers, employees and agents of the
Company or any of its Subsidiaries.
(iii) Except for (a) any benefits to be provided to employees under
any Company Benefit Plan, (b) any benefits to be provided to employees
under any Employment Agreement and
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(iii) compensation payable in the ordinary course for services rendered
within the payroll period immediately preceding the date hereof, the
Company and its Subsidiaries have no liabilities with respect to any
employees, other than as reflected in the Company Reports or on Schedule
3.1(m) of the Disclosure Letter.
(n) Brokers and Finders. Except for CIBC World Markets Corp. pursuant
to an engagement letter, a true and complete copy of which has previously
been delivered to Parent, no broker, dealer or financial advisor is
entitled to receive from the Company or any of its Subsidiaries any
broker's, finder's or investment banking fee in connection with this
Agreement or the transactions contemplated hereby.
(o) Licenses and Permits. Schedule 3.1(o) of the Disclosure Letter
sets forth a complete and correct list of all licenses, concessions,
permits, certificates of need, approvals and authorizations (collectively,
"Permits") from all Governmental Entities held by the Company and its
Subsidiaries. Such Permits are sufficient to enable the Company and its
Subsidiaries to lawfully conduct their respective businesses as presently
conducted in all material respects. No Permit listed, or required to be
listed, on Schedule 3.1(o) of the Disclosure Letter is subject to
revocation, forfeiture or renegotiation by virtue of any existing
circumstances affecting the Company and its Subsidiaries or by virtue of
the execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby. There is no
Litigation pending or, to the knowledge of the Company, threatened to
modify or revoke any Permit, and no Permit is subject to any outstanding
order, decree, judgment, stipulation, or investigation that would be likely
to affect such Permit or the rights of the Company or any of its
Subsidiaries thereunder, except for instances of any of the foregoing
matters which, individually or in the aggregate, would not have a Material
Adverse Effect.
(p) Environmental Matters. Except as set forth on Schedule 3.1(p) of
the Disclosure Letter, and except where the failure of any of the following
to be true and correct would not have a Material Adverse Effect:
(i) The Company and its Subsidiaries are in compliance with all
Environmental Laws and the requirements of any permits issued under such
Environmental Laws with respect to any properties or assets of the
Company or any of its Subsidiaries ("Company Property");
(ii) There are no past, pending or, to the knowledge of the
Company, threatened material Environmental Claims against the Company,
any of its Subsidiaries or any Company Property; and
(iii) There are no facts, circumstances, conditions or occurrences
regarding any Company Property or any property adjoining or in the
vicinity of any Company Property, that could reasonably be anticipated
(i) to form the basis of a material claim under any Environmental Law
against the Company, any of its Subsidiaries or any Company Property or
(ii) to cause such Company Property or assets to be subject to any
restrictions on its ownership, occupancy, use or transferability under
any Environmental Law.
(q) Material Contracts. Except as set forth on Schedule 3.1(q) of the
Disclosure Letter, none of the Company and any of its Subsidiaries is bound
by (a) any agreement, contract or commitment providing for annual payments
of more than $250,000, (b) any agreement, indenture or other instrument
which contains restrictions with respect to payment of dividends or any
other distribution in respect of its capital stock providing for annual
payments of more than $250,000, (c) any agreement, indenture or instrument
relating to indebtedness providing for annual payments of more than
$250,000, (d) any agreement or contract with any Affiliate providing for
annual payments of more than $250,000, (e) any interconnection agreement
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providing for annual payments of more than $250,000, (f) any employment,
consulting, severance, "change of control" or other similar agreements,
understandings or arrangements, whether written or unwritten, which cover
any employee or former employee of the Company or any of its Subsidiaries
(the "Employment Agreements"). The Company has provided Parent with a true
and correct copy of each of the Employment Agreements (or a true and
complete description of each unwritten Employment Agreement) (in each case,
which may entitle any Person to receive payments from the Company or any of
its Subsidiaries in excess of $100,000 per year) or any other similar type
of contract, (g) any material license, contract or agreement transferring,
providing for or restricting the use of, or settling any claim with respect
to, any Intellectual Property, or (h) any agreement, contract or commitment
limiting the ability of the Company or any of its Subsidiaries to engage in
any line of business or to compete with any Person or to otherwise acquire
property or conduct business in any area. Except as otherwise set forth on
Schedule 3.1(q) of the Disclosure Letter, each contract or agreement set
forth on Schedule 3.1(q) of the Disclosure Letter (or required to be set
forth in Section 3.1(q) of the Disclosure Letter) is in full force and
effect and there exists no material default or material event of default or
to the knowledge of each of the Company and each of its Subsidiaries,
event, occurrence, condition or act (including the consummation of the
Merger) which, with the giving of notice, the lapse of time or the
happening of any other material event or condition, would become a default
or event of default thereunder.
(r) Assets. Except as set forth in the Company Reports, the Company
and its Subsidiaries own, or otherwise have sufficient and legally
enforceable rights to use, all of the properties and assets (real, personal
or mixed, tangible or intangible), used or held for use in connection with,
necessary for the conduct of, or otherwise material to, the business and
operations of the Company and its Subsidiaries (the "Assets"). The Company
and its Subsidiaries have good, valid and marketable title to, or in the
case of leased property has good and valid leasehold interests in, all
Assets that are material to their respective businesses and operations,
including but not limited to all such Assets reflected in the Company
Reports or acquired since the date most recent thereof (except any that
have been disposed of in the ordinary course of business after the date
hereof and in accordance with this Agreement), in each case free and clear
of any Encumbrance, except Permitted Encumbrances. The Company and its
Subsidiaries have maintained all tangible Assets that are material to their
respective businesses and operations in good repair, working order and
operating condition subject only to ordinary wear and tear, and all such
tangible Assets are fully adequate and suitable for the purposes for which
they are presently being used. Schedule 3.1(r) of the Disclosure Letter
sets forth a list as of August 31, 1999 of all tangible Assets that are
material to the business and operations of the Company and its Subsidiaries
and identifies the location of such Assets.
(s) Intellectual Property; Technology. (i) Except as otherwise
indicated on Schedule 3.1(s) of the Disclosure Letter the Company and its
Subsidiaries own the entire right, title and interest in and to the Marks,
the Copyrights and the Patents free and clear of any Encumbrances except
for Permitted Encumbrances. Each item that is indicated as registered on
Schedule 3.1(s) of the Disclosure Letter has been duly registered, filed
with or issued by the appropriate authorities in the countries indicated on
Schedule 3.1(s) of the Disclosure Letter and to the knowledge of the
Company, all such registrations, filings and issuances remain in full force
and effect. Except as otherwise indicated on Schedule 3.1(s) of the
Disclosure Letter, none of the Marks, the Copyrights or the Patents are the
subject of any pending, or to the Company's knowledge, threatened
opposition, interference, cancellation proceeding or other legal or
governmental proceeding before a registration or issuing authority in any
jurisdiction. Except as otherwise disclosed in Schedule 3.1(s) of the
Disclosure Letter, the conduct of the business of the Company and its
Subsidiaries as presently conducted does not infringe, violate, or
constitute
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misappropriation of any Intellectual Property of any other Person, nor,
since January 1, 1997, has the Company or any of its Subsidiaries received
notice to the contrary from any Person. The Company and its Subsidiaries
own or have the right to use through assignment, lease, license or other
agreement all Intellectual Property necessary for the conduct of the
business as presently conducted. Except as set forth in Schedule 3.1(s) of
the Disclosure Letter, there are no pending, or to the Company's knowledge,
threatened material claims by any Person for infringement of any
Intellectual Property or unfair competition by the Company or any of its
Subsidiaries. Except as set forth in Schedule 3.1(s) of the Disclosure
Letter, to the Company's knowledge no Person is infringing upon the
Intellectual Property owned by, assigned to or subject to assignment of,
the Company or any of its Subsidiaries, and the Company and its
Subsidiaries are aware of no facts that would support such a claim. The
consummation of the transaction contemplated hereby will not result in the
loss or impairment of the Company's or any of its Subsidiaries' right to
own or use any of the Intellectual Property necessary to the conduct of the
business as presently conducted (including, but not limited to the Marks,
the Copyrights and the Patents) nor will it require the consent of any
governmental authority or third party.
(ii) The costs to the Company and its Subsidiaries of reprogramming
required to permit the proper functioning in and following the year 2000,
of the (i) computer systems and (ii) equipment containing embedded
microchips, in each case, owned or operated by the Company or any of its
Subsidiaries and the testing of all such systems and equipment (including,
without limitation, reprogramming errors) could, individually or in the
aggregate, not reasonably be expected to have a Material Adverse Effect.
Except for the cost of such of the reprogramming referred to in this
Section 3.1(s) as may be necessary, the computer and management information
systems of the Company and its Subsidiaries are sufficient to permit the
Company and its Subsidiaries to conduct its business without material
interruption arising out of any failure to be Year 2000 Compliant and
without such conduct resulting in a Material Adverse Effect.
(t) Insurance. All insurance policies maintained by or on behalf of
any the Company or any Subsidiary are in full force and effect, and all
premiums due thereon have been paid. The Company and each Subsidiary has
complied in all material respects with the terms and provisions of such
policies. The Company has delivered to Parent complete and correct copies
of its directors and officers liability insurance policies, which policies
are in full force and effect.
(u) Affiliate Transactions. Except as otherwise described in the
Company's Proxy statement for its 1999 annual meeting of shareholders (the
"1999 Proxy") or on Schedule 3.1(u) of the Disclosure Letter, each
agreement, contract, arrangement, understanding, transfer of assets or
liabilities or other commitment or transaction between the Company or any
Subsidiary of the Company, on one hand, and any Person who is (or, at the
time such agreement, contract, arrangement, understanding, transfer,
commitment or transaction was entered into or made, was) a shareholder,
director or employee of the Company or any Subsidiary of the Company (or
other Person controlled, directly or indirectly, by any of the foregoing),
on the other hand (collectively, "Affiliate Transactions"), is on terms and
conditions at least as favorable to the Company (or such Subsidiary, as the
case may be) as would be obtainable by it in a comparable arm's-length
transaction with a Person unrelated to any shareholder, director or
employee of the Company or any of its Subsidiaries. All Affiliate
Transactions having effect or outstanding as of the date hereof that are
material to the Company or any of its Subsidiaries are described in the
1999 Proxy or on Schedule 3.1(u) of the Disclosure Letter.
(v) Opinion. The board of directors of the Company has received an
opinion of CIBC World Markets Corp. (the "Opinion"), to the effect that, as
of the date of such opinion, the equity ownership of the Company's
shareholders in RV is fair from a financial point of view to
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the holders of the Company Common Stock. The Company has been authorized by
CIBC World Markets Corp. to permit the inclusion of the Opinion in its
entirety and references thereto, subject to prior review of, and consent
to, such inclusion and references by CIBC World Markets Corp. and its
counsel (such consents not to be unreasonably withheld or delayed), in the
Proxy Statement.
(w) State Statutes. The Board of Directors of the Company has approved
the terms of this Agreement and the Merger, and such approval is sufficient
to render inapplicable the provisions of Part Thirteen of the Texas
Business Corporation Act (the "TBCA") to the extent, if any, that such
Section is applicable to the Merger, this Agreement and the transactions
contemplated hereunder. To the knowledge of the Company (based on
consultation with outside legal counsel), except for the DGCL and the TBCA,
no other state takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement or the transactions
contemplated hereunder.
(x) No Extortion Payments. None of the Company or any of its
Subsidiaries has made, or has agreed to make, any payment in connection
with any Person's scheme or plan to demand money or property in exchange
for (i) the safety of any Person or (ii) the ability of any Person to
conduct otherwise legal business.
(y) No Improper Payments. None of the Company or any of its
Subsidiaries nor any Person acting on behalf of any of them has paid or
delivered, or promised to pay or deliver, directly or indirectly through
any other Person, any monies or anything of value to (i) any person or firm
employed by or acting for or on behalf of any customer or supplier, whether
private or governmental, or (ii) any government official or employee or any
political party, for the purpose of illegally or improperly inducing or
rewarding any action by such customer, supplier, official, employee or
political party favorable to the Company or any of its Subsidiaries.
(z) No Venezuelan Investments. As of the date hereof, the Company does
not operate any business or have any investment in any person operating any
business in Venezuela.
3.2. Representations and Warranties of Parent. Parent hereby represents
and warrants to the Company as of the date hereof and as of the Closing Date as
follows:
(a) Existence; Good Standing; Corporate Authority. Each of Parent, RV
and Merger Sub, and each member of the Jamtis Group, is (i) a corporation
or limited liability company, as the case may be, duly organized, validly
existing and in good standing (to the extent that "good standing" is a
cognizable legal concept under applicable law) under the laws of its
jurisdiction of incorporation and (ii) is duly licensed or qualified to do
business and is in good standing under the laws of any other state of the
United States or any other jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its
business makes such licensure, qualification or good standing necessary,
except where the failure to be so in good standing or to be so licensed or
qualified, individually or in the aggregate, would not have a material
adverse effect on the business, operations, results of operations, assets
or financial condition of RV or Merger Sub, or on the ability of Parent, RV
or Merger Sub to consummate the transactions contemplated herein (an
"Acquiror Material Adverse Effect"). Each of RV and Merger Sub, and each
member of the Jamtis Group, has the requisite corporate power and authority
to own, operate and lease its properties and assets and carry on its
business. True and correct copies of the Certificate of Incorporation and
Bylaws of each of RV and Merger Sub as of the date hereof are attached as
Exhibit A. The organizational documents of RV, Merger Sub and, as of the
Closing Date, each member of the Jamtis Group, are or will be in full force
and effect.
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(b) Authorization, Validity and Effect of Agreements. Each of Parent,
RV and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it
is a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery by each of Parent, RV and Merger Sub of this Agreement and the
Ancillary Agreements to which it is a party, the performance of its
obligations hereunder and thereunder and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Parent or by the shareholder or
shareholders of RV and Merger Sub, as the case may be, and no other
corporate proceedings on the part of Parent, RV or Merger Sub are necessary
to authorize this Agreement or the Ancillary Agreements (to which any of
them is a party), to perform the obligations hereunder or thereunder or to
consummate the transactions contemplated hereby or thereby. This Agreement
and, upon execution as contemplated herein, each Ancillary Agreement to
which Parent, RV or Merger Sub is a party, has been duly and validly
executed and delivered by Parent, RV and/or Merger Sub, as the case may be,
and (assuming due execution and delivery of this Agreement and each of the
Ancillary Agreements by each other party hereto and thereto), constitutes
the valid and binding obligation of Parent, RV or Merger Sub, as the case
may be, enforceable against Parent, RV or Merger Sub, as the case may be,
in accordance with its terms.
(c) Compliance with Laws. None of Parent, RV, Merger Sub or any member
of the Jamtis Group is in violation of any Laws applicable to Parent, RV,
Merger Sub or such member, or any of its properties or assets, except for
violations which, individually or in the aggregate, would not have an
Acquiror Material Adverse Effect.
(d) Capitalization. (i) As of the date hereof, the authorized capital
stock of RV consists of 1,000 shares of common stock, par value $.01 per
share, and 1,000 shares of common stock are issued and outstanding. As of
the Closing Date, the aggregate number of shares of capital stock of RV
shall be not more than the sum of (i) 80,848,204, plus (ii) the product of
(x) such number of shares of Preferred Stock issued or accrued as
paid-in-kind dividends from November 1, 1999 to the Closing Date, and (y)
2.077. All issued and outstanding shares of capital stock of RV and of
Merger Sub are duly authorized, validly issued, fully paid, non-assessable
and free of pre-emptive rights. As of the Closing, except for approximately
10% of the aggregate number of shares of capital stock of RV that will be
owned by Promon, in the form of shares of RV Class A Common Stock, all
issued and outstanding shares of capital stock of RV will be owned,
directly or indirectly, by Parent, in the form of shares of RV Class B
Common Stock, all issued and outstanding shares of capital stock of Merger
Sub are owned directly by RV and all issued and outstanding shares or
quota, as the case may be, of each member of the Jamtis Group are owned
indirectly by RV, in each case free and clear of Encumbrances (other than
any Encumbrances created by Promon as to the shares of RV Class A Common
Stock owned by it). None of RV, Merger Sub or any member of the Jamtis
Group has any outstanding bonds, debentures, notes or other similar
obligations, instruments or securities entitling the holders thereof to
vote (or which are convertible into or exercisable for securities having
the right to vote) with the shareholders of RV, Merger Sub or such member
on any matter. As of the date hereof and as of the Closing Date, the amount
and ownership of the issued equity capital of each member of the Jamtis
Group are as set forth on Schedule 3.2(d) of the RV Disclosure Letter.
(ii) Except as described in this Agreement or in the Netstream
Acquisition Agreements, or as set forth in the RV Disclosure Letter, there
are no other shares of capital stock (or quota, as the case may be) of RV,
Merger Sub or any member of the Jamtis Group, no securities of RV, Merger
Sub or any member of the Jamtis Group convertible or exchangeable for
shares of
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capital stock, voting securities (or quota, as the case may be) of RV,
Merger Sub or any member of the Jamtis Group, and no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate RV, Merger Sub or any member of
the Jamtis Group to issue, transfer or sell any shares of capital stock of
RV, Merger Sub or any member of the Jamtis Group.
(e) No Violation; Consents. (i) Neither the execution, delivery or
performance by Parent, RV and Merger Sub of this Agreement or any of the
Ancillary Agreements nor the consummation by Parent, RV and Merger Sub of
the transactions contemplated hereby or thereby will: (x) violate, conflict
with or result in a breach of any provisions of the Certificate of
Incorporation or Bylaws of any of Parent, RV, Merger Sub or any member of
the Jamtis Group; (y) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, result in the
termination or in a right of termination of, accelerate the performance
required by or benefit obtainable under, result in the triggering of any
payment or other obligations pursuant to, result in the creation of any
Encumbrance upon any of the properties or assets of RV, Merger Sub or any
member of the Jamtis Group under, or result in there being declared void,
voidable, subject to withdrawal, or without further binding effect, any of
the terms, conditions or provisions of any contract to which any of RV or
Merger Sub is a party, by which any of RV, Merger Sub or any member of the
Jamtis Group or any of their respective properties are bound, or under
which any of RV, Merger Sub or any member of the Jamtis Group or any of
their respective properties are entitled to a benefit, except for any of
the foregoing matters which, individually or in the aggregate, would not
have an Acquiror Material Adverse Effect or a Material Delaying Effect; or
(z) violate any Laws applicable to any of RV, Merger Sub or any member of
the Jamtis Group or any of its assets or properties, except for violations
which, individually or in the aggregate, would not have an Acquiror
Material Adverse Effect.
(ii) Other than the filings required under the HSR Act, the Exchange
Act, notifications to the Superintendencia de Valores y Seguros of Chile
and the Superintendencia de Industria y Comercio of Colombia and filings in
connection with the maintenance of qualification to do business in other
jurisdictions required or permitted to be made or obtained by Parent, RV or
Merger Sub, neither the execution, delivery or performance by Parent, RV
and Merger Sub of this Agreement or any of the Ancillary Agreements nor the
consummation by Parent, RV and Merger Sub of the transactions contemplated
hereby or thereby will require any consent, approval or authorization of,
or declaration, filing or registration with, (A) any Governmental Entity,
including any such consent, approval, authorization, declaration, filing or
registration under any Foreign Antitrust Laws, (B) any other Law of any
foreign jurisdiction, or (C) any other Person, except for those consents,
approvals, authorizations, declarations, filings or registrations the
failure of which to obtain or make, individually or in the aggregate, would
have an Acquiror Material Adverse Effect or a Material Delaying Effect.
(iii) Neither RV nor any of its Subsidiaries has any liabilities or
obligations, contingent or otherwise, except liabilities and obligations
arising hereunder or under the Netstream Acquisition Agreements and/or, as
of the Closing, liabilities and obligations (a) arising under the Brand
License, the RV Agreement, the Executive Agreement and under any bond
tender offer arrangements being undertaken by RV, if any, and (b) incurred
in the ordinary course of business following the Final Closing under the
Netstream Acquisition Agreements which individually or in the aggregate
would not have an Acquiror Material Adverse Effect.
(f) Netstream Acquisition Agreements. Parent has delivered to the
Company complete and correct copies of the Netstream Acquisition Agreements
(including all exhibits, schedules and other attachments thereto), as
executed and delivered by the parties thereto (or in the form to
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be executed and delivered at the closing thereunder). Each of the Netstream
Acquisition Agreements is (or, following execution and delivery, as the
case may be, will be) in full force and effect in accordance with its
terms.
(g) Litigation. There is no Litigation claim by a third party
(including a Governmental Entity) pending or, to the knowledge of Parent,
threatened against Parent, RV, Merger Sub or any member of the Jamtis
Group, other than those which, individually or in the aggregate, would not
have an Acquiror Material Adverse Effect. No Governmental Entity has
indicated an intention to conduct any audit, investigation or other review
with respect to RV or Merger Sub.
(h) Proxy Statement. None of the information supplied by Parent for
inclusion in the Proxy Statement, at the respective times filed with the
SEC and distributed to shareholders of the Company, will contain any untrue
statement of a material fact or omit to state any material fact relating to
Parent, RV, Merger Sub or any member of the Jamtis Group required to be
stated therein or necessary in order to make the statements therein
relating to Parent, RV, Merger Sub or any member of the Jamtis Group in
light of the circumstances under which they were made, not misleading.
(i) Brokers and Finders. No actions by Parent, RV or Merger Sub or by
any Person acting on behalf of either of them has given rise to any valid
claim against the Company, RV, Merger Sub or any member of the Jamtis Group
for any broker's, finder's or investment banking fee in connection with
this Agreement or the transactions contemplated hereby.
ARTICLE IV
COVENANTS
4.1. No Solicitation. (a) The Company and its Subsidiaries shall, and
shall direct and use reasonable best efforts to cause their respective officers,
directors, employees, representatives and agents to, immediately cease any
discussions or negotiations with any parties other than Parent (or RV or Merger
Sub) that may be ongoing with respect to an Acquisition Proposal. The Company
and its Subsidiaries shall not, and shall not authorize or permit any of their
respective officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, an Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding an Acquisition Proposal; provided, however, that if, at
any time prior to the approval of the Merger by the holders of a majority of the
shares of Company Common Stock, the Board of Directors of the Company determines
in good faith, having received the advice of outside counsel concerning its
fiduciary duties to the Company's shareholders under applicable law, the
Company, in response to an Acquisition Proposal that (A) was unsolicited or that
did not otherwise result from a breach of this Section 4.1(a) (subject to
compliance with Sections 4.1(c) and 4.1(d)), and (B) constitutes a Superior
Proposal, may (I) furnish non-public information with respect to the Company and
its Subsidiaries to the person who made such Acquisition Proposal pursuant to a
customary confidentiality agreement and (II) participate in negotiations
regarding such Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any director or officer of the Company or any of its Subsidiaries or
any authorized investment banker, financial advisor, attorney, accountant or
other representative of the Company or any of its Subsidiaries, acting on behalf
of the Company or any of its Subsidiaries, shall be deemed to be a breach of
this Section 4.1(a) by the Company.
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(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, the approval or recommendation by such Board of Directors or
such committee of the Merger unless there is a Superior Proposal outstanding,
(ii) approve or recommend, or propose to approve or recommend, an Acquisition
Proposal unless such Acquisition Proposal is a Superior Proposal or (iii) cause
the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement (an "Acquisition Agreement") with
respect to an Acquisition Proposal unless such Acquisition Proposal is a
Superior Proposal, and unless, in each case, such Board of Directors shall have
(A) determined in good faith, based on the advice of outside counsel, that
failure to do so would constitute a breach of its fiduciary duties to the
Company's shareholders under applicable law and (B) delivered a notice of
termination to Parent pursuant to Section 6.1(c).
(c) The Company shall promptly (but in any event within one day) advise
Parent orally and in writing of any Acquisition Proposal or any inquiry
delivered to or received by the chief executive officer, any other senior
officer or any director of the Company regarding the making of an Acquisition
Proposal including any request for information, the material terms and
conditions of such request, Acquisition Proposal or inquiry and the identity of
the person making such request, Acquisition Proposal or inquiry. The Company
will, to the extent reasonably practicable, keep Parent fully informed of the
status and details (including amendments or proposed amendments) of any such
request, Acquisition Proposal or inquiry. In addition to the foregoing, the
Company will deliver to Parent a written notice (the "Acquisition Agreement
Notice") not less than five days prior to entering into any Acquisition
Agreement.
(d) Nothing contained in this Section 4.1 shall prohibit the Company from
at any time taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to the Company's shareholders if, in the good faith judgment of its Board of
Directors, based upon the advice of outside counsel, failure so to disclose
would constitute a breach of its fiduciary duties to the Company's shareholders
under applicable law; provided, however, that neither the Company nor its Board
of Directors nor any committee thereof shall, except as permitted by Section
4.1(b), withdraw or modify, or propose to withdraw or modify, its position with
respect to this Agreement or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal; and provided, further, that the taking of a
position by the Company pursuant to Rule 14e-2(a)(2) or (3) of the Exchange Act
in respect of an Acquisition Proposal shall not be deemed a withdrawal, a
modification or a proposal to do either, of its position with respect to this
Agreement for purposes hereof.
4.2. Conduct of Business. (a) From the date hereof to and including the
Closing Date, except as set forth on Schedule 4.2(a) of the Disclosure Letter or
as otherwise required pursuant to this Agreement, unless Parent has consented in
writing thereto, the Company shall, and shall cause each of its Subsidiaries to:
(i) conduct its operations according to its usual, regular and
ordinary course of business in accordance with its current business plan;
(ii) use its reasonable best efforts to preserve intact its business
organization and goodwill, to maintain in effect all existing
qualifications, licenses, Permits, approvals and other authorizations
referred to in Sections 3.1(a) and 3.1(o), to keep available the services
of its officers and employees and to maintain satisfactory relationships
with customers, suppliers, distributors, brokers, sales agents and all
other persons having business relationships with it;
(iii) promptly notify Parent upon becoming aware of any material
breach of any representation, warranty or covenant contained in this
Agreement or the occurrence of any event
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that would cause any representation or warranty of the Company contained in
this Agreement no longer to be true and correct or any covenant of the
Company contained in this Agreement not to be complied with;
(iv) timely file with the SEC, and promptly deliver to Parent, true
and correct copies of all reports, statements or schedules or other filings
required to be filed by the Company under the Securities Act or Exchange
Act with the SEC subsequent to the date of this Agreement; and
(v) deliver, as promptly as reasonably practicable but in any event
within 30 business days after the end of each accounting month, monthly
consolidated financial statements for the Company and its Subsidiaries for
and as of the end of each such month.
(b) From the date hereof to and including the Closing Date, except as set
forth on Schedule 4.2(b) of the Disclosure Letter, unless Parent has consented
in writing thereto, the Company shall not, and shall not permit any of its
Subsidiaries to:
(i) amend its Certificate of Incorporation or By-Laws or comparable
governing instruments;
(ii) except as otherwise provided in this Section 4.2(b), issue, sell,
pledge or otherwise dispose of any shares of its capital stock or other
ownership interest in the Company or any of the Subsidiaries, or any
securities convertible into or exchangeable for any such shares or
ownership interest, or any rights, warrants or options to acquire or with
respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities, except (a) issuances of shares of
Company Common Stock in respect of any exercise of Options or Warrants
outstanding on the date hereof and disclosed in the Disclosure Letter, (b)
issuances of shares of Company Common Stock in respect of any conversion of
the Company's Series A preferred stock outstanding at the time immediately
prior to such issuance, and (c) issuance of newly created shares of
preferred stock of the Company that are redeemable at the option of the
Company (and the Surviving Corporation or RV, as the case may be) on or, at
the Company's election, at any time after the Closing Date, provided that
the sum of (1) the aggregate redemption price of such newly-created shares
of preferred stock as of the Closing Date, and (2) the aggregate principal
amount of any indebtedness incurred under subclause (b) of clause (xi) of
this Section 4.2, does not exceed US$20,000,000; or accelerate any right to
convert or exchange or acquire any securities of the Company or any of its
Subsidiaries for any such shares or ownership interest;
(iii) effect any stock split, reverse stock split, stock dividend,
subdivision, reclassification or similar transaction, or otherwise change
its capital structure as it exists on the date hereof;
(iv) grant, confer, award or amend any option, warrant, convertible
security or other right to acquire any shares of its capital stock or take
any action to cause to be exercisable any otherwise unexercisable option
under any Company Stock Plan, provided that this Section 4.2(b) shall not
prohibit or restrict the Company from granting unvested options to acquire
up to 300,000 shares of Company Common Stock prior to the Closing Date
("Interim Company Options"), provided further, that no Interim Company
Options (i) shall be granted except in the ordinary course of business to
employees of the Company and its Subsidiaries as of the date hereof and
employees of the Company and its Subsidiaries hired by the Company or such
Subsidiaries after the date hereof, or (ii) shall become vested according
to their terms as a result of the consummation of the Merger and other
transactions contemplated hereby;
(v) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of Common Stock or other
capital stock or ownership interests (other than
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such payments by a majority-owned Subsidiary to the Company or another
majority-owned Subsidiary);
(vi) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or the capital stock of any of its
Subsidiaries;
(vii) sell, lease, assign, transfer or otherwise dispose of (by merger
or otherwise) any of its property, business or assets (including, without
limitation, receivables, leasehold interests or Intellectual Property and
including any sale and leaseback transaction) except for fair value in the
ordinary course of business provided that the proceeds of such sales do not
exceed $50,000 in any single transaction or $100,000 in the aggregate prior
to the Closing Date;
(viii) settle or compromise any pending or threatened Litigation other
than settlements of Litigations which involve solely the payment of money
(without admission of liability) not to exceed $250,000 in any one case or
$500,000 in the aggregate;
(ix) make any advance, loan, extension of credit or capital
contribution to, or purchase or acquire (by merger or otherwise) any stock,
bonds, notes, debentures or other securities of, or any assets constituting
a business unit of, or make any other investment in (other than capital
contributions to Subsidiaries of the Company made in accordance with the
Company's current business plan), any person, firm or entity, except (a)
extensions of trade credit and endorsements of negotiable instruments and
other negotiable documents in the ordinary course of business, (b)
investments in cash and cash equivalents, (c) payroll and travel advances
in the ordinary course of business and (d) investments in majority-owned
Subsidiaries;
(x) make any capital expenditures in the aggregate for the Company and
its Subsidiaries in excess of the amounts specified in the Company's
current budget for capital expenditures, a true and complete copy of which
has been delivered to Parent, or otherwise acquire assets having a value,
in the aggregate, in excess of $150,000 not in the ordinary course of
business;
(xi) incur, assume or create any indebtedness for borrowed money or
for the deferred purchase price for property or services or pursuant to any
capital lease or other financing, except (a) indebtedness incurred in the
ordinary course of business consistent with past practice for working
capital purposes pursuant to the Company's existing credit facilities as
disclosed in the Disclosure Letter or equipment financing facilities
referred to in the Company's current budget for capital expenditures and
(b) for the incurrence or creation of such indebtedness that is prepayable
by its terms without penalty or premium in excess of % of the proceeds
received from the incurrence or creation of such indebtedness at any time
on or after the Closing Date, provided that the sum of (1) the aggregate
principal amount of such indebtedness incurred or created pursuant to this
subclause, and (2) the aggregate redemption price of all shares of
preferred stock issued under clause (ii) of this Section 4.2(b), does not
exceed US$20,000,000;
(xii) take any action to assume, guarantee or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person except majority-owned Subsidiaries of the
Company and except for obligations in the ordinary course of business
consistent with the past practice of the Company not exceeding $50,000
individually and $150,000 in the aggregate;
(xiii) make any material Tax election (unless required by law or
unless consistent with prior practice) or settle or compromise any material
Income Tax liability except, in each case, with the express consent of
Parent;
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(xiv) waive or amend any term or condition of any confidentiality or
"standstill" agreement to which the Company is a party and which relates to
a business combination with or involving the Company or the purchase of
shares or assets of the Company;
(xv) grant or amend any stock-related or performance awards except as
otherwise permitted herein;
(xvi) enter into or amend any legally binding employment, severance,
retention, change in control, consulting or salary continuation agreement
with any officer, director, employee or former employee of the Company or
any of its Subsidiaries (which would involve, together with all other such
agreements, aggregate payments by the Company or any of its Subsidiaries
the payment by Company or any of its Subsidiaries of more than $250,000 in
the aggregate or grant any increases in compensation or benefits to
employees other than increases to officers and employees in the ordinary
course of business consistent with the past practice of the Company;
(xvii) adopt, amend or terminate any employee benefit plan, policy,
understanding or arrangement;
(xviii) enter into any agreements that would constitute Material
Contracts; or amend any of the foregoing agreements as exist on the date
hereof other than in the ordinary course of business;
(xix) amend, change or waive (or exempt any Person from the effect of)
the Rights Agreement, except for Parent, RV and Merger Sub in connection
with the transactions contemplated by this Agreement;
(xx) make any material changes in the type or amount of insurance
coverage;
(xxi) except as may be required by law or generally acceptable
accounting principles and with prior written notice to Parent, change any
accounting principles or practices used by the Company or its Subsidiaries;
(xxii) effect any material change in the Company's advertising,
services promotion or brand support policies or programs or commit to any
significant new product promotion or advertising campaign except, in each
case, for matters in the ordinary course of business of the Company;
(xxiii) effect any material change in the Company's billing practices
or sales terms, or cause a material acceleration or delay in the collection
of accounts or notes receivable or the payment of accounts or notes
payable;
(xxiv) waive, relinquish, release or terminate any right or claim,
including any such right or claim under any Material Contract or permit any
rights of material value to use any Intellectual Property to lapse or be
forfeited, in each case, except in the ordinary course of business
consistent with the past practice of the Company;
(xxv) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial part
of the property of the Company or any Subsidiary, or make a general
assignment for the benefit of creditors, or permit or suffer to exist the
commencement of any bankruptcy, reorganization, debt arrangement or other
case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the
Company or any Subsidiary;
(xxvi) acquire, invest in or enter into any arrangement or contract
with any person having operations in Venezuela of a nature conducted by any
of the parties hereto; or
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(xxvii) agree in writing or otherwise to take any of the foregoing
actions.
(c) If the Company shall have given notice to Parent of an action as to
which it seeks consent pursuant to section 4.2(b), such notice to describe the
relevant matters in reasonable detail, and Parent shall not have objected within
15 days, the Company may take the action described in such notice.
4.3. Filings; Other Action. Subject to the terms and conditions herein
provided, the Company and Parent shall: (i) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (ii) cooperate and consult with one another in (A)
determining which Regulatory Filings are required or, in the case of Other
Antitrust Filings, permitted to be made prior to the Effective Time with, and
which consents, approvals, Permits, authorizations or waivers (collectively,
"Consents") are required or, in the case of Other Antitrust Consents, permitted
to be obtained prior to the Closing Date from Governmental Entities or other
Persons in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, (I) all such Regulatory Filings and Consents as relate to Foreign
Antitrust Laws (the "Other Antitrust Filings" and the "Other Antitrust
Consents," respectively; collectively, the "Other Antitrust Filings and
Consents") and (II) all Consents required to transfer to the Company any Permits
or registrations held on behalf of the Company or any of its Subsidiaries by or
in the name of distributors, brokers or sales agents; (B) preparing all
Regulatory Filings and all other filings, submissions and presentations required
or prudent to obtain all Consents, including by providing to the other party
drafts of such material reasonably in advance of the anticipated filing or
submission dates; and (C) timely making all such Regulatory Filings and timely
seeking all such Consents (it being understood that the parties will make or
seek to obtain all Other Antitrust Filings and Consents, whether mandatory or
voluntary); and (iii) use their reasonable best efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement. Each of Parent and the Company shall use its
reasonable best efforts to contest any proceeding seeking a preliminary
injunction or other legal impediment to, and to resolve any objections as may be
asserted by any Governmental Entity with respect to the Merger under the HSR Act
or Foreign Antitrust Laws; provided that the foregoing shall not require Parent
to take any action that could directly or indirectly (A) impose limitations on
the ability of Parent (or any of its affiliates or Subsidiaries) effectively to
acquire, operate or hold, or require Parent or the Company or any of their
respective affiliates or Subsidiaries to dispose of or hold separate, any
portion of their respective assets or business that (I) is either material to
the business of Parent and its Subsidiaries or material to the business of the
Company and its Subsidiaries, or (II) is reasonably likely to have a Material
Adverse Effect, (B) restrict any future business activity by Parent, the Company
or any of their affiliates or Subsidiaries that (I) is either material to the
business of Parent and its Subsidiaries or material to the business of the
Company and its Subsidiaries, or (II) is reasonably likely to have a Material
Adverse Effect, including, without limitation, requiring the prior consent of
any Governmental Entity to future transactions by Parent, the Company or any of
their affiliates or Subsidiaries, or (C) otherwise adversely affect Parent, the
Company or any of their respective affiliates or Subsidiaries in a manner that
(I) is either material to the business of Parent and its Subsidiaries or
material to the business of the Company and its Subsidiaries, or (II) is
reasonably likely to have a Material Adverse Effect. If, at any time after the
Closing Date, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Parent and the
Company shall take all such necessary action.
4.4. Access to Information; Pre-Closing Review. From the date of this
Agreement to the Closing Date, the Company shall, and shall cause its
Subsidiaries to, (i) give Parent and its authorized representatives full access
during normal business hours to all books, records, personnel,
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research and other consultants, offices and other facilities and properties of
the Company and its Subsidiaries and its accountants (and shall use its
reasonable best efforts to give Parent and such representatives access to such
accountants' work papers, as Parent may reasonably request), (ii) permit Parent
to make such copies and inspections thereof as Parent may reasonably request and
(iii) furnish Parent with such financial and operating data and other
information with respect to the business and properties of the Company and its
Subsidiaries as Parent may from time to time reasonably request; provided that
no investigation or information furnished pursuant to this Section 4.4 shall
affect any representations or warranties made by the Company herein or the
conditions to the obligations of Parent to consummate the transactions
contemplated hereby. The Company acknowledges that it has been afforded an
adequate opportunity to investigate the properties, assets, liabilities,
personnel and records of Netstream. Prior to the closing under the Netstream
Acquisition Agreements, Parent will use its reasonable best efforts to assist
the Company in obtaining any further information as to Netstream that the
Company may reasonably request. From and after the date of the Final Closing
under the Netstream Acquisition Agreements, Parent shall, and shall cause its
Subsidiaries to, (i) give the Company and its authorized representatives full
access during normal business hours to all books, records, personnel, research
and other consultants, offices and other facilities and properties of Netstream
and Netstream's accountants (and shall use its reasonable best efforts to give
the Company and such representatives access to such accountants' work papers),
(ii) permit the Company to make such copies and inspections thereof as the
Company may reasonably request and (iii) furnish the Company with such financial
and operating data and other information with respect to the business and
properties of Netstream as the Company may from time to time reasonably request.
4.5. Publicity. Except as otherwise required by law, each of the Company
and Parent shall obtain the prior written consent of the other party (which
consent will not be unreasonably withheld or delayed) before issuing any press
release or otherwise making (or proposing publicly to make) any public statement
with respect to the transactions contemplated hereby or by any of the Ancillary
Agreements and in making any filings with any national securities exchange with
respect thereto.
4.6. Further Action. (a) Each party hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
(b) The Company shall not, and cause its Subsidiaries not to, and Parent
shall not, and shall cause RV and Merger Sub not to, take any action that could
reasonably be expected to result in (i) any of its representations and
warranties set forth in this Agreement that are qualified by materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) any of the conditions
set forth in Article V not being satisfied (subject to the Company's right to
take actions specifically permitted by Section 4.1). The Company shall use, and
the Company shall cause its Subsidiaries to use, and each of Parent, RV and
Merger Sub shall use, their reasonable efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using their reasonable efforts to satisfy the conditions contained in Article V.
(c) The Company and Parent shall confer on a regular and frequent basis as
reasonably requested by either of them. Each of Parent and the Company shall
promptly notify the other in writing of the occurrence of any event that will or
may result in the failure to satisfy any of the conditions to the other party's
obligations specified in Article V. The Company will promptly provide to Parent
(and its counsel) copies of all filings made by the Company with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby and shall promptly advise Parent orally and, if requested by
Parent, in writing of any Material Adverse Effect.
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4.7. Insurance; Indemnity. For a period of six years after the Closing
Date, Parent shall cause RV or the Surviving Corporation to maintain officers'
and directors' liability insurance covering the parties who are currently
covered, in their capacities as officers and directors, by the Company's
existing officers' and directors' liability insurance policies (the "Current
Policies") on terms substantially no less advantageous to such parties than such
Current Policies and providing for aggregate coverage of 300% of the amount
covered by the Current Policies.
4.8. Shareholder Approval; Preparation of Proxy Statement. (a) Subject to
the provisions of this Agreement, the Company will (i) duly call, give notice
of, convene and hold a special meeting of its shareholders (the "Shareholder
Meeting") for the purpose of obtaining a vote upon the Merger and (ii) through
its Board of Directors, declare the advisability of the Merger and recommend to
its shareholders that the Company Shareholder Approval be given.
(b) Subject to the provisions of this Agreement, the Company and RV will
prepare and file a preliminary proxy statement (such proxy statement, and any
amendments or supplements thereto, the "Proxy Statement") and a registration
statement in appropriate form (the "Registration Statement") with the SEC and
will use their respective reasonable best efforts to respond to any comments of
the SEC or its staff, to cause the Proxy Statement to be cleared by the SEC and
to have the Registration Statement declared effective under the Securities Act
as soon as practicable after responding to all such comments to the satisfaction
of the staff. Each of the Company and RV will notify the other party promptly of
its receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Statement and/or the
Registration Statement or for additional information and will supply the other
party with copies of all correspondence between it or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement, the Registration Statement or the Merger.
The Company agrees to notify RV a reasonable time prior to any filing or
distribution of the Proxy Statement or the Registration Statement of such filing
or distribution. Each of the Company and RV shall give the other party and its
counsel (who shall provide any comments thereon as soon as practicable) the
opportunity to review and approve the Proxy Statement and the Registration
Statement prior to filing with the SEC and shall give the other party and its
counsel (who shall provide any comments thereon as soon as practicable) the
opportunity to review all amendments and supplements to the Proxy Statement and
the Registration Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the SEC. Each of the Company and RV agrees to use its reasonable best efforts,
after consultation with the other party, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement has been cleared by the SEC, the Company shall mail the Proxy
Statement to the shareholders of the Company. If at any time prior to the
Shareholders Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company will promptly
prepare and mail to its shareholders such an amendment or supplement. The
Company will not mail or distribute any proxy statement or (except with respect
to shares of Company Common Stock reserved for issuance upon the exercise of
Options or Warrants outstanding on the date hereof not exceeding 100,000 of such
shares) registration statement, or any amendment or supplement thereto, to which
RV reasonably objects; provided that RV shall identify its objections and fully
cooperate with the Company to create a mutually satisfactory Proxy Statement and
Registration Statement.
(c) Notwithstanding anything to the contrary in this Agreement, without the
prior written consent of RV, the Company shall neither (i) call a Shareholder
Meeting for the purpose of voting on the Merger, nor (ii) file a proxy statement
or offering document with the SEC or otherwise publish a proxy statement or
offering document, unless and until the Company shall be in compliance with all
reporting requirements applicable to the Company under the Securities Act and
the
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Exchange Act except such requirements, the failure of with which to comply,
would not, individually or in the aggregate, have a Material Adverse Effect.
4.9. Certain Tax Matters. (a) Each of Parent, RV, Merger Sub and the
Company intend the Merger to qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code and shall use their best efforts to
cause the Merger to so qualify. Each of Parent, RV, Merger Sub and the Company
shall take the position for all purposes that the Merger qualifies as a
reorganization under those Sections of the Code. None of Parent, RV, Merger Sub
or the Company shall take any action that would reasonably be expected to cause
the Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code.
(b) Each of Parent, RV, Merger Sub and the Company shall cooperate and use
their best efforts in obtaining the opinions of Debevoise & Plimpton, counsel to
Parent, RV and Merger Sub, and Baker & McKenzie, counsel to the Company,
described in Sections 5.2(f) and 5.3(g), respectively. In connection therewith,
both the Company, on the one hand, and Parent, RV and Merger Sub, on the other
hand, shall deliver to Debevoise & Plimpton and Baker & McKenzie representation
letters substantially in the form attached hereto as Annex A (the
"Representation Letters").
4.10. Senior Notes. As promptly as practicable following the date hereof,
the Company shall solicit waivers from holders of a requisite majority or
majorities of the Company's outstanding 14% Senior Notes due 2007 (the "Notes")
of the applicability to the transactions contemplated hereby of certain
covenants set forth in the indenture governing the Notes, as identified by
Parent to the Company (such waivers, the "Requisite Waivers"). If requested by
RV, the Company shall prepare and distribute to the holders of the Notes, as
promptly as reasonably practicable following the date on which the Registration
Statement shall have been declared effective, an offer to purchase and consent
solicitation statement, on terms and conditions and in a form satisfactory to RV
(together with all related transmittal and consent forms and other documents
delivered to such holders, the "Tender Offer Statement"), seeking the tender,
and the delivery of an accompanying consent by holders of a requisite majority
or majorities of outstanding principal amount of the Notes ("Requisite
Majority") to the amendments to the indenture constituting the Notes as are
considered necessary or appropriate by RV. RV shall be entitled to participate
in the preparation of the Tender Offer Statement and in any discussions with
holders of Notes relating to the terms of any offer to purchase Notes or
solicitation of consents or waivers. The Company shall not distribute to any
Person the Tender Offer Statement or any written material relating to any offer
to purchase Notes or to the solicitation of any consents or waivers from holders
of the Notes, or make any announcement with respect to the Tender Offer
Statement or any such offer or solicitation, or engage, directly or through
intermediaries, in any discussions with any holder of Notes after the date
hereof, without the prior express approval of RV. Any registration statement, if
any, required in connection with any such offer or solicitation shall be in form
and substance satisfactory to RV, and RV shall be entitled to participate in the
preparation and filing thereof, and the Company shall cooperate in such
preparation and filing as the registrant thereunder. If RV shall have requested
the distribution of a Tender Offer Statement, at the Closing (provided that the
Requisite Majority has been obtained) the Company shall execute and deliver to
the trustee under the indenture relating to the Notes a supplemental indenture
in the form specified in, and otherwise in accordance with, such Tender Offer
Statement. On or prior to the settlement date of any tender offer, Parent shall,
and shall cause RV to, provide financing as necessary to enable the Company to
pay for tendered Notes, in a manner not inconsistent with the terms of the
Tender Offer Statement. The Company shall be responsible for all out-of-pocket
expenses incurred by it in connection with the making of any offers to purchase
Notes or solicitation as contemplated in this Section, provided that RV shall
pay and reimburse the Company for all out-of-pocket fees and
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expenses of outside advisers actually incurred by the Company prior to the
Closing if this Agreement is terminated in accordance with Section 6.1(b)(i).
4.11. Ancillary Agreements. At or prior to the Closing, and subject to the
fulfillment or waiver of all other conditions to Closing, each of Parent, RV and
the Company shall execute and deliver the Ancillary Agreements to which it is a
party.
4.12. Netstream Purchase Price Adjustment. If the amount Jamtis pays to
purchase the Netstream Shares is reduced pursuant to the Netstream Acquisition
Agreements, Parent shall, or shall cause its affiliates to, make a cash capital
contribution to RV in the amount of such reduction prior to the Closing.
4.13. Conduct of Business of RV and Netstream. (a) From the date hereof to
and including the date of the "Final Closing" (as such term is defined in the
Netstream Acquisition Agreements), Parent, as soon as reasonably practicable,
shall consult in good faith with the Company concerning (i) any approval or
waiver by Parent or Jamtis with respect to actions by or concerning Netstream
that are restricted under Section 7.1(a) of the Netstream Master Agreement and
(ii) designating Nancy Parent (or an affiliate of Nancy Parent) as a preferred
supplier to Netstream. Such consultation shall include meetings between the
parties as reasonably necessary.
(b) From the date hereof to and including the Closing Date, except as set
forth in Schedule 4.13(b) of the RV Disclosure Letter or as otherwise required
pursuant to this Agreement, unless the Company has consented in writing thereto,
RV shall, and shall cause each of its Subsidiaries to:
(i) use its reasonable best efforts to preserve intact its business
organization and goodwill, to maintain in effect all existing
qualifications, licenses, permits, approvals and other authorizations, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with customers, suppliers, distributors,
brokers, sales agents and all other persons having business relationships
with it; and
(ii) promptly notify the Company upon becoming aware of any material
breach of any representation, warranty or covenant contained in this
Agreement or the occurrence of any event that would cause any
representation or warranty of Parent relating to RV or any of its
Subsidiaries no longer to be true and correct;
(c) From the date hereof to and including the Closing Date, except as
contemplated hereby or as set forth in Schedule 4.13(c) of the RV Disclosure
Letter, unless the Company has consented in writing thereto, RV shall not, and
shall not permit any of its Subsidiaries to (and Parent shall not, and/or shall
not cause RV and its Subsidiaries to):
(i) amend its Certificate of Incorporation or By-Laws or comparable
governing instruments;
(ii) issue, sell, pledge or otherwise dispose of any shares of its
capital stock or other ownership interest in RV or any of the Subsidiaries,
or any securities convertible into or exchangeable for any such shares or
ownership interest, or any rights, warrants or options to acquire or with
respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities, except (a) issuances related to the
merger of Jamtis with a wholly-owned subsidiary of RV, (b) issuances
related to the contributions to the capital of RV contemplated hereby, and
(c) following the closing under the Netstream Acquisition Agreements and
prior to the Closing, issuance or granting of unvested options to acquire
up to 625,000 shares of RV Class A Common Stock ("Interim RV Options") to
officers and employees of Netstream, provided that no Interim RV Options
shall become vested according to their terms as a result of
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the consummation of the Merger and the other transactions contemplated
hereby and by the Netstream Acquisition Agreements;
(iii) effect any stock split, reverse stock split, stock dividend,
subdivision, reclassification or similar transaction, or otherwise change
its capital structure as it exists on the date hereof, except as required
in order to achieve an appropriate number of shares to effect the share
exchange contemplated in the Merger;
(iv) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of capital stock or
ownership interests (other than such payments by a wholly-owned Subsidiary
of RV to RV or to another such wholly-owned Subsidiary);
(v) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or the capital stock of any of its
Subsidiaries;
(vi) sell, lease, assign, transfer or otherwise dispose of (by merger
or otherwise) any of its property, business or assets (including, without
limitation, receivables, leasehold interests or Intellectual Property and
including any sale and leaseback transaction) except for fair value in the
ordinary course of business provided that the proceeds of such sales do not
exceed $50,000 in any single transaction or $100,000 in the aggregate prior
to the Closing Date;
(vii) settle or compromise any pending or threatened Litigation other
than settlements of Litigations which involve solely the payment of money
(without admission of liability) not to exceed $50,000 in any one case or
$100,000 in the aggregate;
(viii) make any advance, loan, extension of credit or capital
contribution to, or purchase or acquire (by merger or otherwise) any stock,
bonds, notes, debentures or other securities of, or any assets constituting
a business unit of, or make any other investment in, any person, firm or
entity, except (a) extensions of trade credit and endorsements of
negotiable instruments and other negotiable documents in the ordinary
course of business, (b) investments in cash and cash equivalents, (c)
payroll and travel advances in the ordinary course of business and (d)
investments in majority-owned Subsidiaries;
(ix) incur, assume or create any indebtedness for borrowed money or
for the deferred purchase price for property or services or pursuant to any
capital lease or other financing, except indebtedness incurred in the
ordinary course of business for working capital or capital expenditures;
(x) waive, relinquish, release or terminate any right or claim,
including any such right or claim under any Material Contract or permit any
rights of material value to use any Intellectual Property to lapse or be
forfeited, in each case, except in the ordinary course of business;
(xi) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial part
of the property of RV or any Subsidiary, or make a general assignment for
the benefit of creditors, or permit or suffer to exist the commencement of
any bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of RV or any Subsidiary;
(xii) amend the Netstream Acquisition Agreements in any material
respect;
(xiii) agree in writing or otherwise to take any of the foregoing
actions.
(d) If Parent or RV shall have given notice to the Company of an action as
to which it seeks consent pursuant to Section 4.13(c), such notice to describe
the relevant matters in reasonable detail,
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and the Company shall not have objected within 15 days, RV and its Subsidiaries
(and Parent, if applicable) may take the action described in such notice.
4.14. RV Public Shares. Parent shall not take, or cause its affiliates to
take, any action in the twelve-month period following the Effective Time to
increase above 80% Parent's direct and indirect percentage interest in the
capital stock of RV, without the approval of all of the Disinterested Directors
of RV.
4.15. Credit Facility. RV and Parent shall enter into a Credit Facility
containing terms and conditions in accordance with those in the term sheet
attached hereto as Exhibit F.
ARTICLE V
CONDITIONS
5.1. Conditions to Each Party's Obligations. The respective obligation of
each party to consummate the transactions contemplated hereby shall be subject
to the satisfaction or, where permissible, waiver, on or prior to the Closing
Date, of the following conditions:
(a) The waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated.
(b) None of the parties shall be subject to any order, judgment,
injunction, decree or ruling, or other action of a court or other
Governmental Entity of competent jurisdiction restraining, enjoining or
otherwise prohibiting the Merger or any other transactions contemplated by
this Agreement; provided that each of the parties shall have used its
reasonable best efforts to appeal as promptly as practicable any such
order, judgment, injunction, decree, ruling or other action.
(c) The Company Shareholder Approval shall have been obtained in
accordance with the Texas Business Corporation Act and the Company's
Certificate of Incorporation and By-laws.
(d) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) All Regulatory Filings and Consents (including, without
limitation, the Other Antitrust Filings and Consents) which are necessary
for the consummation of the Merger shall have been made or obtained, or any
waiting period (whether requisite or voluntary) under any Foreign Antitrust
Laws shall have expired, in each case, to the extent that the failure to
make or obtain such Regulatory Filings or Consents or of the waiting period
to have expired, in the aggregate, is reasonably likely, individually or in
the aggregate, to have a Material Delaying Effect (all such Consents,
Regulatory Filings and the lapse of all such waiting periods being referred
to as the "Requisite Regulatory Approvals"), and all such Requisite
Regulatory Approvals shall be in full force and effect. There shall not be
any statute, law, rule or regulation that makes consummation of the
transactions contemplated hereby illegal or prohibited.
(f) The Company shall have received the Requisite Waivers, and, if
Parent shall have requested the Company to prepare and distribute a Tender
Offer Statement, the holders of a Requisite Majority shall have tendered
the Notes held by them, and the Company shall have received written notice
of the approval of a Requisite Majority for the amendments and/or waivers
described in the final version of such Tender Offer Statement distributed
to holders of Notes, and, with respect to any Notes which remain
outstanding, the Trustee with respect to the
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Notes shall have executed and delivered to the Company a supplemental
indenture acceptable in form and substance to Parent.
(g) RV shall have acquired, directly or indirectly, the Netstream
Shares free and clear of any Encumbrances other than any Encumbrances
created pursuant to this Agreement.
5.2. Additional Conditions to Obligations of Parent, RV and Merger
Sub. The obligations of Parent, RV and Merger Sub to consummate the
transactions contemplated hereby shall be subject to the satisfaction or, where
permissible, waiver, on or prior to the Closing Date, of the following
conditions:
(a) (i) The representations and warranties made by the Company in this
Agreement shall be true and correct in all respects as of the date hereof,
and shall be true and correct in all respects as of the Closing Date as if
made as of the Closing Date (other than representations and warranties made
as of a specified date), except where the failure to be so true and correct
(without giving effect to any materiality qualifications or thresholds
contained in such representations and warranties), individually and in the
aggregate, would not have a Material Adverse Effect, (ii) the Company shall
not have breached or failed to comply in any material respect with any of
its obligations under this Agreement or any of the Ancillary Agreements to
which it is a party, provided that the Company shall have a 15 day period
in which to cure breaches that are reasonably likely to be curable, and
(iii) the Company shall have delivered to Parent a certificate dated the
Closing Date and signed by the Company's President or a Vice President to
the effect set forth above in this Section 5.2(a)(i).
(b) Each Ancillary Agreement shall have been executed and delivered by
each party thereto other than Parent, RV or Merger Sub and shall be in full
force and effect, in accordance with its terms.
(c) There shall not have been issued, delivered, sold or granted any
shares of Common Stock pursuant to the Rights Agreement.
(d) The Executive Agreement shall be in full force and effect in
accordance with its terms.
(e) All directors of the Company whose resignations shall have been
requested by Parent not less than five days prior to the Closing Date shall
have submitted their resignations or been removed from office effective as
of the Closing Date.
(f) Parent, RV and Merger Sub shall have received an opinion of
Debevoise & Plimpton, counsel to Parent, RV and Merger Sub, or other
counsel of national reputation, dated on or about the date of the mailing
to the Company shareholders of the Proxy Statement, which opinion shall be
reconfirmed as of the Effective Time, to the effect that, on the basis of
the facts, representations and assumptions set forth in such opinion, the
Merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
RV, Merger Sub and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. In rendering such
opinion, such counsel may require and rely upon the Representation Letters.
(g) FirstCom Colombia SA shall have duly completed a fusion impropia
as provided in Schedule 5.2(g) (or such other corporate transaction as is
approved by Parent) and shall have received all requisite governmental
approvals with respect to the transfer or assumption of all material
licenses and concessions held by FirstCom Colombia SA as of the date such
fusion impropia is effective, and Parent shall have received from Baker &
McKenzie an opinion with regard to the status of FirstCom Colombia in
substantially the form previously delivered to the Company.
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(h) Parent shall have received such evidence as reasonably requested
that the Company has good and valid title to the shares owned by it of all
of its Subsidiaries.
(i) The Federal Communications Commission shall have given any
approval required in connection with the change of control of the Company.
5.3. Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated hereby are subject to
the satisfaction or, where permissible, waiver, on or prior to the Closing Date,
of the following conditions:
(a) (i) The representations and warranties made by Parent in this
Agreement shall be true and correct in all respects as of the date hereof,
and shall be true and correct in all respects as of the Closing Date as if
made as of the Closing Date (other than representations and warranties made
as of a specified date), except where the failure to be so true and correct
(without giving effect to any materiality qualifications or thresholds
contained in such representations and warranties), individually and in the
aggregate, would not have a Material Adverse Effect, (ii) none of Parent,
RV or Merger Sub shall have breached or failed to comply in any material
respect with any of its obligations under this Agreement to which it is a
party, or any of the Ancillary Agreements to which it is a party, provided
that Parent, RV and Merger Sub shall have a 15 day period in which to cure
breaches that are reasonably likely to be curable, and (iii) Parent shall
have delivered to the Company a certificate dated the Closing Date and
signed by an authorized officer of Parent to the effect set forth above in
this Section 5.3(a).
(b) Each Ancillary Agreement shall have been executed and delivered by
each party thereto other than the Company and shall be in full force and
effect, in accordance with its terms.
(c) Parent shall have delivered a certificate to the Company
certifying as to the amount of any reduction, if any, in the purchase price
paid by Jamtis under the Netstream Acquisition Agreements, and the
shareholders of RV shall have contributed to the capital of RV an aggregate
of not less than $70,000,000 plus any additional amount required by Section
4.12, as equity in cash.
(d) The RV Class A Common Stock shall have been accepted for listing
by a national securities exchange.
(e) Parent shall have caused to be duly elected as members of the
board of directors of RV (i) the Chief Executive Officer of the Company,
(ii) if requested by Promon, one "Disinterested Director" (as defined in
the Articles of Incorporation of RV) nominated by Promon, and (iii) two or,
if Promon shall not have nominated any Disinterested Director, three
Disinterested Directors proposed by Parent and agreed by the Company, and
each of such Disinterested Directors shall have agreed to serve in such
capacity.
(f) The shareholders of RV shall have duly adopted the Amended and
Restated Certificate of Incorporation and Amended and Restated By-Laws of
RV in the form attached as Exhibit C, and the board of directors of RV
shall have duly adopted (i) a Board Policy in the form of Exhibit B and
(ii) if any shares of Series A preferred stock of the Company are
outstanding, a Certificate of Designation substantially in the form of
Exhibit G.
(g) The Company shall have received an opinion of Baker & McKenzie,
counsel to the Company, or other counsel of national reputation, dated on
or about the date of the mailing to the Company shareholders of the Proxy
Statement, which opinion shall be reconfirmed as of the Effective Time, to
the effect that, on the basis of the facts, representations and assumptions
set forth in such opinion, the Merger will be treated for U.S. federal
income tax purposes as a
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reorganization within the meaning of Section 368(a) of the Code, and that
RV, Merger Sub and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. In rendering such
opinion, such counsel may require and rely upon the Representation Letters.
ARTICLE VI
TERMINATION
6.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date, notwithstanding approval thereof by the shareholders of the
Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company by written notice if:
(i) the Closing Date shall not have occurred on or before April 30,
2000 (provided that the right to terminate this Agreement pursuant to
this clause (i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Closing Date to occur on or before such
date); or
(ii) there shall be any statute, law, rule or regulation that makes
consummation of the transactions contemplated hereby illegal or
prohibited or if any court or other Governmental Entity of competent
jurisdiction shall have issued an order, judgment, decree or ruling, or
taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, judgment, injunction, decree, ruling or other
action shall have become final and non-appealable, provided that the
party terminating this Agreement has complied with the provisions of the
penultimate sentence of Section 4.3;
(c) by the Company by written notice if:
(i) the Company shall have entered into or agreed to enter into an
Acquisition Agreement, provided that the Company shall have delivered an
Acquisition Agreement Notice in accordance with Section 4.1(c) and paid
the Termination Amount and Parent Expenses as provided in Section
7.7(b);
(ii) the Final Closing under the Netstream Acquisition Agreements
shall have failed to occur, or shall be incapable of occurring, prior to
April 30, 2000 in either case as a result of a breach of any covenant of
Parent or any of its affiliates thereunder; or
(iii) a "Material Adverse Effect", as defined in the Netstream
Master Agreement, shall have occurred with respect to Netstream.
(d) by Parent by written notice if:
(i) Any Person, other than Parent, RV, Merger Sub and any other
Person that would be included with the Parent in a "group" within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended, shall have acquired beneficial ownership of 20% or more of the
outstanding shares of Company Common Stock;
(ii) Since the date hereof, there shall have occurred any event,
change, effect or development that, individually or in the aggregate,
would have a Material Adverse Effect, provided that such a notice from
Parent with respect to this subparagraph (ii) must be given not later
than 15 days after any notice from the Company to Parent that such an
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event, change, effect or development has occurred, such notice to
describe the same in reasonable detail;
(iii) The Company shall have entered into an Acquisition Agreement
or the Board of Directors of the Company shall have (a) withdrawn,
modified or failed to maintain its recommendation to the shareholders of
the Company to approve the Merger in any manner adverse to the ability
of Merger Sub and Parent to complete the Merger hereunder, (b)
recommended an Acquisition Proposal or received from a financial advisor
to the Company of nationally recognized standing a fairness opinion with
respect to an Acquisition Proposal that indicates such Acquisition
Proposal is a Superior Proposal, or (c) authorized the execution of an
agreement in principle or a definitive agreement relating to an
Acquisition Proposal with a Person other than Parent; or
(iv) The Shareholder Approval shall not have been obtained at the
Shareholder Meeting (including any postponement or adjournment thereof).
6.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 6.1 hereof, this Agreement, except for the provisions of Section 6 and
Article VII, shall terminate, without any liability on the part of any party or
its directors, officers or shareholders. Nothing herein shall relieve any party
to this Agreement from any liability for breach of this Agreement or prejudice
the ability of the non-breaching party to seek damages from any other party for
any breach of this Agreement, including without limitation, attorneys' fees and
the right to pursue any remedy at law or in equity. Notwithstanding anything to
the contrary in the foregoing, no party hereto shall be entitled to bring any
action, suit or claim under this Agreement for damages against any other party
hereto unless the amount of such damages exceeds $500,000 (provided that, if the
damages of the claiming party are found to have, or are agreed as having,
exceeded such amount on a cumulative basis, the full amount of such damages will
be recoverable).
ARTICLE VII
GENERAL PROVISIONS
7.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any document delivered
pursuant to this Agreement shall survive the Effective Time.
7.2. Amendment. To the extent permitted by applicable law, this Agreement
may be amended by action taken by or on behalf of the respective Boards of
Directors of the Company and Parent at any time before or after approval of the
Merger by the shareholders of the Company but, after any such shareholder
approval, no amendment shall be made which adversely affects the rights of the
Company's shareholders hereunder without the approval of such shareholders
owning a majority of the outstanding shares of Company Common Stock. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties.
7.3. Extension; Waiver. At any time prior to the Closing Date, either
party, may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by any other applicable party or
in any document, certificate or writing delivered pursuant hereto by any other
applicable party or (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
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7.4. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
<TABLE>
<CAPTION>
IF TO PARENT, RV OR MERGER SUB: IF TO THE COMPANY:
------------------------------- ------------------
<S> <C>
AT&T Corp. FirstCom Corporation
295 North Maple Avenue 220 Alhambra Circle, Suite 910
Basking Ridge, NJ 07920 Coral Gables, FL 33134
Telephone: (908) 221-4057 Telephone: (305) 448-1422
Facsimile: (908) 221-4408 Facsimile: (305) 448-2636
Attention: Gary A. Swenson Attention: General Counsel
General Attorney
</TABLE>
<TABLE>
<CAPTION>
WITH A COPY (WHICH COPY SHALL NOT CONSTITUTE NOTICE) TO: WITH A COPY (WHICH COPY SHALL NOT CONSTITUTE NOTICE) TO:
-------------------------------------------------------- --------------------------------------------------------
<S> <C>
Debevoise & Plimpton Baker & McKenzie
875 Third Avenue 1200 Brickell Avenue
New York, New York 10022 Miami, FL 33131
Telephone: (212) 909-6000 Telephone: (305) 789-8985
Facsimile: (212) 909-6836 Facsimile: (305) 789-8953
Attention: Paul H. Wilson, Jr. Attention: Andrew Hulsh
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
7.5. Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Parent may assign
its rights hereunder to an affiliate but nothing shall relieve the assignor from
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
7.6. Entire Agreement. This Agreement, the Disclosure Letter, the
Ancillary Agreements and any other documents delivered by the parties in
connection herewith or therewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto.
7.7. Fees and Expenses. (a) Except as expressly provided otherwise herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with the transactions contemplated hereby
shall be paid by the party incurring such expenses provided that any such costs
and expenses incurred by RV or Merger Sub shall be paid, or shall be reimbursed
to RV or Merger Sub, as the case may be, by Parent.
(b) If this Agreement is terminated pursuant to Section 6.1(c)(i) or any of
clauses (i) and (iii) of Section 6.1(d), the Company shall pay to Parent as
promptly as practicable in same-day funds an aggregate amount equal to the sum
of (i) $10,000,000 (the "Termination Amount") and (ii) the out-of-pocket
expenses of Parent and its affiliates incurred in connection with or arising out
of this Agreement, the Ancillary Agreements and the transactions contemplated
hereby and thereby
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(including, without limitation, amounts paid or payable to investment bankers
(if any), information agents, lending banks, fees and expenses of counsel,
accountants and consultants and printing and mailing expenses, regardless of
when such expenses are incurred) (the "Parent Expenses"), provided that the
maximum amount of Parent Expenses payable shall be $1,000,000.
(c) If this Agreement is terminated pursuant to Section 6.1(c)(ii), Parent
shall pay to the Company the out-of-pocket expenses of the Company and its
affiliates incurred in connection with or arising out of this Agreement, the
Ancillary Agreements and the transactions contemplated hereby and thereby
(including, without limitation, any amounts paid or payable to investment
bankers, information agents, lending banks, fees and expenses of counsel,
accountants and consultants and printing and mailing expenses, regardless of
when such expenses are incurred) (the "Company Expenses,") provided that the
maximum amount of Company Expenses payable shall be $1,000,000.
(d) If the Company fails to pay promptly any amounts owing pursuant to
Section 7.7(b) when due, the Company shall in addition thereto pay to Parent, or
if Parent fails to pay promptly any amounts owing pursuant to Section 7.7(c)
when due, Parent shall in addition thereto pay to the Company, in each case, all
costs and expenses (including, pursuant to Section 7.7(b), fees and
disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received by
Parent or the Company, as the case may be, at the prime rate of The Chase
Manhattan Bank as in effect from time to time during such period.
7.8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its rules of
conflict of laws. Each of the Company and Parent hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America located in the
State of New York (the "New York Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the New York
Courts and agrees not to plead or claim in any New York Court that such
litigation brought therein has been brought in an inconvenient forum.
7.9. Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
7.10. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, the words "Subsidiary," "affiliate" and
"associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act. For purposes of this Agreement, one party shall be considered
"wholly owned" by another party if all of the shares of its outstanding capital
stock, other than directors' qualifying shares, are beneficially owned by such
other party.
7.11. Investigations. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
7.12. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
36
<PAGE> 219
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
7.13. Enforcement of Agreement. (a) The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any New York Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
(b) The prevailing party in any judicial action shall be entitled to
receive from the other party reimbursement for the prevailing party's reasonable
attorneys' fees and disbursements, and court costs.
7.14. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
37
<PAGE> 220
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
AT&T CORP.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: Vice President
KIRI INC.
By: /s/ ALFREDO DIBLASIO
------------------------------------
Name: Alfredo DiBlasio
Title: President
FRANTIS, INC.
By: /s/ ALFREDO DIBLASIO
------------------------------------
Name: Alfredo DiBlasio
Title: President
FIRSTCOM CORPORATION
By: /s/ PATRICIO E. NORTHLAND
------------------------------------
Name: Patricio E. Northland
Title: Chairman, President and CEO
38
<PAGE> 221
SCHEDULE A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 222
SCHEDULE A
DEFINITIONS
1. Defined Terms. The following capitalized terms, when used in this
Agreement, shall have the following respective meanings:
"Acquisition Proposal" means any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 10% or more
of the assets of the Company or any of its Subsidiaries or any shares of
any class of outstanding equity securities of the Company or any of its
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 10% or more of any class of equity
securities of the Company or any of its Subsidiaries or any merger,
consolidation, business combination, sale of substantially all the assets,
joint venture, management or operating agreement, recapitalization,
liquidation, dissolution or similar transaction involving the Company or
any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
"Ancillary Agreements" means the Voting Agreement, the RV Agreement
(in the form of Exhibit E), the Brand License, the Employment Agreements
and the Credit Facility Agreement between Parent and RV (based on the terms
set forth in Exhibit F).
"Brand License" means the Service Mark License Agreement between
Parent and RV, in the form of Exhibit D).
"Copyrights" shall mean all material copyrights, whether registered or
unregistered, owned by, assigned to or subject to assignment to the Company
or any of its Subsidiaries anywhere in the world.
"Disclosure Letter" means the letter dated as of the date hereof
delivered by the Company to Parent and identified as such and initialed by
the parties to this Agreement.
"Environmental Laws" means laws relating to the protection of human
health or the environment
"ERISA Affiliate" means any person (as defined in Section 3(9) of
ERISA) that is or has been a member of any group of persons described in
Section 414(b), (c), (m) or (o) of the Code, including Company or any one
of its Subsidiaries.
"Executive Agreement" means the Employment Agreement dated as of
November 1, 1999, between RV FirstCom and Patricio E. Northland, including
the exhibits thereto.
"Income Tax" means any Tax computed in whole or in part based on or by
reference to net income and any alternative, minimum, accumulated earnings
or personal holding company Tax (including all interest and penalties
thereon and additions thereto).
"Income Tax Return" means any return, report, declaration, form, claim
for refund or information return or statement relating to Income Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
"Intellectual Property" means the United States and foreign
trademarks, service marks, trade names, trade dress, domain names,
copyrights, and similar rights, including registrations and applications to
register or renew the registration of any of the foregoing, the United
States and foreign letters patent and patent applications, inventions,
processes, designs, formulae, trade secrets, know-how, ideas, research and
development, technical data, copyrightable works, engineering notebooks,
confidential information, Software, firmware, Internet Web sites, mask
i
<PAGE> 223
works and other semiconductor chip rights and applications, registrations
and renewals thereof, and all similar intellectual property rights
(including moral rights), all rights to sue for and remedies against past,
present and future infringements of any or all of the foregoing and rights
of priority and protection of interests therein under the Laws of any
jurisdiction, tangible embodiments of any of the foregoing (in any medium
including electronic media), and licenses of any of the foregoing.
"Jamtis Group" means, collectively, Jamtis, Inc., Jamtis LLC, Atlantis
Holdings do Brasil Ltda. and Atlantis do Brasil Ltda..
"Marks" shall mean all registrations for trademarks, service marks and
domain names and all pending applications for such registrations owned by,
assigned to or subject to assignment to the Company or any of its
Subsidiaries anywhere in the world and all material unregistered
trademarks, trade names, service makers, brand names, and business names.
"Netstream Master Agreement" means the Master Agreement, dated as of
August 20, 1999, between Jamtis and the individuals listed on Schedule
4.8(b) attached thereto.
"Patents" shall mean all patents and patent applications owned by,
assigned to or subject to assignment to the Company or any of its
Subsidiaries anywhere in the world.
"Permitted Encumbrances" means (a) Encumbrances reserved against or
reflected in the Company Reports, to the extent reserved or reflected or
described in the notes to any balance sheet set forth therein, (b)
Encumbrances for Taxes not yet due and payable or which are being contested
in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the Company's books in accordance with
GAAP, (c) those Encumbrances set forth in Section 3.1(r) of the Disclosure
Schedule and (d) those Encumbrances that, individually and in the aggregate
with all other Permitted Encumbrances, do not and will not materially
interfere with the use of the properties or assets of the Company and its
Subsidiaries taken as a whole as currently used, or otherwise have or
result in a Material Adverse Effect.
"RV Disclosure Letter" means the letter dated as of the date hereof
delivered by RV to the Company and identified as such and initialed by the
parties to this Agreement.
"Superior Proposal" means any bona fide proposal made by a third party
to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, 50% or more of the voting power of the common stock of,
or all or substantially all the assets of, the Company and its Subsidiaries
and otherwise on terms which the Board of Directors determines in good
faith (after receiving the advice of a financial advisor of nationally
recognized standing (which advice shall be disclosed in reasonable detail
to Parent)) to be more favorable to the Company's shareholders than the
Merger and for which financing, to the extent necessary with respect to
such proposal, is then committed or which, in the good faith judgment of
the Board of Directors, is reasonably capable of being obtained by such
third party.
"Tax" means any federal, state, local or foreign income, alternative,
minimum, accumulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, value added,
transfer, registration, stamp, premium, excise, customs duties, severance,
environmental (including taxes under section 59A of the Code), real
property, personal property, ad valorem, occupancy, license, occupation,
employment, payroll, social security, disability, unemployment, workers'
compensation, withholding, estimated or other similar tax, duty, fee,
assessment or other governmental charge or deficiencies thereof (including
all interest and penalties thereon and additions thereto).
ii
<PAGE> 224
"Tax Return" means any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Year 2000 Compliant" means that software, hardware and equipment (x)
correctly perform date data century recognition, and calculations that
accommodate same century and multi-century formulas and date values; (y)
operate or are expected to operate on a basis comparable to their current
operation during and after calendar year 2000 A.D., including but not
limited to leap years; and (z) shall not end abnormally or provide invalid
or incorrect results as a result of date data which represents or
references different centuries or more than one century.
2. Other Defined Terms. The following capitalized terms, when used in this
Agreement without definition, shall have the meanings set forth in the Sections
of this Agreement indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE
------------ -----------------
<S> <C>
"1999 Proxy" Section 3.1(u)
"Acquiror Material Adverse Effect" Section 3.2(a)
"Acquisition Agreement" Section 4.1(b)
"Acquisition Agreement Notice" Section 4.1(c)
"affiliate" Section 7.10
"Affiliate Transactions" Section 3.1(u)
"Agreement" First Paragraph
"Assets" Section 3.1(r)
"associate" Section 7.10
"Assumed Award" Section 2.3(a)
"Certificate of Merger" Section 1.3
"Certificates" Section 2.2(b)
"Closing" Section 1.2
"Closing Date" Section 1.2
"Code" Recitals
"Company" First Paragraph
"Company Benefit Plans" Section 3.1(l)
"Company Common Stock" Section 2.1(a)
"Company Expenses" Section 7.7(c)
"Company Property" Section 3.1(p)
"Company Reports" Section 3.1(g)
"Company Rights" Section 3.1(d)
"Company Shareholder Approval" Section 3.1(h)
"Company Stock Option" Section 2.3(a)
"Company Stock Plans" Section 3.1(d)
"Consents" Section 4.3
"Consent Solicitation Statement" Section 4.10
"Contract" or "Contracts" Section 3.1(f)
"Current Policies" Section 4.7
"Effective Time" Section 1.3
"Employment Agreements" Section 3.1(l)
"Encumbrances" Section 3.1(e)
"ERISA" Section 3.1(l)
"excess parachute payment" Section 3.1(l)
"Excess Shares Trust" Section 2.2(e)
</TABLE>
iii
<PAGE> 225
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE
------------ -----------------
<S> <C>
"Exchange Act" Section 3.1(f)
"Exchange Agent" Section 2.2(a)
"Exchange Fund" Section 2.2(a)
"Fairness Opinion" Section 3.1(v)
"Foreign Antitrust Laws" Section 3.1(f)
"Governmental Entity" Section 3.1(c)
"HSR Act" Section 3.1(f)
"Interim RV Options" Section 4.13(c)
"Jamtis" Recitals
"Laws" Section 3.1(c)
"Litigation" Section 3.1(i)
"Material Adverse Effect" Section 3.1(a)
"Material Contracts" Section 3.1(q)
"Material Delaying Effect" Section 3.1(f)
"Merger" Recitals
"Merger Sub" First Paragraph
"Netstream Acquisition Agreements" Recitals
"Netstream Shares" Recitals
"New York Courts" Section 7.8
"Notes" Section 4.10
"Option" or "Options" Section 3.1(d)
"Other Antitrust Consents" Section 4.3
"Other Antitrust Filings" Section 4.3
"Other Antitrust Filings and Consents" Section 5.3
"Parent" First Paragraph
"Parent Expenses" Section 7.7(b)
"Permits" Section 3.1(o)
"Person" Section 3.1(e)
"Preferred Stock" Section 2.1(b)
"Proxy Statement" Section 4.8(b)
"Registration Statement" Section 4.8(b)
"Regulatory Filings" Section 3.1(f)
"Representation Letters" Section 4.9(b)
"Requisite Majority" Section 4.10
"Requisite Regulatory Approvals" Section 5.1(e)
"Rights Agreement" Section 3.1(d)
"RV" First paragraph
"RV Class A Common Stock" Section 2.1(a)
"RV Class B Common Stock" Section 2.1(b)
"RV Preferred Stock" Section 2.1(b)
"SEC" Section 3.1(g)
"Securities Act" Section 3.1(g)
"Shareholder Meeting" Section 4.8(a)
"Subsidiary" Section 7.10
"Surviving Corporation" Section 1.1
"TBCA" Section 3.1(w)
"Termination Amount" Section 7.7(b)
"Voting Agreement" Recitals
"Warrants" Section 3.1(d)
</TABLE>
iv
<PAGE> 226
EXHIBIT A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 227
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "KIRI INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF
OCTOBER, A.D. 1999, AT 12:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
<TABLE>
<S> <C>
By: /s/ EDWARD J. FREEL
----------------------------------------------------
Edward J. Freel, Secretary of State
3108376 8100 [SEAL] AUTHENTICATION: 0023372
991432556 DATE: 10-13-99
</TABLE>
<PAGE> 228
CERTIFICATE OF INCORPORATION
OF
KIRI INC.
ARTICLE I
NAME OF CORPORATION
The name of the corporation is Kiri Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The Corporation's registered office in the State of Delaware is at 1209
Orange Street, City of Wilmington, County of New Castle, Wilmington, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSE
The nature of the business of the Corporation and its purpose is to engage
in any lawful act or activity for which corporations may be engaged under the
General Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED STOCK
The aggregate number of shares of stock that the Corporation shall have
authority to issue is 1,000 shares of Common Stock, par value $.01 per share
(the "Common Stock").
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Shannon Conaty, Esq.
c/o Debevoise & Plimpton
875 Third Avenue
New York, NY 10021
1
<PAGE> 229
ARTICLE VI
MANAGEMENT OF THE CORPORATION
The following provisions are inserted for the management of the business,
for the conduct of the affairs of the Corporation and for the purpose of
creating, defining, limiting and regulating the powers of the Corporation and
its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may
be altered from time to time in the manner provided in the By-Laws, and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be
filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved
by the stockholders at the time when the election is held and need not be
by written ballot.
(c) All corporate powers and authority of the Corporation (except as
at the time otherwise provided by law, by this Certificate of Incorporation
or by the By-Laws) shall be vested in and exercised by the Board of
Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the By-Laws of
the Corporation, except to the extent that the By-Laws or this Certificate
of Incorporation otherwise provide.
(e) No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of his or her fiduciary
duty as a director, provided that nothing contained in this Article shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
upon stockholders or directors are granted subject to this reservation.
IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator hereinabove
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make and file this Certificate,
hereby declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this 13th day of October, 1999.
/s/ SHANNON CONATY
Shannon Conaty
2
<PAGE> 230
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
KIRI INC.
BY-LAWS
AS ADOPTED ON OCTOBER 14, 1999
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 231
KIRI INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
ARTICLE I
STOCKHOLDERS.............................................. 1
Section 1.01. Annual Meetings........................ 1
Section 1.02. Special Meetings....................... 1
Section 1.03. Notice of Meetings; Waiver............. 1
Section 1.04. Quorum................................. 1
Section 1.05. Voting................................. 2
Section 1.06. Voting by Ballot....................... 2
Section 1.07. Adjournment............................ 2
Section 1.08. Proxies................................ 2
Section 1.09. Organization; Procedure................ 3
Section 1.10. Consent of Stockholders in Lieu of
Meeting............................................... 3
ARTICLE II
BOARD OF DIRECTORS........................................ 3
Section 2.01. General Powers......................... 3
Section 2.02. Number and Term of Office.............. 3
Section 2.03. Election of Directors.................. 3
Section 2.04. Annual and Regular Meetings............ 4
Section 2.05. Special Meetings; Notice............... 4
Section 2.06. Quorum; Voting......................... 4
Section 2.07. Adjournment............................ 4
Section 2.08. Action Without a Meeting............... 4
Section 2.09. Regulations; Manner of Acting.......... 4
Section 2.10. Action by Telephonic Communications.... 5
Section 2.11. Resignations........................... 5
Section 2.12. Removal of Directors................... 5
Section 2.13. Vacancies and Newly Created
Directorships...................... 5
Section 2.14. Compensation........................... 5
Section 2.15. Reliance on Accounts and Reports,
etc................................ 5
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES.................. 5
Section 3.01. How Constituted........................ 5
Section 3.02. Powers................................. 6
Section 3.03. Proceedings............................ 6
Section 3.04. Quorum and Manner of Acting............ 6
Section 3.05. Action by Telephonic Communications.... 7
Section 3.06. Absent or Disqualified Members......... 7
Section 3.07. Resignations........................... 7
Section 3.08. Removal................................ 7
Section 3.09. Vacancies.............................. 7
</TABLE>
i
<PAGE> 232
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
ARTICLE IV
OFFICERS.................................................. 7
Section 4.01. Number................................. 7
Section 4.02. Election............................... 7
Section 4.03. Salaries............................... 7
Section 4.04. Removal and Resignation; Vacancies..... 7
Section 4.05. Authority and Duties of Officers....... 8
Section 4.06. The President.......................... 8
Section 4.07. The Secretary.......................... 8
Section 4.08. The Treasurer.......................... 8
Section 4.09. Additional Officers.................... 9
Section 4.10. Security............................... 9
ARTICLE V
CAPITAL STOCK............................................. 10
Section 5.01. Certificates of Stock, Uncertificated
Shares................................................ 10
Section 5.02. Signatures; Facsimile.................. 10
Section 5.03. Lost, Stolen or Destroyed
Certificates.......................................... 10
Section 5.04. Transfer of Stock...................... 10
Section 5.05. Record Date............................ 10
Section 5.06. Registered Stockholders................ 11
Section 5.07. Transfer Agent and Registrar........... 11
ARTICLE VI
INDEMNIFICATION........................................... 12
Section 6.01. Nature of Indemnity.................... 12
Section 6.02. Successful Defense..................... 12
Section 6.03. Determination That Indemnification Is
Proper................................................ 12
Section 6.04. Advance Payment of Expenses............ 13
Section 6.05. Procedure for Indemnification of
Directors and Officers................................ 13
Section 6.06. Survival; Preservation of Other
Rights................................................ 1
Section 6.07. Insurance.............................. 14
Section 6.08. Severability........................... 14
ARTICLE VII
OFFICES................................................... 14
Section 7.01. Registered Office...................... 14
Section 7.02. Other Offices.......................... 14
ARTICLE VIII
GENERAL PROVISIONS........................................ 15
Section 8.01. Dividends.............................. 15
Section 8.02. Reserves............................... 15
Section 8.03. Execution of Instruments............... 15
Section 8.04. Corporate Indebtedness................. 15
Section 8.05. Deposits............................... 15
Section 8.06. Checks................................. 15
Section 8.07. Sale, Transfer, etc. of Securities..... 16
Section 8.08. Voting as Stockholder.................. 16
Section 8.09. Fiscal Year............................ 16
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
Section 8.10. Seal................................... 16
Section 8.11. Books and Records; Inspection.......... 16
ARTICLE IX
AMENDMENT OF BY-LAWS...................................... 16
Section 9.01. Amendment.............................. 16
ARTICLE X
CONSTRUCTION.............................................. 17
Section 10.01. Construction........................... 17
</TABLE>
iii
<PAGE> 234
KIRI INC.
KIRI INC.
BY-LAWS
AS ADOPTED ON OCTOBER 14, 1999
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. Subject to Section 1.12 of these By-Laws,
the annual meeting of the stockholders of the Corporation for the election of
directors and for the transaction of such other business as properly may come
before such meeting shall be held at such place, either within or without the
State of Delaware, and at 9:00 a.m. local time on the fifteenth of May (or, if
such day is a legal holiday, then on the next succeeding business day), or at
such other date and hour, as may be fixed from time to time by resolution of the
Board of Directors and set forth in the notice or waiver of notice of the
meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders may
be called at any time by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Secretary, immediately upon
receipt of a written request therefor by stockholders holding in the aggregate
not less than a majority of the outstanding shares of the Corporation at the
time entitled to vote at any meeting of the stockholders. If such officers or
the Board of Directors shall fail to call such meeting within twenty days after
receipt of such request, any stockholder executing such request may call such
meeting. Such special meetings of the stockholders shall be held at such places,
within or without the State of Delaware, as shall be specified in the respective
notices or waivers of notice thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the stockholders, and, in the case of a special meeting, the purpose or
purposes for which such meeting is called, to be given personally or by mail,
not less than ten nor more than sixty days prior to the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any stockholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be specified in a written waiver of
notice. The attendance of any stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares
<PAGE> 235
KIRI INC.
entitled to vote at a meeting of stockholders shall constitute a quorum for the
transaction of business at such meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of Incorporation
or by these By-Laws, the vote of a majority of the shares represented in person
or by proxy at any meeting at which a quorum is present shall be sufficient for
the transaction of any business at such meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need be taken
by written ballot unless otherwise required by law. Any vote which need not be
taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 of
these By-Laws, shall be given to each stockholder of record entitled to vote at
such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting of
the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him or her by proxy. A
stockholder may authorize a valid proxy by executing a written instrument signed
by such stockholder, or by causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature, or by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person designated as
the holder of the proxy, a proxy solicitation firm or a like authorized agent.
No such proxy shall be voted or acted upon after the expiration of three years
from the date of such proxy, unless such proxy provides for a longer period.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases where applicable law provides that a proxy shall be
irrevocable. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by filing another duly executed proxy bearing a later date
with the Secretary. Proxies by telegram, cablegram or other electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of a writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used,
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provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the President or, in the event of his or her
absence or disability, a presiding officer chosen by a majority of the
stockholders present in person or by proxy. The Secretary, or in the event of
his or her absence or disability, the Assistant Secretary, if any, or if there
be no Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding officer, shall act as Secretary of the meeting. The order of business
and all other matters of procedure at every meeting of stockholders may be
determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the fullest
extent permitted by law, whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted (but not less than the minimum number of votes
otherwise prescribed by law) and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by law to the Corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by law,
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers of
the Corporation.
Section 2.02. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be two, which number may be
modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one. Each Director (whenever
elected) shall hold office until his or her successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders. If the
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annual meeting for the election of Directors is not held on the date designated
therefor, the Directors shall cause the meeting to be held as soon thereafter as
convenient. At each meeting of the stockholders for the election of Directors,
provided a quorum is present, the Directors shall be elected by a plurality of
the votes validly cast in such election.
Section 2.04. Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him or her at his or
her usual place of business, or shall be delivered to him or her personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of notice
to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting.
Section 2.05. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the President or, in the event of his
or her absence or disability, by any Vice President, at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on twenty-four hours' notice, if notice is
given to each Director personally or by telephone or telegram, or on five days'
notice, if notice is mailed to each Director, addressed to him or her at his or
her usual place of business. Notice of any special meeting need not be given to
any Director who attends such meeting without protesting the lack of notice to
him or her, prior to or at the commencement of such meeting, or to any Director
who submits a signed waiver of notice, whether before or after such meeting, and
any business may be transacted thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 2.07. Adjournment. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.05
of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the
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property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director. Any vacancy in the Board of Directors caused
by any such removal may be filled at such meeting by the stockholders entitled
to vote for the election of the Director so removed. If such stockholders do not
fill such vacancy at such meeting (or in the written instrument effecting such
removal, if such removal was effected by consent without a meeting), such
vacancy may be filled in the manner provided in Section 2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies and newly
created directorships may be filled by a majority of the Directors then in
office, although less than a quorum. A Director elected to fill a vacancy or a
newly created directorship shall hold office until his or her successor has been
elected and qualified or until his or her earlier death, resignation or removal.
Any such vacancy or newly created directorship may also be filled at any time by
vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors may designate one or
more Committees, including an Executive Committee, each such Committee to
consist of such number of Directors as from time to time may be fixed by the
Board of Directors. The Board of Directors may
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designate one or more Directors as alternate members of any such Committee, who
may replace any absent or disqualified member or members at any meeting of such
Committee. Thereafter, members (and alternate members, if any) of each such
Committee may be designated at the annual meeting of the Board of Directors. Any
such Committee may be abolished or re-designated from time to time by the Board
of Directors. Each member (and each alternate member) of any such Committee
(whether designated at an annual meeting of the Board of Directors or to fill a
vacancy or otherwise) shall hold office until his or her successor shall have
been designated or until he or she shall cease to be a Director, or until his or
her earlier death, resignation or removal.
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing
for the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 3.03. Proceedings. Each such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such Committee shall keep minutes of its proceedings and shall report
such proceedings to the Board of Directors at the meeting of the Board of
Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action
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required or permitted to be taken at any meeting of any such Committee may be
taken without a meeting, if all members of such Committee shall consent to such
action in writing and such writing or writings are filed with the minutes of the
proceedings of the Committee. The members of any such Committee shall act only
as a Committee, and the individual members of such Committee shall have no power
as such.
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors also may elect one or more Assistant Secretaries and
Assistant Treasurers in such numbers as the Board of Directors may determine.
Any number of offices may be held by the same person. No officer need be a
Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 4.03. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
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Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.06. The President. The President shall preside at all meetings
of the stockholders and directors at which he or she is present, shall be the
chief executive officer and the chief operating officer of the Corporation,
shall have general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He or she shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He or she shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the Secretary
or an Assistant Secretary, conveyances of real estate and other documents and
instruments to which the seal of the Corporation is affixed. He or she shall
have the authority to cause the employment or appointment of such employees and
agents of the Corporation as the conduct of the business of the Corporation may
require, to fix their compensation, and to remove or suspend any employee or
agent elected or appointed by the President or the Board of Directors. The
President shall perform such other duties and have such other powers as the
Board of Directors or the Chairman may from time to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the following powers
and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he or she shall furnish a copy of such
resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number
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of shares of stock of the Corporation of each class issued and outstanding,
the names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant Treasurer
or an Assistant Secretary shall have signed) certificates representing
shares of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the chief financial
officer of the Corporation and shall have the following powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation, and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.05 of these
By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of these
By-Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He or she shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his or her transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he or she may desire with respect to any and all financial
transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the Secretary
or an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(g) He or she shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors from time to time may delegate to any
officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may remove any such subordinate officer or agent appointed
by him or her, for or without cause.
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Section 4.10. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares of
the Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of Delaware. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in
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advance, a record date, which record date shall not precede the date on which
the resolution fixing the record date is adopted by the Board of Directors, and
which shall not be more than sixty nor less than ten days before the date of
such meeting. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
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ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Notwithstanding the foregoing, but subject
to Section 6.05 of these By-Laws, the Corporation shall not be obligated to
indemnify a director or officer of the Corporation in respect of a Proceeding
(or part thereof) instituted by such director or officer, unless such Proceeding
(or part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 6.01 of these By-Laws or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made by
the Corporation only upon a determination that indemnification of such person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 6.01 of these By-Laws. Any indemnification of a
present or former employee or
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KIRI INC.
agent of the Corporation under Section 6.01 of these By-Laws (unless ordered by
a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in Section 6.01
of these By-Laws. Any such determination shall be made, with respect to a person
who is a director or officer at the time of such determination (1) by a majority
vote of the Directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum,
or (3) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a present director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by former directors
and officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the Corporation deems appropriate. The Corporation, or in
respect of a present director or officer the Board of Directors, may authorize
the Corporation's counsel to represent such present or former director, officer,
employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director, officer, employee or agent of the Corporation
under Sections 6.01 and 6.02 of these By-Laws, or advance of costs, charges and
expenses to such person under Section 6.04 of these By-Laws, shall be made
promptly, and in any event within thirty days, upon the written request of such
person. If a determination by the Corporation that such person is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within thirty days,
the right to indemnification or advances as granted by this Article shall be
enforceable by such person in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of costs,
charges and expenses under Section 6.04 of these By-Laws where the required
undertaking, if any, has been received by or tendered to the Corporation) that
the claimant has not met the standard of conduct set forth in Section 6.01 of
these By-Laws, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
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KIRI INC.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
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KIRI INC.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting of
the Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee designated
by the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees, or
Committees of the Board of Directors, or by any other person as to matters the
Director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation, as to the value and amount of the assets, liabilities and/or
net profits of the Corporation, or any other facts pertinent to the existence
and amount of surplus or other funds from which dividends might properly be
declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. Execution of Instruments. The President, any Vice President,
the Secretary or the Treasurer may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. The Board
of Directors or the President may authorize any other officer or agent to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation, and of the interest thereon, by instruments executed and
delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.
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KIRI INC.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the President, any Vice President, the Secretary
or the Treasurer or any other officers designated by the Board of Directors or
the President may sell, transfer, endorse, and assign any shares of stock, bonds
or other securities owned by or held in the name of the Corporation, and may
make, execute and deliver in the name of the Corporation, under its corporate
seal, any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend any meeting
of stockholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware". The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or reproduced, or may be used
in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such special
meeting only, notice of such amendment, alteration or repeal is contained
in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
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KIRI INC.
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
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PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "FRANTIS, INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF
OCTOBER, A.D. 1999, AT 12:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
<TABLE>
<S> <C>
/s/ EDWARD J. FREEL
-----------------------------------------------------
[SEAL] Edward J. Freel, Secretary of State
3108374 8100
AUTHENTICATION: 0023378
991432541 DATE: 10-13-99
</TABLE>
<PAGE> 252
CERTIFICATE OF INCORPORATION
OF
FRANTIS, INC.
ARTICLE I
NAME OF CORPORATION
The name of the corporation is Frantis, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The Corporation's registered office in the State of Delaware is at 1209
Orange Street, City of Wilmington, County of New Castle, Wilmington, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSE
The nature of the business of the Corporation and its purpose is to engage
in any lawful act or activity for which corporations may be engaged under the
General Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED STOCK
The aggregate number of shares of stock that the Corporation shall have
authority to issue is 1,000 shares of Common Stock, par value $.01 per share
(the "Common Stock").
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Shannon Conaty, Esq.
c/o Debevoise & Plimpton
875 Third Avenue
New York, NY 10021
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ARTICLE VI
MANAGEMENT OF THE CORPORATION
The following provisions are inserted for the management of the business,
for the conduct of the affairs of the Corporation and for the purpose of
creating, defining, limiting and regulating the powers of the Corporation and
its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may
be altered from time to time in the manner provided in the By-Laws, and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be
filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved
by the stockholders at the time when the election is held and need not be
by written ballot.
(c) All corporate powers and authority of the Corporation (except as
at the time otherwise provided by law, by this Certificate of Incorporation
or by the By-Laws) shall be vested in and exercised by the Board of
Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the By-Laws of
the Corporation, except to the extent that the By-Laws or this Certificate
of Incorporation otherwise provide.
(e) No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of his or her fiduciary
duty as a director, provided that nothing contained in this Article shall
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
upon stockholders or directors are granted subject to this reservation.
IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator hereinabove
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make and file this Certificate,
hereby declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this 13th day of October, 1999.
/s/ SHANNON CONATY
--------------------------------------
Shannon Conaty
2
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--------------------------------------------------------------------------------
FRANTIS, INC.
BY-LAWS
AS ADOPTED ON OCTOBER 14, 1999
--------------------------------------------------------------------------------
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<PAGE> 255
FRANTIS, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
ARTICLE I STOCKHOLDERS...................................... 1
Section 1.01. Annual Meetings........................ 1
Section 1.02. Special Meetings....................... 1
Section 1.03. Notice of Meetings; Waiver............. 1
Section 1.04. Quorum................................. 1
Section 1.05. Voting................................. 2
Section 1.06. Voting by Ballot....................... 2
Section 1.07. Adjournment............................ 2
Section 1.08. Proxies................................ 2
Section 1.09. Organization; Procedure................ 3
Section 1.10. Consent of Stockholders in Lieu of
Meeting............................................... 3
ARTICLE II BOARD OF DIRECTORS............................... 3
Section 2.01. General Powers......................... 3
Section 2.02. Number and Term of Office.............. 3
Section 2.03. Election of Directors.................. 3
Section 2.04. Annual and Regular Meetings............ 4
Section 2.05. Special Meetings; Notice............... 4
Section 2.06. Quorum; Voting......................... 4
Section 2.07. Adjournment............................ 4
Section 2.08. Action Without a Meeting............... 4
Section 2.09. Regulations; Manner of Acting.......... 5
Section 2.10. Action by Telephonic Communications.... 5
Section 2.11. Resignations........................... 5
Section 2.12. Removal of Directors................... 5
Section 2.13. Vacancies and Newly Created
Directorships......................................... 5
Section 2.14. Compensation........................... 5
Section 2.15. Reliance on Accounts and Reports,
etc................................................... 5
ARTICLE III EXECUTIVE COMMITTEE AND OTHER COMMITTEES........ 5
Section 3.01. How Constituted........................ 5
Section 3.02. Powers................................. 6
Section 3.03. Proceedings............................ 6
Section 3.04. Quorum and Manner of Acting............ 6
Section 3.05. Action by Telephonic Communications.... 7
Section 3.06. Absent or Disqualified Members......... 7
Section 3.07. Resignations........................... 7
Section 3.08. Removal................................ 7
Section 3.09. Vacancies.............................. 7
ARTICLE IV OFFICERS......................................... 7
Section 4.01. Number................................. 7
Section 4.02. Election............................... 7
Section 4.03. Salaries............................... 7
Section 4.04. Removal and Resignation; Vacancies..... 8
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
Section 4.05. Authority and Duties of Officers....... 8
Section 4.06. The President.......................... 8
Section 4.07. The Secretary.......................... 8
Section 4.08. The Treasurer.......................... 9
Section 4.09. Additional Officers.................... 9
Section 4.10. Security............................... 10
ARTICLE V CAPITAL STOCK..................................... 10
Section 5.01. Certificates of Stock, Uncertificated
Shares................................................ 10
Section 5.02. Signatures; Facsimile.................. 10
Section 5.03. Lost, Stolen or Destroyed
Certificates.......................................... 10
Section 5.04. Transfer of Stock...................... 10
Section 5.05. Record Date............................ 10
Section 5.06. Registered Stockholders................ 11
Section 5.07. Transfer Agent and Registrar........... 11
ARTICLE VI INDEMNIFICATION.................................. 12
Section 6.01. Nature of Indemnity.................... 12
Section 6.02. Successful Defense..................... 12
Section 6.03. Determination That Indemnification Is
Proper................................................ 12
Section 6.04. Advance Payment of Expenses............ 13
Section 6.05. Procedure for Indemnification of
Directors and Officers................................ 13
Section 6.06. Survival; Preservation of Other
Rights................................................ 14
Section 6.07. Insurance.............................. 14
Section 6.08. Severability........................... 14
ARTICLE VII OFFICES......................................... 14
Section 7.01. Registered Office...................... 14
Section 7.02. Other Offices.......................... 14
ARTICLE VIII GENERAL PROVISIONS............................. 15
Section 8.01. Dividends.............................. 15
Section 8.02. Reserves............................... 15
Section 8.03. Execution of Instruments............... 15
Section 8.04. Corporate Indebtedness................. 15
Section 8.05. Deposits............................... 15
Section 8.06. Checks................................. 15
Section 8.07. Sale, Transfer, etc. of Securities..... 16
Section 8.08. Voting as Stockholder.................. 16
Section 8.09. Fiscal Year............................ 16
Section 8.10. Seal................................... 16
Section 8.11. Books and Records; Inspection.......... 16
ARTICLE IX AMENDMENT OF BY-LAWS............................. 16
Section 9.01. Amendment.............................. 16
ARTICLE X CONSTRUCTION...................................... 17
Section 10.01. Construction........................... 17
</TABLE>
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FRANTIS, INC.
FRANTIS, INC.
BY-LAWS
AS ADOPTED ON OCTOBER 14, 1999
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. Subject to Section 1.12 of these By-Laws,
the annual meeting of the stockholders of the Corporation for the election of
directors and for the transaction of such other business as properly may come
before such meeting shall be held at such place, either within or without the
State of Delaware, and at 9:00 a.m. local time on the fifteenth of May (or, if
such day is a legal holiday, then on the next succeeding business day), or at
such other date and hour, as may be fixed from time to time by resolution of the
Board of Directors and set forth in the notice or waiver of notice of the
meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders may
be called at any time by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Secretary, immediately upon
receipt of a written request therefor by stockholders holding in the aggregate
not less than a majority of the outstanding shares of the Corporation at the
time entitled to vote at any meeting of the stockholders. If such officers or
the Board of Directors shall fail to call such meeting within twenty days after
receipt of such request, any stockholder executing such request may call such
meeting. Such special meetings of the stockholders shall be held at such places,
within or without the State of Delaware, as shall be specified in the respective
notices or waivers of notice thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the stockholders, and, in the case of a special meeting, the purpose or
purposes for which such meeting is called, to be given personally or by mail,
not less than ten nor more than sixty days prior to the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any stockholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be specified in a written waiver of
notice. The attendance of any stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
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entitled to vote at a meeting of stockholders shall constitute a quorum for the
transaction of business at such meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of Incorporation
or by these By-Laws, the vote of a majority of the shares represented in person
or by proxy at any meeting at which a quorum is present shall be sufficient for
the transaction of any business at such meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need be taken
by written ballot unless otherwise required by law. Any vote which need not be
taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 of
these By-Laws, shall be given to each stockholder of record entitled to vote at
such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting of
the stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him or her by proxy. A
stockholder may authorize a valid proxy by executing a written instrument signed
by such stockholder, or by causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature, or by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person designated as
the holder of the proxy, a proxy solicitation firm or a like authorized agent.
No such proxy shall be voted or acted upon after the expiration of three years
from the date of such proxy, unless such proxy provides for a longer period.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases where applicable law provides that a proxy shall be
irrevocable. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by filing another duly executed proxy bearing a later date
with the Secretary. Proxies by telegram, cablegram or other electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of a writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used,
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provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the President or, in the event of his or her
absence or disability, a presiding officer chosen by a majority of the
stockholders present in person or by proxy. The Secretary, or in the event of
his or her absence or disability, the Assistant Secretary, if any, or if there
be no Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding officer, shall act as Secretary of the meeting. The order of business
and all other matters of procedure at every meeting of stockholders may be
determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the fullest
extent permitted by law, whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted (but not less than the minimum number of votes
otherwise prescribed by law) and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by law to the Corporation,
written consents signed by a sufficient number of holders to take action are
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by law,
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers of
the Corporation.
Section 2.02. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be two, which number may be
modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one. Each Director (whenever
elected) shall hold office until his or her successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.
Section 2.03. Election of Directors. Except as otherwise provided in
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders. If the
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annual meeting for the election of Directors is not held on the date designated
therefor, the Directors shall cause the meeting to be held as soon thereafter as
convenient. At each meeting of the stockholders for the election of Directors,
provided a quorum is present, the Directors shall be elected by a plurality of
the votes validly cast in such election.
Section 2.04. Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him or her at his or
her usual place of business, or shall be delivered to him or her personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of notice
to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting.
Section 2.05. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the President or, in the event of his
or her absence or disability, by any Vice President, at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on twenty-four hours' notice, if notice is
given to each Director personally or by telephone or telegram, or on five days'
notice, if notice is mailed to each Director, addressed to him or her at his or
her usual place of business. Notice of any special meeting need not be given to
any Director who attends such meeting without protesting the lack of notice to
him or her, prior to or at the commencement of such meeting, or to any Director
who submits a signed waiver of notice, whether before or after such meeting, and
any business may be transacted thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 2.07. Adjournment. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.05
of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the
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property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director. Any vacancy in the Board of Directors caused
by any such removal may be filled at such meeting by the stockholders entitled
to vote for the election of the Director so removed. If such stockholders do not
fill such vacancy at such meeting (or in the written instrument effecting such
removal, if such removal was effected by consent without a meeting), such
vacancy may be filled in the manner provided in Section 2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies and newly
created directorships may be filled by a majority of the Directors then in
office, although less than a quorum. A Director elected to fill a vacancy or a
newly created directorship shall hold office until his or her successor has been
elected and qualified or until his or her earlier death, resignation or removal.
Any such vacancy or newly created directorship may also be filled at any time by
vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors may designate one or
more Committees, including an Executive Committee, each such Committee to
consist of such number of Directors as from time to time may be fixed by the
Board of Directors. The Board of Directors may
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designate one or more Directors as alternate members of any such Committee, who
may replace any absent or disqualified member or members at any meeting of such
Committee. Thereafter, members (and alternate members, if any) of each such
Committee may be designated at the annual meeting of the Board of Directors. Any
such Committee may be abolished or re-designated from time to time by the Board
of Directors. Each member (and each alternate member) of any such Committee
(whether designated at an annual meeting of the Board of Directors or to fill a
vacancy or otherwise) shall hold office until his or her successor shall have
been designated or until he or she shall cease to be a Director, or until his or
her earlier death, resignation or removal.
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing
for the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be
granted by the Board of Directors, power to authorize the seal of the
Corporation to be affixed to any or all papers which may require it.
Section 3.03. Proceedings. Each such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such Committee shall keep minutes of its proceedings and shall report
such proceedings to the Board of Directors at the meeting of the Board of
Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action
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required or permitted to be taken at any meeting of any such Committee may be
taken without a meeting, if all members of such Committee shall consent to such
action in writing and such writing or writings are filed with the minutes of the
proceedings of the Committee. The members of any such Committee shall act only
as a Committee, and the individual members of such Committee shall have no power
as such.
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors also may elect one or more Assistant Secretaries and
Assistant Treasurers in such numbers as the Board of Directors may determine.
Any number of offices may be held by the same person. No officer need be a
Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 4.03. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
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Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.06. The President. The President shall preside at all meetings
of the stockholders and directors at which he or she is present, shall be the
chief executive officer and the chief operating officer of the Corporation,
shall have general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He or she shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating officer of a corporation. He or she shall have the
authority to sign, in the name and on behalf of the Corporation, checks, orders,
contracts, leases, notes, drafts and other documents and instruments in
connection with the business of the Corporation, and together with the Secretary
or an Assistant Secretary, conveyances of real estate and other documents and
instruments to which the seal of the Corporation is affixed. He or she shall
have the authority to cause the employment or appointment of such employees and
agents of the Corporation as the conduct of the business of the Corporation may
require, to fix their compensation, and to remove or suspend any employee or
agent elected or appointed by the President or the Board of Directors. The
President shall perform such other duties and have such other powers as the
Board of Directors or the Chairman may from time to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the following powers
and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he or she shall furnish a copy of such
resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number
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of shares of stock of the Corporation of each class issued and outstanding,
the names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and the
date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant Treasurer
or an Assistant Secretary shall have signed) certificates representing
shares of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the chief financial
officer of the Corporation and shall have the following powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation, and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.05 of these
By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of these
By-Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He or she shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his or her transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he or she may desire with respect to any and all financial
transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the Secretary
or an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(g) He or she shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors from time to time may delegate to any
officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may remove any such subordinate officer or agent appointed
by him or her, for or without cause.
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Section 4.10. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares of
the Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of Delaware. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in
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advance, a record date, which record date shall not precede the date on which
the resolution fixing the record date is adopted by the Board of Directors, and
which shall not be more than sixty nor less than ten days before the date of
such meeting. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
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ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Notwithstanding the foregoing, but subject
to Section 6.05 of these By-Laws, the Corporation shall not be obligated to
indemnify a director or officer of the Corporation in respect of a Proceeding
(or part thereof) instituted by such director or officer, unless such Proceeding
(or part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 6.01 of these By-Laws or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made by
the Corporation only upon a determination that indemnification of such person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 6.01 of these By-Laws. Any indemnification of a
present or former employee or
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agent of the Corporation under Section 6.01 of these By-Laws (unless ordered by
a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in Section 6.01
of these By-Laws. Any such determination shall be made, with respect to a person
who is a director or officer at the time of such determination (1) by a majority
vote of the Directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum,
or (3) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a present director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by former directors
and officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the Corporation deems appropriate. The Corporation, or in
respect of a present director or officer the Board of Directors, may authorize
the Corporation's counsel to represent such present or former director, officer,
employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director, officer, employee or agent of the Corporation
under Sections 6.01 and 6.02 of these By-Laws, or advance of costs, charges and
expenses to such person under Section 6.04 of these By-Laws, shall be made
promptly, and in any event within thirty days, upon the written request of such
person. If a determination by the Corporation that such person is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within thirty days,
the right to indemnification or advances as granted by this Article shall be
enforceable by such person in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of costs,
charges and expenses under Section 6.04 of these By-Laws where the required
undertaking, if any, has been received by or tendered to the Corporation) that
the claimant has not met the standard of conduct set forth in Section 6.01 of
these By-Laws, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
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Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting of
the Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee designated
by the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees, or
Committees of the Board of Directors, or by any other person as to matters the
Director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation, as to the value and amount of the assets, liabilities and/or
net profits of the Corporation, or any other facts pertinent to the existence
and amount of surplus or other funds from which dividends might properly be
declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. Execution of Instruments. The President, any Vice President,
the Secretary or the Treasurer may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. The Board
of Directors or the President may authorize any other officer or agent to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation, and of the interest thereon, by instruments executed and
delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.
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Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the President, any Vice President, the Secretary
or the Treasurer or any other officers designated by the Board of Directors or
the President may sell, transfer, endorse, and assign any shares of stock, bonds
or other securities owned by or held in the name of the Corporation, and may
make, execute and deliver in the name of the Corporation, under its corporate
seal, any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend any meeting
of stockholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware". The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or reproduced, or may be used
in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such special
meeting only, notice of such amendment, alteration or repeal is contained
in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
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ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
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EXHIBIT B TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 275
EXHIBIT B TO THE
MERGER AGREEMENT
REGIONAL VEHICLE ("RV") BOARD POLICY
Corporate Opportunities. AT&T Corp. and its non-RV affiliates (an "AT&T
Entity") and persons affiliated with them shall only be required to make a
corporate opportunity available to RV if the corporate opportunity:
- directly relates to the Territory (as defined in the Regional Vehicle
Agreement, between AT&T Corp. and RV (a form of which is attached to the
Agreement and Plan of Merger, dated November 1, 1999, among AT&T Corp.,
Kiri Inc., Frantis Inc. and FirstCom Corporation)(the "Regional Vehicle
Agreement")),
- directly relates to the provision of RV Services (as defined in the
Regional Vehicle Agreement),
- can, in the good faith judgment of AT&T Corp., be financed by the RV
without issuance of additional debt or equity to an AT&T Entity, and
- has been presented to (1) an RV officer or director who is not an
employee, officer or director of an AT&T Entity, (2) an RV officer or
director, who is also an employee (but not an officer or director) of an
AT&T Entity, (3) an RV officer or director, who is also an officer or
director of an AT&T Entity specifically in his capacity as an officer of
director of the RV or (4) a senior AT&T employee specifically for
consideration by the RV.
AT&T may consider all other opportunities as the province of AT&T Entities.
The AT&T Entities will be free to pursue, or to direct to other Persons,
corporate opportunities presented to the RV pursuant to this Board Policy, which
the RV determines not to pursue.
This Board Policy may not be amended except with the approval of a majority
of the Disinterested Directors (as such term is defined in the Bylaws of RV).
<PAGE> 276
EXHIBIT C-1 TO THE AGREEMENT
AND PLAN OF MERGER
<PAGE> 277
EXHIBIT C-1 TO AGREEMENT
AND PLAN OF MERGER
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
KIRI INC.
---------------------
ARTICLE FIRST
NAME OF CORPORATION
The name of the corporation is AT&T Latin America, Inc. (the
"Corporation").
ARTICLE SECOND
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
ARTICLE THIRD
PURPOSE
The purpose of the Corporation is to engage in the business of providing
telecommunications services and related or incidental activities in the
Territory. "Territory" means Antigua and Barbuda, Argentina, Bahamas, Barbados,
Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic, Ecuador,
Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, St. Kitts and Nevis, Trinidad and Tobago,
Uruguay and Venezuela.
ARTICLE FOURTH
CAPITAL STOCK
A. The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 450,000,000 shares consisting of:
(1) 300,000,000 shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), (2) 150,000,000 shares of Class B Common Stock, par
value $.01 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock") and (3) 10,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"). Except as otherwise provided
herein, the number of authorized shares of Class A Common Stock, Class B Common
Stock or Preferred Stock may be increased or decreased (but not below the number
of shares thereof then outstanding or reserved for issuance upon
reclassification or conversion of the Class B Common Stock or any series of
Preferred Stock, or upon the exercise of outstanding options, warrants or other
instruments or securities outstanding from time to time that are convertible
into, or exchangeable for Common Stock or Preferred Stock) by the affirmative
vote of a majority of the combined voting power of outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting as a single class
irrespective of the provisions of Section 242(b)(2) of the General Corporation
Law of the State of Delaware (or
<PAGE> 278
any successor provision thereto). This paragraph A of Article FOURTH shall not
in any way limit the provisions of Section 242(b)(1) of the General Corporation
Law of the State of Delaware other than with respect to the elimination of any
class vote that would otherwise be required pursuant to Section 242(b)(2).
B. The Board of Directors shall have the full authority permitted by law,
at any time and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series and to determine by resolution or
resolutions the following provisions, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions, of the shares of any such series of
Preferred Stock:
(1) the designation of such series (which may be by distinguishing
number, letter or title), the number of shares to constitute such series
(which number the Board of Directors may thereafter increase or decrease
(but not below the number of shares thereof then outstanding) and the
stated or liquidation value thereof, if different from the par value
thereof;
(2) whether the shares of such series shall have voting rights in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be full or limited;
(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of any other class of capital stock or any other series of Preferred
Stock;
(4) whether the shares of such series shall be subject to redemption
at the election of the Corporation or the holders of such series, or upon
the occurrence of a specified event and, if so, the times, prices and other
terms and conditions of such redemption, including the manner of selecting
shares for redemption if less than all shares are to be redeemed and the
securities or other property payable on such redemption, if any;
(5) the amount or amounts payable on, if any, and the preferences, if
any, of shares of such series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class of capital stock or any other
series of Preferred Stock or any other securities (whether or not issued by
the Corporation) and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and
any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, or upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of any
other class of capital stock or any other series of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
stock, including additional shares of any other series of Preferred Stock
or of any other class of capital stock;
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(10) the ranking (be it pari passu, junior or senior) of each series
vis-a-vis any other class of capital stock or series of Preferred Stock as
to the payment of dividends, the distribution of assets and all other
matters; and
(11) any other powers, preferences and relative, participating,
optional or other special rights, and any qualifications, limitations or
restrictions of such series of Preferred Stock, insofar as they are not
inconsistent with the provisions of this Certificate of Incorporation, to
the full extent permitted in accordance with the General Corporation Law of
the State of Delaware.
C. The powers, preferences and relative, participating, optional or other
special rights, if any, of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series of Preferred Stock at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that shares of any one
series issued at different times may differ as to the dates from which dividends
thereon shall be cumulative.
D. Subject to the other provisions of this Article FOURTH and actions taken
by the Board of Directors pursuant to this Article FOURTH:
(1) The holders of shares of Class A Common Stock and Class B Common
Stock shall be entitled to receive such dividends or other distributions
payable in cash, capital stock or otherwise, when, as and if declared by
the Board of Directors at any time or from time to time, out of funds
legally available for the payment thereof, and shall share equally on a per
share basis in all such dividends or other distributions. No dividend or
other distribution may be declared or paid on any share of Class A Common
Stock unless a like dividend or other distribution is simultaneously
declared or paid, as the case may be, on each share of Class B Common
Stock, nor shall any dividend or other distribution be declared or paid on
any share of Class B Common Stock unless a like dividend or other
distribution is simultaneously declared or paid, as the case may be, on
each share of Class A Common Stock, in each case without preference or
priority of any kind; provided, however, that if a dividend or other
distribution payable in shares of any class of Common Stock or in rights,
options, warrants or other securities convertible into or exchangeable or
exercisable for shares of Common Stock shall be declared with respect to
the Common Stock, the dividend or other distribution payable to holders of
Class A Common Stock shall be payable in shares of Class A Common Stock or
in rights, options, warrants or other securities convertible into or
exchangeable or exercisable for shares of Class A Common Stock, as the case
may be, and the dividend or other distribution payable to holders of Class
B Common Stock shall be payable in shares of Class A Common Stock or in
rights, options, warrants or other securities convertible into or
exchangeable or exercisable for shares of Class A Common Stock, as the case
may be. Neither the shares of Class A Common Stock nor the shares of Class
B Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in
the same proportion for each class of Common Stock.
(2) Except as may be designated by the Board of Directors with respect
to any Preferred Stock issued by the Corporation, the voting power of the
Corporation shall be exclusively vested in the Common Stock.
(3) Holders of Preferred Stock and holders of Common Stock shall not
have any preemptive, preferential or other right to subscribe for or
purchase or acquire any shares of any class or series of capital stock or
any other securities of the Corporation, whether now or hereafter
authorized, and whether or not convertible into, or evidencing or carrying
the right to purchase, shares of any class or series of capital stock or
any other securities now or hereafter
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authorized and whether the same shall be issued for cash, services or
property, or by way of dividend or otherwise, other than such right, if
any, as the Board of Directors in its discretion from time to time may
determine. If the Board of Directors shall offer to the holders of the
Preferred Stock or the holders of the Common Stock, or any of them, any
such shares or other securities of the Corporation, such offer shall not in
any way constitute a waiver or release of the right of the Board of
Directors subsequently to dispose of other portions of said shares or
securities without so offering the same to said holders.
(4) The shares of Preferred Stock may be issued for such consideration
and for such corporate purposes as the Board of Directors may from time to
time determine.
(5) The powers, preferences and relative, participating, optional or
other special rights, if any, and any qualifications, limitations or
restrictions with respect to Class A Common Stock and Class B Common Stock
shall be in all respects identical, except as otherwise required by law or
expressly provided in this Certificate of Incorporation.
(6) With respect to all matters upon which holders of Common Stock are
entitled to vote or to which holders of Common Stock are entitled to give
consent, except as may be provided in this Certificate of Incorporation or
by applicable law, every holder of Class A Common Stock shall be entitled
to cast thereon one vote in person or by proxy for each share of Class A
Common Stock standing in such holder's name on the transfer books of the
Corporation, and every holder of Class B Common Stock shall be entitled to
cast thereon ten votes in person or by proxy for each share of Class B
Common Stock standing in such holder's name on the transfer books of the
Corporation. Except as otherwise required by law or as otherwise provided
in this Certificate of Incorporation, the holders of Class A Common Stock
and Class B Common Stock shall vote together as a single class, subject to
any voting rights which may be granted to holders of any outstanding
Preferred Stock, on all matters submitted to a vote of stockholders of the
Corporation.
E. In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, and subject to the
rights of the holders of any series of Preferred Stock, the net assets of the
Corporation available for distribution to stockholders of the Corporation shall
be distributed pro rata to the holders of Common Stock in accordance with their
respective rights and interests and shares of Class B Common Stock shall rank
pari passu with shares of Class A Common Stock as to such distribution. For
purposes of this paragraph E of Article FOURTH, the voluntary sale, conveyance,
lease, exchange or transfer (for cash, shares of capital stock, securities or
other consideration) of all or substantially all the assets of the Corporation
or a consolidation, merger or other restructuring of the corporation with or
into one or more other corporations or other entities (whether or not the
Corporation is the corporation surviving such consolidation, merger or other
restructuring) shall not be deemed to be a liquidation, dissolution or winding
up of the affairs of the Corporation.
F. (1) Each share of Class B Common Stock is convertible while held by the
Original Class B Holder (as defined below), at the option of the holder thereof
and in the manner described below, into one share of Class A Common Stock,
subject to adjustment as provided in paragraph F(1)(b) of this Article FOURTH
and subject to the conditions and limitations described below:
(a) In order to voluntarily convert shares of Class B Common Stock
into shares of Class A Common Stock pursuant to this paragraph F(l) of
Article FOURTH, the holder thereof shall deliver to the office of the
Secretary of the Corporation (or at such additional place or places as may
from time to time be designated by the Secretary of the Corporation) (the
"Office of the Corporation") (i) the certificate or certificates
representing the shares of Class B Common
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Stock to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer and, if required by paragraph F(9) of this Article
FOURTH, by any required tax transfer stamps and (ii) written notice (the
"Conversion Notice") to the Corporation that such holder elects to convert
such shares of Class B Common Stock into shares of Class A Common Stock and
stating the name and address in which each certificate representing shares
of Class A Common Stock issued upon such conversion is to be issued. To the
extent permitted by law, such voluntary conversion shall be deemed to have
been effected at the close of business on the date when such delivery is
made to the Office of the Corporation of the certificate representing the
shares to be converted together with the Conversion Notice, and the person
exercising such voluntary conversion shall be treated for all purposes as
the holder of the number of shares of Class A Common Stock issuable upon
such voluntary conversion at such time; provided, however, that, subject to
paragraph F(6) of this Article FOURTH, such holder shall be entitled to
receive, when paid, any dividends or other distributions declared on Class
B Common Stock with a record date preceding the time of such voluntary
conversion and unpaid as of the time of such voluntary conversion.
Following a voluntary conversion, the Corporation shall promptly issue and
deliver, or cause to be issued and delivered, a certificate or certificates
representing the number of fully paid and nonassessable shares of Class A
Common Stock into which the shares of Class B Common Stock formerly
represented by such certificate has been converted at the address set forth
in the Conversion Notice.
(b) If there occurs any capital reorganization or any reclassification
of the capital stock of the Corporation (other than a reclassification,
subdivision or combination described in paragraph D(l) of this Article
FOURTH or pursuant to a merger, consolidation or other restructuring
referred to in paragraph G of this Article FOURTH), each share of Class B
Common Stock shall thereafter be convertible into, in lieu of one share of
Class A Common Stock, the same kind and amount of securities or other
assets, or both, that were issuable or distributable to the holders of
shares of outstanding Class A Common Stock upon such reorganization or
reclassification with respect to that number of shares of Class A Common
Stock into which such share of Class B Common Stock would have been
converted had such share of Class B Common Stock been converted into Class
A Common Stock immediately prior to such reorganization or
reclassification.
The "Original Class B Holder" shall mean AT&T Corp., a New York corporation
(including any successor thereof) or any one or more persons or entities, other
than the Corporation, in which AT&T Corp. beneficially owns, directly or
indirectly, 50 percent or more of the outstanding voting stock, voting power or
similar voting interests ("AT&T Parties").
(2) Except as otherwise provided in this paragraph F(2) of Article FOURTH,
upon the sale or other transfer (whether by merger, operation of law or
otherwise) by a stockholder of the Corporation of shares of Class B Common Stock
such that any person or persons, other than the Original Class B Holder, shall
have beneficial ownership thereof, including pursuant to any private placement
or public sale of such shares (including a public offering registered under the
Securities Act of 1933, as amended, and/or a sale pursuant to Rule 144 or Rule
144A under the Securities Act of 1933, as amended, or any similar rule then in
force), such shares shall automatically convert into an equal number of shares
of Class A Common Stock without any further action on the part of the
Corporation or any other person, and the certificates representing such shares
of Class B Common Stock shall thereafter be deemed to represent shares of Class
A Common Stock. For purposes of this paragraph F of Article FOURTH, (i)
"beneficial ownership" shall mean control, directly or indirectly, through
record ownership or any contract, arrangement, understanding, relationship or
otherwise, of the voting power (which includes the power to vote or to direct
the voting of such shares, except where such power arises solely from a
revocable proxy or consent given in response to
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a proxy or consent solicitation) of such Class B Common Stock, (ii) a "person"
shall mean a corporation, trust, limited liability company, association,
partnership, joint venture, organization, business, individual, government (or
subdivision thereof), governmental agency or other legal entity and (iii) the
term "transfer" shall not include a bona fide unforeclosed pledge.
Immediately upon any automatic conversion of shares of Class B Common Stock
into shares of Class A Common Stock pursuant to this Article FOURTH, the rights
of the holders of such converted shares of Class B Common Stock as such shall
cease and such holders shall be treated for all purposes as having become
holders of the shares of Class A Common Stock issuable upon such conversion;
provided, however, that, subject to paragraph F(6) of this Article FOURTH, such
holders shall be entitled to receive, when paid, any dividends or other
distributions declared on Class B Common Stock with a record date preceding the
time of such automatic conversion and unpaid as of the time of such automatic
conversion.
As promptly as practicable on or after the date of any conversion of shares
of Class B Common Stock into shares of Class A Common Stock pursuant to this
Article FOURTH, upon the delivery to the Corporation of a certificate formerly
representing shares of Class B Common Stock, the Corporation shall issue and
deliver or cause to be delivered, to or upon the written order of the holder of
the surrendered certificate formerly representing shares of Class B Common
Stock, a certificate or certificates representing the number of fully paid and
nonassessable shares of Class A Common stock into which the shares of Class B
Common Stock formerly represented by such certificate have been converted in
accordance herewith.
(3) Holders of shares of Class B Common Stock may (A) sell or otherwise
dispose of or transfer any or all of such shares held by them, respectively,
only in connection with a transfer which meets the qualifications of paragraph
F(4) of this Article FOURTH, and under no other circumstances, or (B) convert
any or all of such shares into shares of Class A Common Stock, as provided in
paragraph F(1) of this Article FOURTH, for the purpose of effecting the sale or
disposition of such shares of Class A Common Stock to any person. No person
other than the Original Class B Holder (including any transferees or successive
transferees who receive shares of Class B Common Stock in connection with a
transfer which meets the qualifications set forth in paragraph F(4) of this
Article FOURTH), shall by virtue of the acquisition of a certificate for shares
of Class B Common Stock have the status of an owner or holder of shares of Class
B Common Stock or be recognized as such by the Corporation or be otherwise
entitled to enjoy for such person's own benefit the special rights and powers of
a holder of shares of Class B Common Stock.
(4) Shares of Class B Common Stock shall be transferred on the books of the
Corporation, and a new certificate or certificates issued therefor, upon
presentation for transfer at the Office of the Corporation of the certificate
for such shares, in proper form for transfer and accompanied by all requisite
stock transfer tax stamps, only if such certificate when so presented shall also
be accompanied by an affidavit from AT&T Corp. stating that such certificate is
being presented to effect a transfer by one AT&T Party of such shares to another
AT&T Party.
Each affidavit of AT&T Corp. furnished pursuant to paragraph F(4) of this
Article FOURTH shall be verified by an officer of AT&T Corp. as of a date not
earlier than five days prior to the date of delivery thereof.
If a holder of shares of Class B Common Stock shall present a certificate
for such shares, endorsed by said holder for transfer or accompanied by an
instrument of transfer signed by said holder, to a person who receives such
shares in connection with a transfer which does not meet the qualifications set
forth in paragraph F(4) of this Article FOURTH, then such shares shall
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<PAGE> 283
automatically convert into an equal number of shares of Class A Common Stock in
accordance with paragraph F(2) of this Article FOURTH.
If the Board of Directors (or any committee of the Board of Directors or
officer of the Corporation, designated for such purpose by the Board of
Directors) shall determine, upon the basis of facts not disclosed in any
affidavit or other document accompanying the certificate for shares of Class B
Common Stock when presented for transfer, that such shares of Class B Common
Stock have been registered in violation of the provisions of paragraph F(4) of
this Article FOURTH, or shall determine that a person is enjoying for such
person's own benefit the special rights and powers of shares of Class B Common
Stock in violation of such provisions, then the Corporation shall take such
action at law or in equity as is appropriate under the circumstances. A bona
fide unforeclosed pledge of shares of Class B Common Stock shall not be deemed
to violate such provisions; provided that such shares shall not be voted by or
registered in the name of the pledgee.
(5) Each certificate for shares of Class B Common Stock shall bear a legend
on the face thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate
may not be transferred to any person in connection with a transfer that
does not meet the qualifications set forth in paragraph F(4) of Article
FOURTH of the Restated Certificate of Incorporation, as amended, of this
corporation. Any person who receives such shares in connection with a
transfer which does not meet the qualifications prescribed by paragraph
F(4) of Article FOURTH is not entitled to own or to be registered as the
holder of such shares of Class B Common Stock, and such shares of Class B
Common Stock shall automatically convert into an equal number of shares of
Class A Common Stock. Each holder of this certificate, by accepting the
same, accepts and agrees to all of the foregoing."
(6) If (i) any dividend or other distribution has been declared with
respect to shares of Class B Common Stock which will be converted into shares of
Class A Common Stock pursuant to the provisions of this paragraph F of Article
FOURTH, (ii) the record date or payment date therefor will be subsequent to such
conversion and (iii) such dividend or other distribution was declared prior to
such conversion, then such dividend or other distribution shall be deemed to
have been declared, and shall be payable, with respect to the shares of Class A
Common Stock into which such shares of Class B Common Stock shall have been
converted (without duplication), and any such dividend or other distribution
which shall have been declared on such shares payable in shares of Class B
Common Stock or rights, options, warrants or other securities convertible into
or exchangeable or exercisable for shares of Class B Common Stock, shall be
deemed to have been declared, and shall be payable, in corresponding shares of
Class A Common Stock or rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Class A Common
Stock, as the case may be.
(7) The Corporation shall not reissue or resell any shares of Class B
Common Stock which shall have been converted into shares of Class A Common Stock
pursuant to or as permitted by the provisions of this paragraph F of Article
FOURTH, or any shares of Class B Common Stock which shall have been acquired by
the Corporation in any other manner. The Corporation shall, from time to time,
as determined by the Board of Directors, take such appropriate action as may be
necessary to retire such shares and to reduce the authorized amount of Class B
Common Stock accordingly.
The Corporation shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued shares of Class A Common
Stock and its issued Class A Common Stock held in its treasury, solely for the
purpose of effecting any conversion of Class B Common Stock pursuant to this
Article FOURTH, the full number of shares of Class A Common Stock then
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<PAGE> 284
issuable or deliverable upon any such conversion of all of the then outstanding
shares of Class B Common Stock. All shares of Class A Common Stock issued upon
any conversion of Class B Common Stock pursuant to this Article FOURTH shall be
duly and validly issued, fully paid and nonassessable. The Corporation shall
take all such actions as it deems necessary or appropriate to ensure that all
such shares of Class A Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any securities
exchange upon which shares of Class A Common Stock may be listed.
(8) In connection with any transfer or conversion of any capital stock of
the Corporation pursuant to or as permitted by the provisions of this paragraph
F of Article FOURTH, or in connection with the making of any determination
referred to in this paragraph F of Article FOURTH:
(a) the Corporation shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the
Corporation responsible for making such transfer or determination or
issuing Class A Common Stock pursuant to such conversion has substantial
reason to believe, or unless the Board of Directors (or a committee of the
Board of Directors designated for the purpose) determines that there is
substantial reason to believe, that any affidavit or other document is
incomplete or incorrect in a material respect or that an investigation
would disclose facts indicating that such conversion was in violation of
paragraph F(4) of this Article FOURTH, in either of which events the
Corporation shall (i) make or cause to be made such investigation as it may
deem necessary or desirable in the circumstances and (ii) have a reasonable
time to complete such investigation; and
(b) neither the Corporation nor any director, officer, employee or
agent of the Corporation shall be liable in any manner for any action taken
or omitted to be taken in good faith.
(9) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Class A Common Stock upon any conversion of shares of Class B Common Stock
pursuant hereto; provided, however, that the Corporation shall not be required
to pay any tax which may be payable in respect of any registration of transfer
involved in the issue or delivery of shares of Class A Common Stock in a name
other than that of the registered holder of the shares of Class B Common Stock
to be converted, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid.
G. In the event of a merger, consolidation or other restructuring of the
Corporation with or into one or more entities (whether or not the Corporation is
the surviving entity), the holders of Class A Common Stock and Class B Common
Stock shall be entitled to receive the same per share consideration.
H. The Corporation shall not be entitled to issue additional shares of
Class B Common Stock, or issue rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Class B Common
Stock, except that the Corporation may make an offer to all holders of Common
Stock of rights to purchase additional shares of the class of Common Stock
already held by such holders; provided, however, that the holders of each share
of Class A Common Stock and Class B Common Stock shall be entitled to purchase
the same number of additional shares or rights, options, warrants or other
securities convertible into or exchangeable or exercisable for additional
shares, and on the same terms as the holders of each share of such other class
of capital stock. Class A Common Stock and Class B Common Stock will be treated
equally with respect to any offer made by the Corporation to all of the holders
of Common Stock of rights, options, warrants or other
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securities convertible into or exchangeable or exercisable for shares of any
other capital stock of the Corporation.
ARTICLE FIFTH
BOARD OF DIRECTORS
A. Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall initially be fixed at nine.
B. Unless and except to the extent that the Bylaws so require, the election
of directors of the Corporation need not be by written ballot.
C. A stockholder may raise business or make nominations for the election of
directors at a stockholders' meeting only by complying with all of the
provisions of the Bylaws specifying the manner and extent to which advance
notice shall be given of and any other procedures regarding (i) the submission
of proposals to be considered at any meeting of stockholders or (ii) nominations
for the election of directors to be held at any such meeting.
ARTICLE SIXTH
AMENDMENTS
A. The Corporation reserves the right to adopt, repeal, alter or amend any
provision of this Certificate of Incorporation, in the manner now or hereafter
prescribed by the laws of the State of Delaware and this Certificate of
Incorporation, and all rights, preferences and privileges conferred on
stockholders, directors, officers, employees, agents and other persons in this
Certificate of Incorporation, if any, are granted subject to this reservation.
B. Except where the Board of Directors is permitted by law or by this
Certificate of Incorporation to act without any action by the stockholders and
except as otherwise provided by law or as otherwise provided in this Certificate
of Incorporation, and subject to any voting rights granted to holders of any
outstanding shares of Preferred Stock, provisions of this Certificate of
Incorporation shall not be adopted, repealed, altered or amended, in whole or in
part, without the approval of a majority of the combined voting power of the
outstanding shares of capital stock of the Corporation entitled to vote thereon,
voting as a single class; provided, however, that with respect to any proposed
amendment of this Certificate of Incorporation which would alter or change the
relative powers, preferences or participating, optional or other special rights
of the shares of Class A Common Stock or Class B Common Stock so as to affect
them adversely, the approval of a majority of the combined voting power of the
outstanding shares of capital stock of the Corporation entitled to be voted by
the holders of all of the shares so adversely affected by the proposed
amendment, voting separately as a class, shall be obtained in addition to the
affirmative vote of a majority of the combined voting power of the outstanding
shares of capital stock of the Corporation entitled to vote thereon, voting as a
single class, as hereinbefore provided. Any increase or decrease (but not below
the number of shares thereof then outstanding ox reserved for issuance upon
conversion of the Class B Common Stock or any series of Preferred Stock) in the
authorized number of shares of any class or classes of capital stock of the
corporation or creation, authorization or issuance of any rights, options,
warrants or other securities convertible into or exchangeable or exercisable for
shares of any such class or classes of capital stock shall be deemed not to
affect adversely the powers, preferences or special rights of the shares of
Class A Common Stock or Class B Common Stock.
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ARTICLE SEVENTH
LIMITATION ON DIRECTOR LIABILITY
A. To the fullest extent permitted by the General Corporation Law of the
State of Delaware as it now exists and as it may hereafter be amended, no
director shall be personally liable to the corporation or any of its
stockholders for monetary damages for breach of any fiduciary or other duty as a
director.
B. The rights and authority conferred in this Article EIGHTH shall not be
exclusive of any other right which any person may otherwise have or hereafter
acquire.
C. Neither the amendment, alteration or repeal of this Article EIGHTH, nor
the adoption of any provision inconsistent with this Article EIGHTH, shall
adversely affect any right or protection of a director of the Corporation
existing at the time of such amendment, alteration or repeal with respect to
acts or omissions occurring prior to such amendment, alteration, repeal or
adoption.
ARTICLE EIGHTH
AMENDMENTS TO BY-LAWS BY THE BOARD OF DIRECTORS
In furtherance of, and not in limitation of, the powers conferred by law,
and subject to the provisions of the By-laws relating to amendments thereto, the
Board of Directors is expressly authorized and empowered to:
(1) adopt any By-laws a majority of the entire Board of Directors may
deem necessary or desirable in connection with the conduct of the affairs
of the Corporation, including provisions governing the conduct of, and the
matters which may properly be brought before, meetings of the stockholders
and provisions specifying the manner and extent to which advance notice
shall be given of and any other procedures regarding (i) the submission of
proposals to be considered at any such meeting or (ii) nominations for the
election of directors to be held at any such meeting; and
(2) repeal, alter or amend the By-laws by the affirmative vote of a
majority of the entire Board of Directors.
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EXHIBIT C-2 TO AGREEMENT
AND PLAN OF MERGER
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EXHIBIT C-2 TO AGREEMENT
AND PLAN OF MERGER
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
KIRI INC.
AMENDMENT AND RESTATEMENT OF BY-LAWS
AS ADOPTED ON
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KIRI INC.
AMENDMENT AND RESTATEMENT OF BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
ARTICLE I STOCKHOLDERS...................................... 1
Section 1.01. Annual Meetings........................ 1
Section 1.02. Special Meetings....................... 1
Section 1.03. Notice of Meetings; Waiver............. 1
Section 1.04. Quorum................................. 1
Section 1.05. Voting................................. 2
Section 1.06. Voting by Ballot....................... 2
Section 1.07. Adjournment............................ 2
Section 1.08. Proxies................................ 2
Section 1.09. Organization; Procedure................ 3
Section 1.10. Shareholder Action..................... 3
ARTICLE II BOARD OF DIRECTORS............................... 3
Section 2.01. General Powers......................... 3
Section 2.02. Number and Term of Office.............. 3
Section 2.03. Election of Directors; Chair........... 3
Section 2.04. Annual and Regular Meetings............ 4
Section 2.05. Special Meetings; Notice............... 4
Section 2.06. Quorum; Voting......................... 4
Section 2.07. Adjournment............................ 4
Section 2.08. Action Without a Meeting............... 4
Section 2.09. Regulations; Manner of Acting.......... 4
Section 2.10. Action by Telephonic Communications.... 5
Section 2.11. Resignations........................... 5
Section 2.12. Removal of Directors................... 5
Section 2.13. Vacancies and Newly Created
Directorships......................................... 5
Section 2.14. Compensation........................... 5
Section 2.15. Reliance on Accounts and Reports,
etc................................................... 5
ARTICLE III COMMITTEES...................................... 5
Section 3.01 How Constituted......................... 5
Section 3.02 Powers.................................. 6
Section 3.03. Proceedings............................ 6
Section 3.04. Quorum and Manner of Acting............ 6
Section 3.05. Action by Telephonic Communications.... 7
Section 3.06. Absent or Disqualified Members......... 7
Section 3.07. Resignations........................... 7
Section 3.08. Removal................................ 7
Section 3.09. Vacancies.............................. 7
ARTICLE IV OFFICERS......................................... 7
Section 4.01. Number................................. 7
Section 4.02. Election............................... 7
Section 4.03. Salaries............................... 7
Section 4.04. Removal and Resignation; Vacancies..... 7
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
Section 4.05. Authority and Duties of Officers....... 8
Section 4.06. The President.......................... 8
Section 4.07. The Secretary.......................... 8
Section 4.08. The Treasurer.......................... 9
Section 4.09. Additional Officers.................... 9
Section 4.10. Security............................... 10
ARTICLE V CAPITAL STOCK..................................... 10
Section 5.01. Certificates of Stock, Uncertificated
Shares................................................ 10
Section 5.02. Signatures; Facsimile.................. 10
Section 5.03. Lost, Stolen or Destroyed
Certificates.......................................... 10
Section 5.04. Transfer of Stock...................... 10
Section 5.05. Record Date............................ 10
Section 5.06. Registered Stockholders................ 11
Section 5.07. Transfer Agent and Registrar........... 11
ARTICLE VI INDEMNIFICATION.................................. 11
Section 6.01. Nature of Indemnity.................... 11
Section 6.02. Successful Defense..................... 12
Section 6.03. Determination That Indemnification Is
Proper................................................ 12
Section 6.04. Advance Payment of Expenses............ 12
Section 6.05. Procedure for Indemnification of
Directors and Officers................................ 13
Section 6.06. Survival; Preservation of Other
Rights................................................ 13
Section 6.07. Insurance.............................. 13
Section 6.08. Severability........................... 14
ARTICLE VII OFFICES......................................... 14
Section 7.01. Registered Office...................... 14
Section 7.02. Other Offices.......................... 14
ARTICLE VIII GENERAL PROVISIONS............................. 14
Section 8.01. Dividends.............................. 14
Section 8.02. Reserves............................... 14
Section 8.03. Execution of Instruments............... 15
Section 8.04. Corporate Indebtedness................. 15
Section 8.05. Deposits............................... 15
Section 8.06. Checks................................. 15
Section 8.07. Sale, Transfer, etc. of Securities..... 15
Section 8.08. Voting as Stockholder.................. 15
Section 8.09. Fiscal Year............................ 16
Section 8.10. Seal................................... 16
Section 8.11. Books and Records; Inspection.......... 16
Section 9.02. Affiliated Party Transactions.......... 16
ARTICLE X AMENDMENT OF BY-LAWS.............................. 17
Section 10.01. Amendment.............................. 17
ARTICLE XI CONSTRUCTION..................................... 17
Section 11.01 Construction............................ 17
</TABLE>
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KIRI INC.
KIRI INC.
BY-LAWS
AS ADOPTED ON [ , ]
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or outside the State of Delaware, and at 9:00 a.m. local
time on the fifteenth of May (or, if such day is a legal holiday, then on the
next succeeding business day), or at such other date and hour, as may be fixed
from time to time by resolution of the Board of Directors and set forth in the
notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders may
be called at any time by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Board of Directors. A special
meeting shall be called by the President (or, in the event of his or her absence
or disability, by any Vice President), or by the Secretary, immediately upon
receipt of a written request therefor by stockholders holding in the aggregate
not less than a majority of the outstanding shares of the Corporation at the
time entitled to vote at any meeting of the stockholders. If such officers or
the Board of Directors shall fail to call such meeting within twenty days after
receipt of such request, any stockholder executing such request may call such
meeting. Such special meetings of the stockholders shall be held at such places,
within or outside the State of Delaware, as shall be specified in the respective
notices or waivers of notice thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the stockholders, and, in the case of a special meeting, the purpose or
purposes for which such meeting is called, to be given personally or by mail,
not less than ten nor more than sixty days prior to the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any stockholder
who submits a signed waiver of notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders need be specified in a written waiver of
notice. The attendance of any stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of one-third of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. For purposes of calculating pursuant to this Section 1.04 the number of
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entitled to vote at a meeting of stockholders, each share of Class A Common
Stock and Class B Common Stock shall be counted equally.
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws, a
record date has been fixed, (a) every holder of record of a share of Class A
Common Stock entitled to vote at a meeting of stockholders shall be entitled to
one vote for each such share outstanding in his or her name on the books of the
Corporation at the close of business on such record date and (b) every holder of
record of a share of Class B Common Stock entitled to vote at a meeting of
stockholders shall be entitled to ten votes for each such share outstanding in
his or her name on the books of the Corporation at the close of business on such
record date. If no record date has been fixed, then (x) every holder of record
of a share of Class A Common Stock entitled to vote at a meeting of stockholders
shall be entitled to one vote for each such share of stock standing in his or
her name on the books of the Corporation at the close of business on the day
next preceding the day on which notice of the meeting is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held and (y) every holder of record of a share of Class B Common
Stock entitled to vote at a meeting of stockholders shall be entitled to ten
votes for each such share of stock standing in his or her name on the books of
the Corporation at the close of business on the day next preceding the day on
which notice of the meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. Except
as otherwise required by law or by the Certificate of Incorporation or by these
By-Laws, a majority of the votes of shares represented in person or by proxy at
any meeting at which a quorum is present shall be sufficient for the transaction
of any business at such meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need be taken
by written ballot unless otherwise required by law. Any vote which need not be
taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting of
the stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than thirty days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice
of the adjourned meeting, conforming to the requirements of Section 1.03 of
these By-Laws, shall be given to each stockholder of record entitled to vote at
such meeting. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any meeting of
the stockholders may authorize another person or persons to vote at any such
meeting for him or her by proxy. A stockholder may authorize a valid proxy by
executing a written instrument signed by such stockholder, or by causing his or
her signature to be affixed to such writing by any reasonable means including,
but not limited to, by facsimile signature, or by transmitting or authorizing
the transmission of a telegram, cablegram or other means of electronic
transmission to the person designated as the holder of the proxy, a proxy
solicitation firm or a like authorized agent. No such proxy shall be voted or
acted upon after the expiration of three years from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed
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proxy bearing a later date with the Secretary. Proxies by telegram, cablegram or
other electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of stockholders
the presiding officer shall be the President or, in the event of his or her
absence or disability, a presiding officer chosen by a majority of the
stockholders present in person or by proxy. The Secretary, or in the event of
his or her absence or disability, the Assistant Secretary, if any, or if there
be no Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding officer, shall act as Secretary of the meeting. The order of business
and all other matters of procedure at every meeting of stockholders may be
determined by such presiding officer.
Section 1.10. Shareholder Action. Any action required or permitted to be
taken under law by the stockholders of the Corporation shall be effected at a
duly called annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by law,
by the Certificate of Incorporation or by these By-Laws, the property, affairs
and business of the Corporation shall be managed by or under the direction of
the Board of Directors and the Board of Directors may exercise all the powers of
the Corporation.
Section 2.02. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be nine. The total number of
Directors constituting the entire Board of Directors shall include three
Disinterested Directors, which number may be modified from time to time by
resolution of the Board of Directors (which resolution shall have been approved
by (i) all of the Disinterested Directors, if the total number of Disinterested
Directors then in office shall be four or less, or (ii) not less than 80% of the
Disinterested Directors, if the total number of Disinterested Directors then in
office shall be more than four), but in no event shall the number of
Disinterested Directors be less than one. "Disinterested Directors" shall mean
the directors of the Corporation who are not officers or employees of either
AT&T Corp., a New York corporation ("AT&T") or any of its affiliates or the
Corporation, or directors of AT&T or any of its affiliates. Each Director
(whenever elected) shall hold office until his or her successor has been duly
elected and qualified, or until his or her earlier death, resignation or
removal. "Affiliate" shall have the meaning set forth in Rule 12b-2 under the
Securities Exchange Act of 1934.
Section 2.03. Election of Directors; Chair. Except as otherwise provided
in Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at
each annual meeting of the stockholders. If the annual meeting for the election
of Directors is not held on the date designated therefor, the Directors shall
cause the meeting to be held as soon thereafter as convenient. At each meeting
of the
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stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election.
Section 2.04. Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or outside the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him or her at his or
her usual place of business, or shall be delivered to him or her personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of notice
to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting.
Section 2.05. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by (i) the President or, in the event of
his or her absence or disability, by any Vice President, or (ii) any three
Directors, at such place (within or outside the State of Delaware), date and
hour as may be specified in the respective notices or waivers of notice of such
meetings. Special meetings of the Board of Directors may be called on
twenty-four hours' notice, if notice is given to each Director personally or by
telephone or telegram, or on five days' notice, if notice is mailed to each
Director, addressed to him or her at his or her usual place of business. Notice
of any special meeting need not be given to any Director who attends such
meeting without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be transacted
thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of Directors,
the presence of a majority of the total authorized number of Directors shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the vote of a majority of the entire Board of Directors shall
be required for an act of the Board of Directors.
Section 2.07. Adjournment. A majority of the Directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 2.05
of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all members of the Board of Directors consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the
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property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be removed at any
time, either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director. Any vacancy in the Board of Directors caused
by any such removal may be filled at such meeting by the stockholders entitled
to vote for the election of the Director so removed. If such stockholders do not
fill such vacancy at such meeting (or in the written instrument effecting such
removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If any vacancies
shall occur in the Board of Directors, by reason of death, resignation, removal
or otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies and newly
created directorships may be filled by a majority of the Directors then in
office, although less than a quorum. A Director elected to fill a vacancy or a
newly created directorship shall hold office until his or her successor has been
elected and qualified or until his or her earlier death, resignation or removal.
Any such vacancy or newly created directorship may also be filled at any time by
vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE III
COMMITTEES
Section 3.01. How Constituted. The Board of Directors may designate one or
more Committees, including an Audit Committee, Nominating Committee, and
Compensation Committee, each such Committee to consist of such number of
Directors as from time to time may be fixed by
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the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any such Committee, who may replace any absent
or disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be designated
at the annual meeting of the Board of Directors. Any such Committee may be
abolished or re-designated from time to time by the Board of Directors. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his or her successor shall have been designated or until
he or she shall cease to be a Director, or until his or her earlier death,
resignation or removal.
Section 3.02. Powers. Each such Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors. No
Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing
for the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
Any Committee may be granted by the Board of Directors the power to authorize
the seal of the Corporation to be affixed to any or all papers which may require
it.
Section 3.03. Proceedings. Each such Committee may fix its own rules of
procedure and may meet at such place (within or outside the State of Delaware),
at such time and upon such notice, if any, as it shall determine from time to
time. Each such Committee shall keep minutes of its proceedings and shall report
such proceedings to the Board of Directors at the meeting of the Board of
Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such Committee shall constitute a quorum
for the transaction of business. The act of the majority of the members present
at any meeting at which a quorum is present shall be the act of such Committee.
Any action required or permitted to be taken at any meeting of any such
Committee may be taken without a meeting, if all members of such Committee shall
consent to such action in writing and such writing or writings are filed with
the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
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Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate member) of any
Committee may resign at any time by delivering a written notice of resignation,
signed by such member, to the Chairman or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act, and any
such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors also may elect one or more Assistant Secretaries and
Assistant Treasurers in such numbers as the Board of Directors may determine.
Any number of offices may be held by the same person. No officer need be a
Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 4.03. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in
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any office of the Corporation by death, resignation, removal or otherwise, shall
be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.06. The President. The President shall preside at all meetings
of the stockholders at which he or she is present, shall be the chief executive
officer and the chief operating officer of the Corporation, shall have general
control and supervision of the policies and operations of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He or she shall manage and administer the Corporation's business
and affairs and shall also perform all duties and exercise all powers usually
pertaining to the office of a chief executive officer and a chief operating
officer of a corporation. He or she shall have the authority to sign, in the
name and on behalf of the Corporation, checks, orders, contracts, leases, notes,
drafts and other documents and instruments in connection with the business of
the Corporation, and together with the Secretary or an Assistant Secretary,
conveyances of real estate and other documents and instruments to which the seal
of the Corporation is affixed. He or she shall have the authority to cause the
employment or appointment of such employees and agents of the Corporation as the
conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President or the Board of Directors. The President shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the following powers
and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he or she shall furnish a copy of such
resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names (alphabetically
arranged) and the addresses of the holders of record of such shares, the
number of shares held by each holder and the date as of which each became
such holder of record.
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(g) He or she shall sign (unless the Treasurer, an Assistant Treasurer
or an Assistant Secretary shall have signed) certificates representing
shares of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the chief financial
officer of the Corporation and shall have the following powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation, and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositaries as shall be selected in accordance with Section 8.05 of these
By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of these
By-Laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He or she shall render to the Board of Directors or the President,
whenever requested, a statement of the financial condition of the
Corporation and of all his or her transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require from all
officers or agents of the Corporation reports or statements giving such
information as he or she may desire with respect to any and all financial
transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the Secretary
or an Assistant Secretary shall have signed) certificates representing
stock of the Corporation the issuance of which shall have been authorized
by the Board of Directors.
(g) He or she shall perform, in general, all duties incident to the
office of treasurer and such other duties as may be specified in these
By-Laws or as may be assigned to him or her from time to time by the Board
of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may appoint such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors. The Board of Directors from time to time may delegate to any
officer or agent the power to appoint subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties. Any
such officer or agent may remove any such subordinate officer or agent appointed
by him or her, for or without cause.
Section 4.10. Security. The Board of Directors may require any officer,
agent or employee of the Corporation to provide security for the faithful
performance of his or her duties, in such amount and of such character as may be
determined from time to time by the Board of Directors.
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ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The shares of
the Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of the stock of the Corporation shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law
of the State of Delaware. Subject to the provisions of the Certificate of
Incorporation and these By-Laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which shall not be more than sixty nor
less than ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
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In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so ex pressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or
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proceeding had no reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Notwithstanding the foregoing, but subject to Section 6.05 of these
By-Laws, the Corporation shall not be obligated to indemnify a director or
officer of the Corporation in respect of a Proceeding (or part thereof)
instituted by such director or officer, unless such Proceeding (or part thereof)
has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 6.01 of these By-Laws or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made by
the Corporation only upon a determination that indemnification of such person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 6.01 of these By-Laws. Any indemnification of a
present or former employee or agent of the Corporation under Section 6.01 of
these By-Laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-Laws. Any such determination shall be made,
with respect to a person who is a director or officer at the time of such
determination (1) by a majority vote of the Directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a present director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses (including attorneys' fees) incurred by former directors
and officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the Corporation deems appropriate. The Corporation, or in
respect of a present director or officer the Board of Directors, may authorize
the Corporation's counsel to represent such
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present or former director, officer, employee or agent in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director, officer, employee or agent of the Corporation
under Sections 6.01 and 6.02 of these By-Laws, or advance of costs, charges and
expenses to such person under Section 6.04 of these By-Laws, shall be made
promptly, and in any event within thirty days, upon the written request of such
person. If a determination by the Corporation that such person is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within thirty days,
the right to indemnification or advances as granted by this Article shall be
enforceable by such person in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of costs,
charges and expenses under Section 6.04 of these By-Laws where the required
undertaking, if any, has been received by or tendered to the Corporation) that
the claimant has not met the standard of conduct set forth in Section 6.01 of
these By-Laws, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her
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status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Article, provided
that such insurance is available on acceptable terms, which determination shall
be made by a vote of a majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or outside the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of the Corporation
may be declared by the Board of Directors at any regular or special meeting of
the Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any Committee designated
by the Board of Directors shall be fully protected in relying in good faith upon
the records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees, or
Committees of the Board of Directors, or by any other person as to matters the
Director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Corporation, as to the value and amount of the assets, liabilities and/or
net profits of the Corporation, or any other facts pertinent to the existence
and amount of surplus or other funds from which dividends might properly be
declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation or for such other purpose as the
Board of
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Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may similarly modify or abolish any such reserve.
Section 8.03. Execution of Instruments. The President, any Vice President,
the Secretary or the Treasurer may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. The Board
of Directors or the President may authorize any other officer or agent to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation, and of the interest thereon, by instruments executed and
delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors or the President, or by such officers or
agents as may be authorized by the Board of Directors or the President to make
such determination.
Section 8.06. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the President, any Vice President, the Secretary
or the Treasurer or any other officers designated by the Board of Directors or
the President may sell, transfer, endorse, and assign any shares of stock, bonds
or other securities owned by or held in the name of the Corporation, and may
make, execute and deliver in the name of the Corporation, under its corporate
seal, any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend any meeting
of stockholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
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Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware". The form of such seal shall be
subject to alteration by the Board of Directors. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or reproduced, or may be used
in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or outside the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
CERTAIN TRANSACTIONS
Section 9.01. General. The provisions of this Article IX are in addition
to, and not in limitation of, the provisions of the Delaware General Corporation
Law and the provisions of the Certificate of Incorporation of the Corporation.
Any contract or business relation which does not comply with procedures set
forth in this Article IX shall not by reason thereof be deemed void or voidable
or to result in any breach of any fiduciary duty to, or duty of loyalty to, or
failure to act in good faith or in the best interests of, the Corporation, or to
result in the derivation of any improper personal benefit, but shall be governed
by the remaining provisions of the Certificate of Incorporation of the
Corporation, these Bylaws, the Delaware General Corporation Law and other
applicable law.
Section 9.02. Affiliated Party Transactions. No contract, agreement,
arrangement or transaction between AT&T or its affiliates (other than the
Corporation and any controlled affiliate thereof) (an "AT&T Entity") and the
Corporation, including amendments, modifications or terminations thereof, shall
be void or voidable solely because any directors or officers of an AT&T Entity
are present at or participate in the meeting of the Board of Directors or
committee thereof which authorizes such contract, agreement, arrangement,
transaction, amendment, modification or termination (each a "Transaction") or
solely because his or their votes are counted for such purpose, provided that:
(a) the material facts as to the Transaction are disclosed or known to
the Board of Directors of the Corporation or any relevant committee
thereof, the Board of Directors or such committee approves it and such
approval includes a majority of the Disinterested Directors of the
Corporation;
(b) the Transaction is approved by a majority of the outstanding
shares of the Corporation entitled to vote thereon not owned by an AT&T
Entity, voting together as a single class;
(c) the Transaction is effected in accordance with arrangements,
standards or guidelines that were approved as set forth in (a) or (b)
above; or
(d) the transaction is fair to the Corporation at the time it is
entered into.
Directors of the Corporation who are not Disinterested Directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee thereof that authorizes or approves any such Transaction or
any such guidelines. Shares of the Corporation owned
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by an AT&T Entity may be counted in determining the presence of a quorum at a
meeting of stockholders that authorizes or approves any such Transaction or any
such guidelines. No vote cast or other action taken by any person who is an
officer, director or other representative of AT&T, which vote is cast or action
is taken by such person in his capacity as a director of the Corporation, shall
constitute an action of, or the exercise of a right by, or a consent of, AT&T
for the purpose of any such Transaction.
ARTICLE X
AMENDMENT OF BY-LAWS
Section 10.01. Amendment. These By-Laws may be amended, altered or
repealed:
(a) by resolution adopted by a majority of the entire Board of
Directors at any special or regular meeting of the Board if, in the case of
such special meeting only, notice of such amendment, alteration or repeal
is contained in the notice or waiver of notice of such meeting (provided
that any such resolution amending Section 2.02 or Article IX of these
By-laws shall have been approved by (i) all of the Disinterested Directors,
if the total number of Disinterested Directors then in office shall be four
or less, or (ii) not less than 80% of the Disinterested Directors, if the
total number of Disinterested Directors then in office shall be more than
four); or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting
(provided that any such resolution amending Section 2.02 or Article IX of
these By-laws shall have been approved by a majority of the votes attaching
to the outstanding shares of Class A Common Stock, voting as a class).
ARTICLE XI
CONSTRUCTION
Section 11.01. Construction. In the event of any conflict between the
provisions of these By-Laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
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EXHIBIT D TO THE
AGREEMENT AND PLAN OF MERGER
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EXHIBIT D
SERVICE MARK LICENSE AGREEMENT
SERVICE MARK LICENSE AGREEMENT dated as of , by and between
AT&T CORP., a New York corporation ("Licensor"), and KIRI INC., a Delaware
corporation ("Licensee").
WHEREAS, Licensor has, for many years, used the service marks AT&T and AT&T
with a fanciful globe design, as identified in Schedule A attached hereto (the
"Licensed Master Service Marks"), all in connection with telecommunications
services; and
WHEREAS, Licensee wishes to use the Licensed Master Service Marks, and the
Licensed Trade Dress in the Licensed Territory as defined herein in connection
with the marketing and provision of certain services; and
WHEREAS, Licensee also wishes to use the service mark "It's all within your
reach" and certain foreign equivalents thereof that are owned by Licensor and
may wish to use certain other service marks which are or will be owned by
Licensor in connection with the Licensed Services; and
WHEREAS, Licensor is willing to license and allow Licensee to use the
Licensed Marks under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
"Affiliate": Of a party shall mean an entity which is under common
control with, controls, or is controlled by, such party.
"Bankruptcy": With respect to a Person shall mean the filing by such
Person of a voluntary petition, or by a third party with respect to such
Person, requesting liquidation, dissolution, reorganization, suspension,
rearrangement or re-adjustment, in any form, of its debts under the laws of
the United States (or corresponding provisions of future laws), the laws of
the Licensed Territory, or any other bankruptcy or insolvency law, or such
Person's consenting to or acquiescing in any such petition, the making by
such Person of any assignment for the benefit of its creditors or the
admission by such Person in writing of its inability to pay its debts as
they mature, an application for the appointment of a receiver for the
assets of such Person, or an involuntary petition seeking liquidation,
dissolution, reorganization, suspension, rearrangement or readjustment of
its debts or similar relief under any bankruptcy or insolvency law.
"Claim": As defined in Section 20.1 hereof.
"Claimant": As defined in Section 20.2 hereof.
"Communications Director": The individual described in Section 8.5.
"Corporate Brand": As defined in Section 5.3(d) hereof.
"Corporate Brand Efforts": As defined in Section 5.3(d) hereof.
"Effective Date": As defined in Section 23.12 hereof.
"Exclusive Services": As defined in Schedule F hereto.
"Final Cure Period": As defined in Section 9 hereof.
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EXHIBIT D
"Graphic Standards Manual": As defined in Schedule D hereto.
"Gross Service Revenue": Revenues received by Licensee and its
sublicensees for the Licensed Services, before any deductions or offsets.
"Including": The terms "including" and "such as" are illustrative and
not limitative.
"Initial Cure Period": As defined in Section 9 hereof.
"Licensed Ancillary Service Marks": Service marks that may be
developed for each of the Licensed Services by Licensor or by Licensee that
become Licensed Ancillary Service Marks pursuant to Section 2.2, and any
additional marks that are added to this Agreement pursuant to Section 4.3
and which shall be owned by Licensor and licensed to Licensee pursuant to
this Agreement (and as such service marks may be modified or supplemented
as contemplated by Section 4.2 or Section 4.3), as set forth in Schedule
C1, as it may be amended from time to time. Registrations and applications
covering the Licensed Ancillary Service Marks in the Licensed Territory
include those set forth in Schedule C2 of this Agreement. The listing of
goods or services in the specification of any of these registrations or
applications which are outside the scope of services licensed under this
Agreement shall not be construed as inclusion of such goods or services in
the license granted by this Agreement. It is understood that the only
services licensed under this Agreement are as expressly set forth in this
Agreement.
"Licensed Marks": Collectively, the Licensed Master Service Marks,
Licensed Ancillary Service Marks, and Licensed Trade Dress.
"Licensed Master Service Marks": The service marks AT&T and AT&T with
a fanciful globe design as identified in Schedule A (and as such service
marks may be modified or supplemented as contemplated by Section 4.2 or
Section 4.3). Registrations and applications covering the Licensed Master
Service Marks in the Licensed Territory are set forth in Schedule B of this
Agreement, as it may be amended from time to time. The listing of goods or
services in the specification of any of these registrations or applications
which are outside the scope of services licensed under this Agreement shall
not be construed as inclusion of such goods or services in the license
granted by this Agreement. It is understood that the only services licensed
under this Agreement are as expressly set forth in this Agreement.
"Licensed Services": The services described in Schedule F attached
hereto.
"Licensed Territory": Antigua and Barbuda, Argentina, Bahamas,
Barbados, Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic,
Ecuador, Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint
Lucia, Saint Vincent and the Grenadines, Suriname, St. Kitts and Nevis,
Trinidad and Tobago and Uruguay.
"Licensed Trade Dress": The general image, appearance or dress of the
marketing of services performed under the Licensed Master Service Marks and
the Licensed Ancillary Service Marks consisting of colors, designs,
configurations, publication formats, lettering and the like as set forth in
Schedule D attached hereto, and such other trade dress and get-up as may be
added thereto or substituted therefor in accordance with this Agreement.
"Licensee": As defined in the first paragraph hereof.
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"Licensee Brand Efforts": Marketing communications activities
developed in support of specific Licensee products and services, such as
advertising, direct mail and promotions for specific Licensed Services or
rates, or for any activity not specified in this Agreement.
"Licensor": As defined in the first paragraph hereof.
"Managed Network Services" means the provision of (a) service to a
customer consisting solely of the provisioning and maintenance of the
logical and physical elements of the customer's wide area communications
network, and, to the extent relating to a customer's wide area
communications network, directly related planning, design, installation,
maintenance and ongoing life cycle support functions, and (b) equipment on
the customer's premises at the interface between a wide area communications
network and the remainder of the customer's networking environment insofar
as the equipment so provided facilitates (i) the maintenance of the
customer's wide area communication services, (ii) the recording of
performance data with respect to the customer's wide area communications
services, (iii) the provisioning of new wide area communications services
to the customer or changes in the parameters of the wide area
communications services provided to the customer, or (iv) the integration
of multiple wide area communications services, but excluding in the case of
clause (a) or (b) any such service or equipment that materially extends
services beyond the interface described above further into the customer's
non-wide area communications network.
"Mark": Any name, brand, mark, trademark, service mark, trade dress,
trade name, business name or other indicia of origin.
"Marketing Materials": Any and all materials, whether written, audio,
visual or in any other medium, used by Licensee to market, advertise or
otherwise offer or provide any Licensed Service under the Licensed Marks.
"Marketing Specifications": Licensor's standards and guidelines
relating to the permitted use, depiction and graphic display of the
Licensed Marks that are contained in Schedule E hereto, and those standards
and guidelines relating to such use, depiction and graphic display that
Licensor shall provide to Licensee from time to time.
"Material": As defined in Section 21 hereof.
"Merger Agreement": The Agreement and Plan of Merger among AT&T Corp.,
Kiri Inc., Frantis, Inc. and FirstCom Corporation, dated as of November 1,
1999.
"Minimum Guarantee": As defined in Section 5.1(b) hereof.
"Monitoring Services": As defined in Section 5.3(a) hereof.
"New York Courts": As defined in Section 19 hereof.
"Nonexclusive Services": As defined in Schedule F hereto.
"Payment Period": Each period of six (6) full calendar months or
portion thereof during the term of this Agreement, commencing on the first
day of the first month after the Effective Date.
"Payments": As defined in Section 22.1 hereof.
"Person": Any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association,
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trust, trustee, executor, administrator or other legal personal
representative, regulatory body or agency, government or governmental
agency, authority or entity however designed or constituted.
"Proprietary Information": Any information that is so designated by
the party disclosing it or deemed to be such under this Agreement.
"Quality Control Representatives": Representatives of Licensor
appointed in accordance with Section 8 hereof.
"Registered User Application": An application by the parties to the
appropriate Regulatory Authority in the Licensed Territory where an owner
of a Mark (i) licenses a licensee to use the registered Mark, under
conditions in which the nature and quality of the products and/or services
offered under the Mark are required to be subject to quality control by the
owner, in accordance with local law and practice for acceptable trademark
licensing to ensure the validity and enforceability of the Mark licensed
and (ii) allows the licensee to be recorded by that administrative agency
as a permitted user of the Licensed Marks.
"Regulatory Approval": Any governmental or regulatory approval,
consent or authorization or waiver required to be obtained from or any
filing required to be made with or notice required to be given to any
governmental or Regulatory Authority, commission, tribunal, ministry,
official or agency.
"Regulatory Authority": Any applicable regulatory, administrative or
governmental entity, authority, commission, tribunal, official or agency,
including without limitation the Export Licensing Office of the U.S.
Department of Commerce.
"Request": As defined in Section 20.2 hereof.
"Respondent": As defined in Section 20.2 hereof.
"Second Cure Period": As defined in Section 9.2 hereof.
"Service Specifications": The standards of quality relating to
Marketing Specifications, technical performance, customer service, and
customer satisfaction, including technical network performance, marketing,
design, and use of Marketing Materials, advertising and promotion that will
be set forth in Schedule E to this Agreement (and as they may be amended,
modified or supplemented from time to time in accordance with this
Agreement).
"Significant Breach by Licensee": As defined in Section 12 hereof.
"Subsidiary": With respect to a party, any Person in which the party
directly owns more than 50% of the voting rights.
"Successor": With respect to any party, any successor, monitor,
coordinator, transferee or assignee, including without limitation any
receiver, debtor in possession, trustee, conservator or similar Person with
respect to such party or such party's assets.
"Technical Information": Information provided by either party under
this Agreement, whether Proprietary Information or otherwise.
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2. Scope of License
2.1 Grant of License.
(a) Subject to the terms and conditions of this Agreement, Licensor hereby
grants to Licensee a non-exclusive, non-transferable, non-sublicensable (except
as provided herein) license to use the Licensed Marks solely in connection with
the marketing, advertising, promotion and provision of the Licensed Services in
the Licensed Territory. Licensee may use the Licensed Marks in marketing,
advertising and promotion outside the Licensed Territory so long as such
marketing, advertising and promotion relates to the provision of Licensed
Services in the Licensed Territory. The foregoing notwithstanding, the rights
granted herein do not include the right to use the Licensed Marks in connection
with the marketing, advertising, promotion or provision of any services through
the global venture between Licensor and British Telecommunications plc, which
shall be covered by separate agreements with such global venture.
Licensor and its other Affiliates retain all rights to use the Licensed
Marks in the Licensed Territory. The Licensed Marks may not be used by Licensee
in connection with any service except as expressly set forth in this Agreement.
Licensee shall not use the Licensed Marks, or any other Mark of Licensor, or any
confusingly similar Marks in connection with any service or product not within
the scope of this Agreement without Licensor's express written consent.
Licensee may sublicense the rights granted in this Section 2.1(a) to its
Subsidiaries in connection with their operations in the Licensed Territory,
provided that:
(i) such Subsidiaries meet and continue to meet the criteria set forth
in Schedule G of this Agreement;
(ii) such Subsidiaries enter a written agreement with Licensee in
which such Subsidiaries agree to assume all of the same obligations as
Licensee (except for the obligation to make payments pursuant to Section
5.1, as such payments will be made by Licensee) and which is otherwise
consistent with this Agreement; and
(iii) Licensee notifies Licensor within ten (10) days each time a
sublicense is granted and furnishes Licensor with a copy of the relevant
sublicense agreement.
(b) Subject to the terms and conditions of this Agreement and provided that
at least half of the Licensed Services offered by Licensee (namely, those
grossing the highest revenue) are in full compliance with the Service
Specifications furnished by Licensor, Licensee shall have a non-exclusive,
non-sublicensable right (except as otherwise provided herein) to use "AT&T" as
part of the corporate name and trade name set forth in Schedule H of this
Agreement for the remainder of the term of this Agreement. By way of example, if
Licensee offers six (6) Licensed Services, the three (3) Licensed Services
grossing the highest revenue for Licensee would have to be compliant with the
Service Specifications in order to use "AT&T" as part of the corporate name and
trade name. The foregoing notwithstanding, if all of the Licensed Services
contemplated by this Agreement will be provided through Subsidiaries of the
Licensee and not by the Licensee itself, then Licensee may, subject to the terms
and conditions of this Agreement, use "AT&T" as part of the corporate and trade
name set forth in Schedule H for the entire term of this Agreement. In the event
that Licensee wishes to have one or more of its Subsidiaries which has been
granted a sublicense to use the Licensed Marks pursuant to Section 2.1(a) use
"AT&T" as part of its corporate and trade name, Licensee may request Licensor's
written approval to sublicense such use, and Licensee shall not unreasonably
withhold such written approval, provided that such Subsidiaries demonstrate to
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Licensor's satisfaction that at least half of the Licensed Services (namely,
those grossing the highest revenues) offered by such Subsidiaries are in full
compliance with the applicable Service Specifications and provided that such use
is otherwise subject to the terms and conditions and conditions of this
Agreement.
2.2 Use of Licensed Master Service Marks and Development and Use of
Licensed Ancillary Service Marks.
(a) Subject to the terms and conditions of this Agreement, the Licensed
Marks and Licensed Trade Dress shall be used exclusively in connection with all
Licensed Services.
(b) Licensee may use ancillary service marks owned by Licensor with
Licensor's express written consent for one or more service plan names or feature
names. Licensee may develop and use with Licensor's prior written approval
ancillary service marks with respect to one or more service plan names or
feature names, which approval will not be unreasonably withheld. Such ancillary
service marks developed by Licensee and approved by Licensor shall become
Licensed Ancillary Service Marks. Licensee shall assign to Licensor all rights
in and to any such ancillary service marks developed by Licensee that shall
become Licensed Ancillary Service Marks, including all rights in any application
to register or registration of the Licensed Ancillary Service Marks. Upon the
termination of this Agreement, including termination under any renewal and any
transition period provided under Section 12.3, Licensor shall assign to
Licensee, without further consideration, all of its rights, title and interest
in and to such Licensed Ancillary Service Marks developed by Licensee, including
the goodwill attached thereto, in the Licensed Territory. With the exception of
ancillary service marks developed by Licensee and assigned to Licensor as
provided above, Licensor shall be and remain the owner of all Licensed Ancillary
Service Marks, and any foreign language equivalents thereof, that are not
developed by Licensee.
3. Agreement Personal. In recognition of the unique nature of the
relationship between Licensor and Licensee, the parties agree that the rights,
obligations and benefits of this Agreement shall be personal to Licensee and its
authorized sublicensees, and, Licensor shall not be required to accept
performance from or render performance to an entity other than Licensee and its
authorized sublicensees. In the event of the Bankruptcy of the Licensee or its
sublicensees, this Agreement and any sublicense granted pursuant to this
Agreement may not be assigned or assumed by the Licensee, its sublicensees, or
any Successor, and may be terminated by Licensor pursuant to Section 12.2(c)
hereof, and the Licensor shall be excused from rendering performance to or
accepting performance from Licensee, its sublicensees or any Successor.
4. Other Marks
4.1 No Other Mark To Be Used. Licensee shall not use any other Mark or
create by use, adoption or practice any alternate Mark or ancillary Mark in
connection with the Exclusive Services, without Licensor's express written
consent. In the marketing of the Licensed Services, any use or display by
Licensee of its corporate, business, trade name, or trading style shall adhere
to the Marketing Specifications of the Service Specifications or shall be with
Licensor's express written consent. So long as Licensee is not providing a
Nonexclusive Service in a particular country in the Licensed Territory using the
Licensed Marks, Licensee may, after consultation with Licensor, use Marks that
are not Licensed Marks on such Nonexclusive Service in such country, provided
that Licensee agrees to conduct reasonable searches to determine the
availability of such Marks prior to commencing use. In the event that Licensee
commences providing a Nonexclusive Service using the Licensed Marks in a
particular country in the Licensed Territory, Licensee shall immediately cease
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providing such Nonexclusive Service using other Marks in such country unless
Licensor consents to the continued use of such other Marks.
4.2 Modification of Licensed Service Marks. Modifications to or
replacements of the Licensed Ancillary Service Marks may be initiated by
Licensee, with the concurrence of Licensor as provided in Section 2.2(b), as to
any modification or replacement of the Licensed Ancillary Service Marks as they
are used by Licensee with respect to the Licensed Services.
If Licensor modifies or replaces any of the Licensed Master Service Marks,
Licensed Ancillary Service Marks, or the Licensed Trade Dress as used by
Licensor, Licensee shall agree with Licensor on a program to cease, over a
reasonable period of time, not to exceed one hundred-twenty (120) days, use of
the previous Licensed Mark(s) and to introduce and adopt the modified or
replacement Licensed Mark(s), at Licensee's cost, but without undue expense to
Licensee or disruption to Licensee's business or marketing programs, and
Licensor shall reimburse Licensee from the Brand Fund Fee one-half of such
reasonable costs incurred by Licensee. In either case, such modified or replaced
Licensed Master Service Mark(s), Licensed Ancillary Service Mark(s), or the
Licensed Trade Dress shall be considered the Licensed Mark(s) contemplated by
this Agreement.
If Licensor modifies a Licensed Ancillary Service Mark for certain uses
outside the Licensed Territory but does not terminate all usage of the
unmodified version, Licensee may choose to adopt the modified version but is not
obliged to do so.
4.3 Use of Additional Marks at Licensor's Request. Licensor may, from time
to time, in consultation with Licensee, request Licensee to adopt and use in
addition to the Licensed Master Service Marks, Licensed Ancillary Service Marks
and Licensed Trade Dress, any Mark or Marks used or to be used by Licensor,
including any Marks owned by a third party that Licensor has the right to use
and sublicense, in connection with the marketing and provision of Licensed
Services. Such additional Mark or Marks shall be licensed hereunder on the same
terms as the Licensed Marks. All costs associated with adopting and using such
additional Mark or Marks shall be borne by Licensor, and shall be paid out of
the Brand Fund Fees.
5. Annual Payments.
5.1 Brand Fund Fee. In consideration of the license granted in this
Agreement and for other good and valuable consideration including Licensor brand
building activities in the Licensed Territory, during the term of this Agreement
with respect to each Payment Period, Licensee shall pay Licensor a Brand Fund
Fee, as provided in Section 5.3, which shall be the greater of:
(a)(i) in Years 1 and 2 of this Agreement, four percent (4%) of Gross
Service Revenues from the Licensed Services;
(ii) in Year 3 of this Agreement, three and one-quarter percent
(3.25%) of Gross Service Revenues from Licensed Services;
(iii) in Years 4 and 5, and for each year during the renewal term, two
and one-half percent (2.5%) of Gross Service Revenues from Licensed
Services; and
(b) two million five hundred thousand dollars ($2,500,000) (the
"Minimum Guarantee").
5.2 Accounting. With respect to each Payment Period as defined herein,
Licensee shall furnish to Licensor a statement, in form reasonably acceptable to
Licensor, certified by a responsible officer of Licensee, showing all Gross
Service Revenues during such Payment Period, and the Brand Fund
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EXHIBIT D
Fee as provided in Section 5.1. payable thereon. During the term of this
Agreement, such statement shall be furnished to Licensor not later than
forty-five (45) days after the end of each Payment Period.
5.3 Payment. With respect to each Payment Period as defined herein,
Licensee shall, irrespective of its own business and accounting method, pay
Licensor or Licensor's designee the Brand Fund Fee as provided in Section 5.1,
forty-five (45) days after the end of each Payment Period. The Brand Fund Fee
will be paid in U.S. currency. Licensee agrees that all of the Brand Fund Fees
received for each Payment Period will be designated and spent by Licensor, with
active participation of Licensee's CEO, on the following activities in support
of Licensor's brand strategy and to ensure proper positioning of the Licensee:
(a) the monitoring of the brand, including the development and
implementation of the Service Specifications set forth in Schedule E and
the requirements set forth in Schedule D of this Agreement, customer
satisfaction surveys, market research, and the management of corporate
identity ("Monitoring Services"). Except as provided in the last sentence
of this Section 5.3(a), no more than three million dollars ($3,000,000) of
the Brand Fund Fees shall be used each year of this Agreement for
Monitoring Services. Monitoring Services shall be subject to the following
conditions: (i) payments for Monitoring Services shall only be made to
Persons that are not Affiliates of Licensee or Licensor, (ii) Monitoring
Services shall be obtained on a cost effective basis using a reasonably
competitive process to the extent practicable and (iii) Monitoring Services
shall be implemented through the Communications Director and his/her team.
Following consultation between Licensor and Licensee's CEO, Brand Fund Fees
in excess of $3,000,000 per year may be designated and spent by Licensor
for Monitoring Services, upon the submission of reasonable supporting
documentation and subject to compliance with the conditions set forth above
in the immediately preceding sentence.
(b) the manpower, including salary and benefits, required to implement
the responsibilities of the Communications Director and his/her team of
five (5) country managers across all of Licensee's communications, provided
that such country managers shall be paid at competitive rates giving effect
to the business conditions in each country and shall devote, in a manner
consistent with the terms of this Agreement, all of their efforts to
support Licensee's business, except that Licensor shall have the right,
with the approval of Licensee's CEO, which shall not be unreasonably
withheld, to use such persons from time to time to support other Licensor
activities in the Latin American region;
(c) any additional manpower, including salary and benefits, based on
the needs of Licensor and Licensee's business and with the agreement of
Licensee's CEO, required to implement the responsibilities of the
Communications Director and his/her team;
(d) following consultation with Licensee's CEO, the implementation of
activities in support of the Licensed Master Service Marks ("the Corporate
Brand") and the position of the RV, as follows: corporate events, media
placement, creativity/production; brand agency costs, sponsorships/events,
and media relations ("Corporate Brand Efforts") and
(e) other items specified in this Agreement.
The foregoing obligation shall not apply to Brand Fund Fees received for
the last Payment Period of the renewal term (unless the parties enter a new
service mark license agreement with regard to the Licensed Marks), and shall
immediately cease if this Agreement terminates for any other reason.
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EXHIBIT D
5.4 Audit of Licensee's Records. Licensee and any sublicensees shall keep
accurate books and records of all Gross Service Revenues, payments and Brand
Fund Fees, together with such other data as is necessary and material to
determine accurately the amounts payable hereunder. Licensor and Licensor's
designee shall be entitled to inspect, during normal business hours, the books
and records of Licensee and any sublicensees to ensure the proper reporting of
Gross Service Revenues, payments and Brand Fund Fees and Licensee and any
sublicensee's compliance with the terms and conditions of this Agreement. If
such inspection discloses no deficit or a cumulative deficit over the term of
this Agreement through the last Payment Period ending before the date of the
inspection of less than five percent (5%) from the statements provided under
Section 5.2, the cost of such inspection shall be borne by Licensor. If any such
cumulative deficit is five percent (5%) or greater, the cost of such inspection
shall be borne by Licensee or the appropriate sublicensee. Any payments due
under this Section shall be made in accordance with Section 22 hereof.
5.5 Cure or Termination. If Licensee is in default of any payment or fee
due hereunder, Licensee shall have thirty (30) days after receipt of written
notice of such default to it by Licensor to cure said default, failing which
this Agreement shall be subject to termination by Licensor exercisable thirty
(30) days after delivery of written notice to Licensee. If Licensee is in
default two (2) or more times in any two (2) year period, the Licensor shall
have the right to terminate this Agreement immediately by delivery of written
notice to Licensee by Licensor.
6. Brand Support Functions. Upon mutual agreement, Licensor and Licensee
may enter into a separate agreement, whereby Licensee may procure from Licensor
and Licensor would provide to Licensee certain marketing, promotion and sales
support functions in connection with the Licensed Services.
7. Retention of Rights. All existing goodwill in the Licensed Marks inures
to the sole benefit of the Licensor. Licensee's use of the Licensed Marks and
any and all goodwill that derives from such use, shall, except as provided in
Section 2.2(b), inure to the sole benefit of the Licensor. Except as otherwise
expressly provided in this Agreement, Licensor shall retain all rights in and to
the Licensed Marks, including all rights of ownership in and to the Licensed
Marks and the right to license others to use the Licensed Marks for any product
or service in the Licensed Territory and the rest of the Universe. Licensee
shall execute all documents required to effect any transfer of rights to
Licensor.
8. Quality Control.
8.1 General. Licensee acknowledges that the Licensed Services covered by
this Agreement must be of sufficiently high quality as to provide maximum
enhancement to and protection of the Licensed Marks and the goodwill they
symbolize. Licensee further acknowledges that the maintenance of high quality
services is of the essence of this Agreement and that it will utilize only
Marketing Materials which do not disparage or place in disrepute Licensor, its
businesses or its business reputation, or adversely affect or detract from
Licensor's goodwill.
8.2 Service Specifications. Licensee shall use the Licensed Marks only in
accordance with, and in connection with, the marketing and provision of Licensed
Services that meet the Service Specifications. The Service Specifications shall
consist of technical performance, customer service, customer satisfaction and
Marketing Specifications, shall be set forth in writing by Licensor and become
Schedule E to this Agreement, and shall be defined further as the Licensed
Services are developed for introduction and may evolve to meet market and other
needs. The Service Specifications are deemed to be Proprietary Information under
Section 21 hereof. Licensee shall not commence or continue to offer any Licensed
Service under the Licensed Marks unless it meets each of the relevant Service
Specifications. The initial definition of the Service Specifications will be
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determined solely by Licensor, following consultation with Licensee, and shall
be provided to Licensee for the countries of Brazil, Chile, Colombia and Peru
within three (3) months of the Effective Date of this Agreement, and for any
other country or jurisdiction in the Licensed Territory, within three (3) months
of written notice to Licensor that Licensee intends to begin offering the
Licensed Services in such country or jurisdiction. Licensee shall use its
commercially reasonable best efforts to become fully compliant with the relevant
Service Specifications within six (6) months after the delivery of such Service
Specifications by Licensor to Licensee.
8.3 Changes to Service Specifications.
(a) Except with respect to Marketing Specifications, the Service
Specifications may be amended, modified or supplemented from time to time
by Licensor, following consultation with Licensee. Following any such
amendment, modification or supplement to the Service Specifications,
Licensee shall within a reasonable time determined in the reasonable
judgment of Licensor following consultation with Licensee adhere to such
amendment, modification or supplement.
(b) The Marketing Specifications may be amended, modified or
supplemented from time to time by Licensor in its sole discretion. Within
sixty (60) days of Licensor's request to amend, modify, or supplement the
Marketing Specifications, Licensee shall adhere to such amendment,
modification or supplement.
8.4 Quality Service Reviews. Right of Inspection. Licensor shall have the
right to designate from time to time one or more Quality Control
Representatives, who shall have the right at any time upon fifteen (15) days
prior notice to conduct during Licensee's regular business hours an inspection,
test, survey and review of Licensee's facilities and otherwise to determine
compliance with the applicable Service Specifications. Licensee agrees to
furnish to the Quality Control Representatives (i) samples or simulations of
Licensed Services and Marketing Materials that are marketed or provided under
the Licensed Marks as Licensor may request from time to time, for inspections,
surveys, tests and reviews to assure conformance of the Licensed Services and
the Marketing Materials with the applicable Service Specifications and (ii) all
performance data in its control relating to the conformance of such Licensed
Services with the applicable Service Specifications. Licensor may independently
conduct continuous customer satisfaction surveys to determine if Licensee is
meeting the Service Specifications. Any information obtained by either party or
disclosed by one party to the other party pursuant hereto shall be deemed to be
Proprietary Information of the party obtaining the information or disclosing the
information pursuant to Section 21 hereof. If Licensee has actual knowledge that
it is not complying with any Service Specification it shall notify Licensor and
the provisions of Section 9 shall apply to such noncompliance.
8.5 Communications Director. As set forth in Section 5.3(b) and (c), a
Communications Director and at least five (5) persons reporting to the
Communications Director shall be employed by Licensor at Licensor's sole cost
and expense from the Brand Fund Fee. The Communications Director shall have
several responsibilities relating to Licensee's use of the Licensed Marks, which
shall include: (i) brand management, (ii) marketing communications, (iii)
advertising and direct marketing, (iv) public relations, and (v) the monitoring
of compliance with Service Specifications. The Communications Director shall (i)
review and approve, subject to the concurrence of the Licensor's Vice President
of Communications for Latin America or other Licensor-designated representative,
all Licensee-produced Marketing Materials to ensure adherence to Licensor's
brand positioning, policies and values and shall receive directions regarding
brand position, brand strategy, brand values and implementation parameters from
Licensor's Vice-President of Communications for
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EXHIBIT D
Latin America or other Licensor-designated representative; (ii) ensure
coordination and alignment of Licensee's and Licensor's brand activities,
including brand alignment of all of Licensee's corporate communications,
including advertising, sponsorship/events, and identity; (iii) provide feedback
to Licensee on reports required in the Service Specifications and reporting
Licensee's performance with regard to Service Specifications to Licensor, (iv)
planning and execution of public relations and media relations programs as
further described herein, (v) planning and execution of marketing communications
programs as further described herein, and (vi) manage, along with Licensor's
Vice President of Communications for Latin America or other Licensor-designated
representative, the advertising, direct marketing and public relations brand
agencies used by Licensee. All activities relating to the Corporate Brand
Efforts that are funded by the Brand Fund Fee shall be planned and implemented
in the Latin American region by the Licensor's Latin America Communications
Group with the participation of Licensee's CEO and the Communications Director.
The parties agree that all communications efforts, whether Corporate Brand
Efforts or Licensee Brand Efforts, shall be aligned to Licensor's brand
positioning and strategy, but their implementation shall ensure relevancy to the
markets to which they will be targeted. The Communications Director shall also
attend all Marketing Task Force or similar meetings of Licensor and Licensee,
and will attend relevant marketing and strategy meetings of both Licensor and
Licensee. The Communications Director will work closely with Licensee's CEO and
his/her senior management team and the Licensor's Vice President of
Communications for Latin America in coordinating the overall alignment of
Licensee's and Licensor's brand building activities in the Licensed Territory.
Specifically, Licensee's CEO and his/her senior management team shall provide
the Communications Director with the Licensee's business direction, strategies
and plans for the Communications Director's use in the planning and execution of
marketing communications, public relations and media relations programs which
support Licensee's business goals. Communications programs developed for
Licensee Brand Efforts shall be approved by Licensee's senior management team.
Public relations and media relations programs developed for Licensee Brand
Efforts shall be approved by Licensee's CEO. Licensor and Licensee shall jointly
evaluate the performance of the Communications Director, and Licensor's Vice
President of Communications for Latin America or other Licensor-designated
representative shall provide performance reviews to the Communications Director.
After consultation with Licensee, Licensor will have the sole right to replace
the Communications Director as well as any person reporting to the
Communications Director who was designated by Licensor. Licensee's CEO shall
contact Licensor's Vice President for Latin America regarding problems or
concerns which may arise from time to time with regard to the Communications
Director and his/her team, and Licensor's Vice President for Latin America shall
consult with Licensee's CEO regarding the appropriate corrective measures to be
taken. Funding for Corporate Brand Efforts in Latin America will be defined and
managed by Licensor with the active participation of Licensor's Communications
Director and Licensee's CEO. Licensee shall use brand agencies designated by
Licensor provided that their cost, service and quality are competitive with
local first class international agencies operating in Latin America. The
Licensor's Vice President of Communications for Latin America or other
Licensor-designated representative shall oversee the performance of and shall
have responsibility for employing any corrective measures required with regard
to the brand agencies, but Licensee's CEO and his/her senior management team
shall provide input to Licensor in connection with the evaluation of the brand
agencies. In the event that one or more of the brand agencies designated by
Licensor do not meet or continue to meet relevant cost, service and quality
criteria after corrective measures are implemented, Licensor's Vice President of
Communications for Latin America or other Licensor-designated representative,
with Licensee CEO's active participation, shall select alternative agencies.
Licensee's CEO and his/her senior management team shall communicate directly
with the Communications Director to enable the
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effective performance of his/her responsibilities and management of issues
related to the Licensed Marks.
8.6 Costs. Each party shall bear its own costs associated with, and all
risk of loss and damage resulting from, all inspections, surveys, tests and
reviews under this Section. Except as otherwise agreed herein, Licensee shall
bear the costs for marketing communications, public relations and local
advertising; while Licensor shall bear the cost of regional advertising in Latin
America from the Brand Fund Fee.
8.7 Sponsorship. Licensee shall not use the Licensed Marks to sponsor,
endorse, or claim affiliation with any event, meeting, charitable endeavor or
any other undertaking without the express written permission of Licensor. Any
breach of this provision shall be deemed a Significant Breach by Licensee.
9. Remedies for Noncompliance with Service Specifications.
9.1 Initial Cure Period. If Licensor becomes aware that Licensee is not
complying with any Service Specifications, or otherwise is in breach as defined
by Sections 12.2(d) or (e), Licensor shall notify Licensee in writing, setting
forth, in reasonable detail, a written description of the noncompliance and any
suggestions for curing such noncompliance. Licensee shall have sixty (60) days
from receipt of the description of noncompliance to correct such noncompliance,
in the case of all Service Specifications, except those Service Specifications
relating to Marketing Specifications (an "Initial Cure Period"). In the case of
Licensee's noncompliance with respect to Service Specifications relating to
Marketing Materials or Marketing Specifications, or where the Licensee otherwise
is in breach as defined by Sections 12.2(a) or (f), Licensee shall immediately
cease using any and all Marketing Materials which are in noncompliance with
Service Specifications relating to Marketing Materials or Marketing
Specifications, cease any other activity in noncompliance with these Service
Specifications, and withdraw all Marketing Material in noncompliance with the
Marketing Specifications. If there is any other noncompliance with respect to
Service Specifications or if the Licensee is otherwise in breach as defined in
Sections 12.2(a) or (f), and such breach continues beyond a twenty (20) day
period, Licensee shall within a reasonable time but in any event within sixty
(60) days of the end of such twenty (20) day period either comply with the
Service Specifications or shall be deemed to be in breach of this Agreement.
9.2 Second Cure Period. If the noncompliance with the technical
performance, customer service or customer satisfaction Service Specifications
other than Marketing Specifications is not cured within the Initial Cure Period,
either party may notify the other party thereof, setting forth, in detail, the
reasons for noncompliance. Within ninety (90) days of receipt of any such
notification, Licensor and Licensee shall create a mutually acceptable, detailed
plan to rectify such noncompliance and Licensee and Licensor shall agree upon a
reasonable and prompt timetable (the "Second Cure Period") to develop and
implement this plan. Each party shall use all reasonable efforts to develop and
implement this plan.
9.3 Final Cure Period. If the noncompliance with the technical
performance, customer service or customer satisfaction Service Specifications
continues beyond the Second Cure Period, or if the parties are unable to reach
agreement on a plan within the ninety (90) day time period set forth in Section
9.2 hereof and the Licensee is still in noncompliance, either party may notify
the other party thereof and Licensee shall either cease offering the Licensed
Service(s) which is or are not in compliance until it can comply with the
Service Specifications or be deemed to be in breach of this Agreement.
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9.4 Potential Injury to Persons or Property. Notwithstanding the
foregoing, in the event that Licensor reasonably determines that any
noncompliance with any Service Specification creates a material threat of
personal injury or injury to property of any third party, upon written notice
thereof by Licensor to Licensee, Licensee shall either cease offering the
applicable Licensed Service under the Licensed Marks until it can comply with
the Service Specifications or be deemed to be in breach of this Agreement.
9.5 Costs. Except as otherwise expressly provided herein, all costs
relating to effecting cures, including Licensor's and any consulting firm's
and/or arbitrator's time and expenses and any additional monitoring required,
shall be borne by Licensee.
10. Protection of Licensed Marks.
10.1 Ownership and Rights. Except as otherwise expressly provided in
Section 2.2(b) Licensee acknowledges that Licensor is the sole owner of all
rights, title and interest in and to the Licensed Marks. Licensee admits the
validity of, and agrees not to challenge the ownership or validity of the
Licensed Marks. Licensee shall take no action with respect to obtaining
intellectual property rights in the Licensed Marks without the approval of
Licensor. Licensor represents and warrants that the use of the Licensed Master
Service Marks by the Licensee for the Licensed Services does not infringe the
registered marks of any third party. Licensor shall use reasonable efforts to
ensure that each Licensed Ancillary Service Mark (other than those Licensed
Ancillary Service Marks developed by Licensee as provided in Section 2.2) is a
Mark which is available for use and registration in the Licensed Territory for
the particular service at issue. Licensee shall not disparage or adversely
affect the validity of the Licensed Master Service Marks, the Licensed Ancillary
Service Marks, or the Licensed Trade Dress. Licensee will not grant or attempt
to grant a security interest in the Licensed Master Service Marks, the Licensed
Ancillary Service Marks, or the Licensed Trade Dress, or this Agreement, or to
record any such security interest in the Licensed Territory or elsewhere against
any trademark or service mark application or registration belonging to Licensor.
Licensee agrees to execute all documents including a Registered User Application
reasonably requested by Licensor to effect further registration, maintenance and
renewal of the Licensed Master Service Marks and the Licensed Ancillary Service
Marks and, where applicable, to record Licensee as a registered user of the
Licensed Master Service Marks and the Licensed Ancillary Service Marks. For
purposes of this Agreement, Licensee shall be considered a "registered user" of
the Licensed Master Service Marks and Licensed Ancillary Service Marks under the
laws of the countries in the Licensed Territory, from time to time applicable.
10.2 Similar Marks. Licensee further agrees not to use, acquire or
register in any country any Mark resembling or confusingly similar or deceptive
or misleading with respect to the Licensed Marks and not to use or register the
Licensed Marks or any part thereof as part of its corporate or trade name except
as authorized in this Agreement. Licensee further agrees not to use or register
in any country any Mark which dilutes the Licensed Marks. If any application for
registration is or has been filed in any country or political entity by Licensee
which relates to any Mark which, in the sole opinion of Licensor acting in good
faith, is confusingly similar, deceptive or misleading with respect to the
Licensed Master Service Marks, the Licensed Ancillary Service Marks, or the
Licensed Trade Dress, or which dilutes the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress, Licensee shall,
within a reasonable time, but in any event within 30 days of written request
from Licensor, at Licensor's sole discretion acting in good faith, immediately
abandon any such application or registration or assign it to Licensor. If
Licensee uses any Mark which, in the sole opinion of Licensor acting in good
faith, is confusingly similar, deceptive or misleading with respect to the
Licensed Master Service Marks, the Licensed Ancillary Service
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Marks, or the Licensed Trade Dress, or which dilutes the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or the Licensed Trade Dress, or if
Licensee uses the Licensed Master Service Marks, the Licensed Ancillary Service
Marks, or the Licensed Trade Dress in connection with any product or in
connection with any service not specifically authorized hereunder, Licensee
shall, within a reasonable time, but in any event within thirty (30) days of
receiving written request from Licensor, permanently cease such use. Licensee
shall reimburse Licensor for all the costs and expenses of any litigation,
opposition, cancellation or related legal proceedings, including legal fees,
instigated by Licensor or its authorized representative, in connection with any
such use, registration or application.
10.3 Infringement. In the event that Licensee learns of any infringement
or threatened infringement of the Licensed Marks or any unfair competition,
passing-off or dilution with respect to the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress, or any third
party alleges or claims that either the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress are liable to
cause deception or confusion to the public, or are liable to dilute or infringe
any right of such third party, Licensee shall immediately notify Licensor or its
authorized representative giving particulars thereof and Licensee shall provide
necessary information and assistance to Licensor or its authorized
representatives in the event that Licensor decides that proceedings should be
commenced or defended.
Licensor shall have exclusive control of any litigation, opposition,
cancellation or related legal proceedings, or the settlement or compromise of
any claim. The decision whether to bring, defend, maintain or settle any such
proceedings shall be at the exclusive option and expense of Licensor and all
recoveries shall belong exclusively to Licensor and all reasonable expenses or
losses of Licensee in connection therewith shall be paid by Licensor to
Licensee. Licensee will not initiate any such litigation, opposition,
cancellation or related legal proceedings in its own name but, at Licensor's
request, agrees to be joined as a party in any action taken by Licensor to
enforce its rights in the Licensed Master Service Marks, the Licensed Ancillary
Service Marks, or the Licensed Trade Dress.
Licensor shall reimburse Licensee for all reasonable expenses of Licensee
solely in its role as a party in the action. Nothing in this Agreement shall
require or be deemed to require Licensor to enforce the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or the Licensed Trade Dress.
In the event of any claim, action, proceeding or suit by a third party
against Licensee alleging an infringement by any of the Licensed Marks or
copyright, by reason of the use, in accordance with the Service Specifications,
of the Licensed Master Service Marks, the Licensed Ancillary Service Marks, or
the Licensed Trade Dress in association with the Licensed Service(s), Licensor,
at its expense, will defend Licensee subject to the following conditions:
Licensor will reimburse Licensee for any reasonable costs, expenses, and
legal fees incurred in connection with obtaining advice concerning its liability
with respect to the claim, action, proceeding or suit, but not legal fees, costs
and expenses involved in connection with the defense of the claim, action,
proceeding or suit, unless incurred at Licensor's written request or
authorization in which case Licensor will promptly reimburse Licensee in full
for such amounts. Licensor also will indemnify Licensee against any liability
(including any fines, penalties and punitive damages) assessed against Licensee
by final judgment or order from which no appeal lies or the time for appeal has
expired on account of such infringement or violation arising out of such use.
10.4 Compliance With Laws. In the performance of this Agreement, Licensee
and Licensor shall comply with all applicable laws and regulations, including
those laws and regulations particularly
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pertaining to the proper use and designation of Marks in the countries in the
Licensed Territory. Should either party be or become aware of any applicable
laws or regulations which are inconsistent with the provisions of this
Agreement, such party shall promptly notify the other of such inconsistency. In
such event, Licensor may, at its option, either waive the performance of such
inconsistent provisions or negotiate with Licensee to make changes in such
provisions to comply with applicable laws and regulations.
11. No Transfer of Licensed Rights.
11.1 No Sublicensing; Assignment; Rights to Marketing Materials and Trade
Dress. Licensee shall not, except as provided in Section 2.1, (i) assign,
license, transfer or part with any of its rights or obligations hereunder
(whether by amalgamation, merger, consolidation, sale or otherwise), or (ii)
grant or purport to grant any sublicense in respect of the Licensed Marks.
11.2 Copyright License. Licensee acknowledges that the Marketing Materials
and all proprietary rights therein are owned by or licensed to and reserved to
Licensor and they are valid. Licensor hereby grants Licensee a royalty-free,
non-exclusive, copyright license in the Licensed Territory to reproduce,
distribute, display, perform and create derivative works from all Marketing
Materials in connection with the provision of Licensed Services pursuant to this
Agreement. Licensee shall neither acquire nor assert copyright, patent,
industrial design, service mark or trademark ownership or any other proprietary
rights in and to the Marketing Materials or in any derivation, adaptation or
variation thereof. Any and all trademarks, service marks, copyrights (subject to
any moral rights of Licensee which may not be assigned by operation of
applicable law), or related rights accruing to Licensee in the Marketing
Materials by virtue of its sale, distribution, performance or provision of the
services in the Licensed Territory shall vest automatically at the time of
accrual solely and exclusively in Licensor. Licensee shall sign all documents
requested by Licensor to effectuate the transfer of these rights to Licensor,
failing which Licensor may, and Licensee hereby grants Licensor the right to,
execute documents on behalf of Licensee to secure or effectuate such rights. In
the event this Agreement is terminated, canceled or expires, Licensee shall
immediately upon such termination, cancellation or expiration cease all use in
any manner of such Marketing Materials and shall assign any and all right, title
and interest in and to any and all trademarks, service marks, copyrights,
(subject to any moral rights of Licensee which may not be assigned by operation
of applicable law) and other related proprietary rights in the Marketing
Materials or in any derivation, adaptation or variation thereof the Licensee
owns to Licensor.
11.3 Trade Dress. Licensee shall assign to Licensor all rights, title,
interest and related goodwill in and to any Licensed Trade Dress it develops or
uses in connection with the provision of services under this Agreement. Such
assignment shall be made on a non-fee, royalty-free basis.
12. Terms and Termination.
12.1 Term.
(a) Unless earlier terminated in accordance with this Section 12, the
initial term of this Agreement shall be five (5) years from the Effective
Date. This Agreement shall automatically be renewed at the end of the
initial term for an additional five (5) year term, provided that Licensee
is not in default pursuant to Section 5 or in breach pursuant to Section
12.2.
(b) Licensor in its sole discretion may terminate this Agreement if
Licensor and/or its other Affiliates cease to own, directly and indirectly,
a majority of the voting power of Licensee.
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EXHIBIT D
(c) All sublicenses granted hereunder shall terminate upon the
termination of this Agreement.
(d) This Agreement shall terminate in the event of the termination for
failure of Licensee to perform under the Nancy Investment Agreement or
other agreements related thereto.
12.2 Breach by Licensee. Licensor may terminate this Agreement at any time
in the event of a Significant Breach by Licensee. A "Significant Breach by
Licensee" shall mean, after exhaustion of any applicable cure provisions set
forth in Sections 9 or 5 hereof, any of the following:
(a) Licensee's use of any Mark (including the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or Licensed Trade Dress)
contrary to this Agreement including any use which disparages or places in
disrepute Licensor, its businesses, or its business reputation, or
adversely affects or detracts from Licensor's goodwill;
(b) Licensee's refusing or neglecting a request by Licensor for access
to Licensee's facilities or Marketing Materials, which continues for thirty
(30) days following a written description of the noncompliance and any
suggestions for curing such noncompliance;
(c) Licensee's Bankruptcy or Licensee's licensing, assigning,
transferring or parting with (or purporting to license, assign, transfer or
part with) any of the rights granted in this Agreement to others without
the prior written approval of Licensor;
(d) Licensee's failure to maintain the Service Specifications and
other information furnished under this Agreement in confidence or failing
to restrict the transmission of information, products and commodities as
required by this Agreement;
(e) Licensee's failure to abide by the Service Specifications in the
sale, distribution, performance or provision of the Licensed Services,
other than relating to Marketing Materials;
(f) Licensee's failure to abide by the Service Specifications relating
to Marketing Materials in the sale, distribution, performance or provision
of the Licensed Services;
(g) Licensee's failing to make any payment specified in this
Agreement, including without limitation payments required under Sections 4
or 5 or 8 or 9 hereof;
(h) Licensee's failure to abide by Section 8.7 of this Agreement
relating to sponsorship; or
(i) Licensee's failure to obtain the recordal, approval or permits
required under Section 17 hereof.
12.3 Termination Obligations. In the event this Agreement terminates,
expires or is canceled in accordance with Section 12.2 hereunder, Licensee shall
immediately, and permanently cease all use of the Licensed Marks, the use of
"AT&T" as part of its corporate and trade name, and use of any proprietary
materials of Licensor furnished hereunder and shall not use any confusingly
similar name, Mark or trade dress, and Licensee shall have no further rights
under this Agreement. In the event this Agreement terminates or expires in
accordance with any other provision of this Agreement, Licensee shall have six
(6) months to cease all use of the Licensed Marks and any proprietary materials
of Licensor furnished hereunder and to change its corporate name and to cause
its Subsidiaries that are using "AT&T" as part of their corporate names to
change their names, and shall thereafter not use any confusingly similar name,
Mark or trade dress and Licensee shall have no further rights under this
Agreement.
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EXHIBIT D
12.4 No Waiver of Rights. In addition to any other provision of this
Section 12, each party will retain all rights to any other remedy it may have at
law or equity for any breach by the other of this Agreement.
13. Indemnity. Licensee shall defend, indemnify and hold Licensor, its
other Affiliates and authorized representatives harmless against all claims,
suits, proceedings, costs, damages and judgments incurred, claimed or sustained
by third parties whether for personal injury, or property damage, due to
Licensee's marketing, sale, or use of services bearing the Licensed Master
Service Marks, the Licensed Ancillary Service Marks, or the Licensed Trade Dress
and shall indemnify Licensor for all damages, losses, costs and expenses
(including reasonable attorneys' fees and expenses) due to such use or any
improper or unauthorized use of the Licensed Marks.
14. Insurance.
14.1 Insurance Policy. Licensee shall maintain, at its own expense, in
full force and effect at all times during which services bearing the Licensed
Master Service Marks, the Licensed Ancillary Service Marks or the Licensed Trade
Dress are being sold, with a responsible insurance carrier acceptable to
Licensor, at least a Five (5) Million U.S. Dollar (U.S. $5,000,000.00)
comprehensive general liability insurance policy with respect to the services
offered under the Licensed Marks. This insurance shall name Licensor as an
insured party, shall be for the benefit of Licensor and Licensee and shall
provide for at least ten (10) days prior written notice to Licensor and Licensee
of the cancellation or any substantial modification of the policy. This
insurance may be obtained for Licensor by Licensee in conjunction with a policy
which covers services and/or products other than the Licensed Services covered
under this Agreement.
14.2 Evidence of Insurance. Licensee shall, from time to time upon
reasonable request by Licensor, promptly furnish or cause to be furnished to
Licensor evidence in form and substance satisfactory to Licensor, of the
maintenance of the insurance required by Section 14.1 hereof, including without
limitation originals or copies of policies, certificates of insurance (with
applicable riders and endorsements) and proof of premium payments.
15. Notices, etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid in each case to the applicable addresses set forth below:
If to Licensee:
Kiri Inc.
2333 Ponce de Leon Blvd.
Coral Gables, FL 33134
Attn: Chief Executive Officer
General Counsel
Fax No.: 305-774-2001
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EXHIBIT D
If to Licensor:
AT&T Corp.
295 N. Maple Avenue
Basking Ridge, New Jersey 07920
Attn: General Counsel
Fax No.: 908-953-8360
and
AT&T Corp.
Frank L. Politano, Esq.
Trademark and Copyright Counsel
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Fax No.: 908-221-5783
or to such other address as such party shall have designated by notice so given
to each other party.
16. Compliance with Law. Nothing in this Agreement shall be construed to
prevent Licensor or Licensee from complying fully with all applicable laws and
regulations, whether now or hereafter in effect.
17. Governmental Licenses, Permits and Approvals. Licensee, at its
expense, shall be responsible for obtaining and maintaining all licenses,
permits and Regulatory Approvals which are required by all Regulatory
Authorities with respect to this Agreement, and to comply with any requirements
of such Regulatory Authorities for the registration, approval or recording of
this Agreement or any related Registered User Applications and for making
payments hereunder. Licensee shall furnish to Licensor written evidence from
such Regulatory Authorities of any such licenses, approvals, permits,
clearances, authorizations, Regulatory Approvals, registration or recording.
Licensor and Licensee agree that Licensor shall record this License Agreement
with the appropriate authorities in the Licensed Territory where such licenses
shall be recorded, pay the necessary fees and do all that may be required to
effect such recordation and to obtain recognition of Licensee as an authorized
or registered user of the Licensed Marks.
18. Export
Licensee acknowledges that any products, software, and technical
information (including, but not limited to services and training) provided under
this Agreement are subject to U.S. export laws and regulations and any use or
transfer of such products, software, and technical information must be
authorized under those regulations. Licensee agrees that it will not use,
distribute, transfer, or transmit the products, software, or technical
information (even if incorporated into other products) except in compliance with
U.S. export regulations. If requested by Licensor, Licensee also agrees to sign
those export-related documents which may be required for Licensor to comply with
U.S. export regulations. The obligations of this section shall survive and
continue after any termination of rights under this Agreement.
19. Applicable Law; Jurisdiction. The construction, performance and
interpretation of this Agreement shall be governed by the laws of the State of
New York, U.S.A. without giving effect to its principles or rules of conflicts
of law to the extent that such principles or rules would require or permit the
application of the laws of another jurisdiction, provided that if the foregoing
laws should be modified during the term hereof in such a way as to adversely
affect the original intent of the parties, the parties will negotiate in good
faith to amend this Agreement to effectuate their original intent as closely as
possible. Subject to Section 20, Licensee and Licensor hereby irrevocably and
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EXHIBIT D
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of New York and of the United States of America located in the State
of New York (the "New York Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto in a court except in such
courts), waives any objection to the laying of venue of any such litigation in
the New York Courts and agrees not to plead or claim in any New York Court that
such litigation brought therein has been brought in an inconvenient forum.
Licensee and Licensor hereby waive any right to a trial by jury.
20. Dispute Resolution.
20.1 Arbitration. Any dispute, controversy or claim arising out of,
relating to, or in connection with, this Agreement, or the breach, termination
or validity thereof, whether based on contract, tort, statute, fraud,
misrepresentation or any other legal or equitable theory (each a "Claim"), shall
be finally settled by binding arbitration. The arbitration shall be conducted in
accordance with the CPR Rules for Non-Administered Arbitration in effect at the
time of the arbitration, except as they may be modified herein or by mutual
agreement of the parties. The seat of the arbitration shall be New York City,
New York, and it shall be conducted in the English language. Notwithstanding
Section 19 hereof, the arbitration and this clause shall be governed by Title 9
(Arbitration) of the United States Code. Any request for interim measures
pursuant to Section 23.5 hereof or otherwise shall not be deemed incompatible
with, or a waiver of, this agreement to arbitrate.
20.2 Number of Arbitrators/Selection. The arbitration shall be conducted
by three arbitrators. The party initiating arbitration (the "Claimant") shall
appoint an arbitrator in its request for arbitration (the "Request"). The other
party (the "Respondent") shall appoint an arbitrator within 30 days of receipt
of the Request and shall notify the Claimant of such appointment in writing. If
within 30 days of receipt of the Request by the Respondent, either party has not
appointed an arbitrator, then that arbitrator shall be appointed by CPR
Institute for Dispute Resolution. The first two arbitrators appointed in accord
with this provision shall appoint a third arbitrator within 30 days after the
Respondent has notified Claimant of the appointment of the Respondent's
arbitrator or, in the event of a failure by a party to appoint, within 30 days
after the CPR Institute for Dispute Resolution has notified the parties and any
arbitrator already appointed of its appointment of an arbitrator on behalf of
the party failing to appoint. When the third arbitrator has accepted the
appointment, the two arbitrators making the appointment shall promptly notify
the parties of the appointment. If the first two arbitrators appointed fail to
appoint a third arbitrator or so to notify the parties within the time period
prescribed above, then the CPR Institute for Dispute Resolution shall appoint
the third arbitrator and shall promptly notify the parties of the appointment.
The third arbitrator shall act as Chair of the tribunal.
20.3 Certain Procedures. The arbitration panel shall strictly limit
discovery to the production of documents directly relevant to the facts alleged
by the Claimant and the Respondent, and if depositions are required, each party
shall be limited to five depositions. Each party shall bear its own expenses,
but those related to the compensation of the arbitrators shall be borne equally.
20.4 Arbitral Award. The arbitral award shall be in writing, state only
the damages and injunctive relief granted and be final and binding on the
parties. The parties hereto expressly waive and forgo any right to punitive,
exemplary or similar damages as a result of any Claim. The arbitrators shall
orally state the reasoning on which the arbitral award rests but shall not state
such reasoning in any writing. The arbitration panel shall endeavor to issue the
arbitral award within six months of the Request, but failure to do so shall not
effect the validity of the arbitral award. The parties agree that the existence
and contents of the entire arbitration, including the award, shall be
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deemed a compromise of a dispute under Rule 408 of the Federal Rules of
Evidence, shall not be discoverable in any proceeding, shall not be admissible
in any court (except for the enforcement thereof) or arbitration and shall not
bind or collaterally estop either party with respect to any claim or defense
made by any third party.
20.5 Confidentiality of Proceedings. All proceedings in connection with
any arbitration, including its existence, the content of the proceedings and any
decision, shall be kept confidential to the maximum extent possible consistent
with the law. The arbitrator shall issue an order preventing the parties, CPR
Institute for Dispute Resolution and any other participants to the arbitration
from disclosing to any third party any information obtained via the arbitration,
including discovery of documents, evidence, testimony and the award except as
may be required by law.
20.6 Judgment. Judgment upon the decision may be entered by any court
having jurisdiction thereof or having jurisdiction over the relevant party or
its assets, provided that the party entering the award shall request that the
court prevent the award from becoming publicly available except as may be
required by law.
21. Confidentiality of Information and Use Restriction. The Service
Specifications disclosed and/or furnished to Licensee by Licensor under this
Agreement and all copies of the Service Specifications made by Licensee,
including translations, compilations and partial copies (the "Material") shall
remain the property of the Licensor and shall be returned to Licensor upon
request. Licensee shall use the Material solely for the purposes described in
this Agreement. Licensee shall hold in confidence during and after the
termination, expiration or cancellation of this Agreement and shall not disclose
such Material to any third party without the prior written consent of the
Licensor.
The Proprietary Information disclosed and/or furnished by one party to
another under this Agreement and all copies thereof made by the receiving party,
including translations, compilations and partial copies shall remain the
property of the disclosing party and shall be returned to the disclosing party
upon request. The receiving party shall use the Proprietary Information solely
for the purposes described in this Agreement. The receiving party shall hold in
confidence during and after the termination, expiration or cancellation of this
Agreement and not disclose, provide, or otherwise make available, in whole or in
part such Proprietary Information to any third party without the prior written
consent of the disclosing party, except Proprietary Information which, as
established by reasonable proof by the receiving party:
(i) at the time of the alleged disclosure, is known to the public;
(ii) after the time of disclosure, becomes known to the public other
than by or through a violation of this Agreement by the receiving party
either directly or indirectly;
(iii) at the time of disclosure, is in the possession of the receiving
party and was not acquired directly or indirectly from the disclosing
party;
(iv) after the time of disclosure is lawfully received by the
receiving party from a third party who has lawfully received it; or
(v) at the time of disclosure, is required to be disclosed by law or
by any government or regulatory agency having jurisdiction for
telecommunication services, the receiving party making reasonable effort to
have the agency retain the Proprietary Information in confidence.
Both parties shall ensure that only its employees with a need to know the
Proprietary Information shall have access to it and then only if those employees
have entered an appropriate
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EXHIBIT D
confidentiality and use restriction agreement obligating them at least to the
same extent as the Licensee is obligated under this Agreement.
The receiving party of the Proprietary Information shall exercise a
standard of care under this Section that is not less than the standard of care
Licensor exercises under its own corporate policy for confidentiality and use
restrictions for its own Proprietary Information.
If and when Licensor receives Proprietary Information of Licensee through
inspection, test, survey and review of Licensee's facilities and otherwise to
determine compliance with the applicable Service Specifications, Licensor's
non-disclosure requirements hereunder shall be for a period not to exceed three
years from the termination or expiration of this Agreement.
22. Payments.
22.1 Payments. All payments or fees due under this Agreement ("Payments")
shall be made on the date that they are due and shall be subject to a late
payment charge equal to the lesser of (i) U.S. dollar LIBOR rate (London Inter
Bank Offer Rate) quoted for sixty (60) day advances (quoted on TELERATE, a
service of Dow Jones) plus 600 basis points starting on the date the Payment is
due plus 600 basis points accruing from the due date to date of receipt of the
balance owed by the Licensee and (ii) the maximum rate permitted by law. If
receipt occurs later than sixty (60) days from the due date, a weighted average
is computed based on successive sixty (60) day rates (e.g., if a year elapses
six rates taken sixty (60) days apart would be averaged.)
22.2 Taxes. All Payments due under this Agreement shall be made in full
without any deduction or withholding whatsoever for taxes or duties imposed by
the countries in the Licensed Territory or any subdivision or local jurisdiction
thereof, unless such withholding or deduction is required by law in which event
Licensee shall pay to Licensor such additional amount so that the net amount
received by Licensor after the deduction or withholding will equal the full
amount which would have been received by it had no such deduction or withholding
been made.
22.3 Payment of Brand Fund Fees. The payment of the Brand Fund Fees and
any associated late charges under Section 22.1 shall be made via electronic
funds transfer to a bank account designated by Licensee solely for this purpose
with notice to Licensor as to its existence and signing authority, and the funds
in such account shall be accessible solely by the Licensor Vice President for
Latin America and/or other Licensor-designated representative.
23. Miscellaneous.
23.1 Name, Captions. The name assigned this Agreement and the section
captions used herein are for convenience of reference only and shall not affect
the interpretation or construction hereof.
23.2 Entire Agreement. The provisions of this Agreement (including the
Schedules hereto) contain the entire agreement between the parties relating to
use by Licensee of the Licensed Marks and supersede all prior agreements and
understandings relating to the subject matter hereof. No rights are granted to
use the Licensed Marks except as specifically set forth in this Agreement. In
the event of any conflict between the provisions of this Agreement and
provisions of other agreements involving Licensor and Licensee, the provisions
of this Agreement shall prevail. This Agreement is not a franchise, does not
create a partnership or joint venture and shall not be deemed to constitute an
assignment of any rights of Licensor to Licensee. Licensee is an independent
contractor, not an agent or employee of Licensor, and Licensor is not liable for
any acts or omissions by Licensee. The continuing obligations of Licensee in
this Agreement, including those obligations set forth in Sections 10.2 and 18,
shall survive and continue after the expiration, cancellation, or termination of
21
<PAGE> 330
EXHIBIT D
this Agreement. With respect to Section 21, the obligations shall survive and
continue for a period of three (3) years following such expiration, cancellation
or termination of this Agreement. Notwithstanding the foregoing, the
confidentiality provisions of the Purchase Agreement are not in any way altered,
amended, extended, contracted or superseded by this Section 23.2 of this
Agreement.
23.3 Amendments, Waivers, etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified except by an instrument in writing
signed by the parties.
23.4 Severability. If any term of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such term to
the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law.
23.5 Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance, interim or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
23.6 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
23.7 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
23.8 No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
23.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
23.10 Further Assurances. Each of the parties shall, and shall cause its
Affiliates to, from time to time, execute and deliver such additional
instruments, documents, conveyances or assurances and take other such actions as
shall be necessary or otherwise reasonably requested by a party, to confirm and
assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby, or otherwise
carry out the intent and purposes of this Agreement.
23.11 Construction of this Agreement. In any construction of this
Agreement, this Agreement shall not be construed against any party based upon
the identity of the drafter of the Agreement or any provision of it.
22
<PAGE> 331
EXHIBIT D
23.12 Effective Date. This Agreement shall become effective upon the date
of the consummation of the Merger under the Merger Agreement (the "Effective
Date") and shall have no force or effect prior to such time.
23
<PAGE> 332
EXHIBIT D
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives as of the
date first stated above.
<TABLE>
<S> <C>
KIRI INC. AT&T CORP.
By: By:
Name: Name:
Title: Title:
Date: Date:
</TABLE>
24
<PAGE> 333
EXHIBIT D
SCHEDULE A
LICENSED MASTER SERVICE MARKS
[AT&T LOGO]
------------------------------------------------------
[AT&T AND GLOBE DESIGN LOGO]
[AT&T AND GLOBE DESIGN LOGO]
25
<PAGE> 334
EXHIBIT D
SCHEDULE B
REGISTRATIONS FOR LICENSED MASTER SERVICE MARKS
<TABLE>
<CAPTION>
REGISTRATION REGISTRATION
OR APPLICATION OR APPLICATION
COUNTRY MARK NO. DATE
------- ---- -------------- --------------
<S> <C> <C> <C>
Argentina.................................... AT&T 1099877 Feb. 28, 1995
Argentina.................................... AT&T & Globe Design 1518137 Apr. 29, 1994
Brazil....................................... AT&T 811983030 Aug. 5, 1986
Brazil....................................... AT&T & Globe Design 819860573 Mar. 24, 1997
Chile........................................ AT&T 389224 Mar. 8, 1993
Chile........................................ AT&T & Globe Design 420096 Jan. 18, 1994
Colombia..................................... AT&T 112857 Apr. 4, 1986
Colombia..................................... AT&T & Globe Design 148388 Jan. 28, 1994
Peru......................................... AT&T 2468 Jan. 25, 1984
Peru......................................... AT&T & Globe Design 14617 Jun. 2, 1998
</TABLE>
26
<PAGE> 335
EXHIBIT D
SCHEDULE C1
LICENSED ANCILLARY SERVICE MARKS
<TABLE>
<CAPTION>
RESTRICTIONS ON LICENSE
-------------------------------------
MARK LICENSED TERRITORY LICENSED SERVICES
---- ------------------ -----------------
<S> <C> <C>
IT'S ALL WITHIN YOUR REACH................................. All All
TODO A SEU ALCANCE......................................... All Portuguese- All
speaking countries
TODO A TU ALCANCE.......................................... All Spanish- All
speaking countries
</TABLE>
27
<PAGE> 336
EXHIBIT D
SCHEDULE C2
REGISTRATIONS FOR LICENSED ANCILLARY SERVICE MARKS
<TABLE>
<CAPTION>
REGISTRATION REGISTRATION
OR APPLICATION OR APPLICATION
COUNTRY MARK NO. DATE
------- ---- -------------- --------------
<S> <C> <C> <C>
Argentina.................................... IT'S ALL WITHIN YOUR REACH 2151848 May 20, 1998
Argentina.................................... TODO A TU ALCANCE 2151851 May 20, 1998
Bolivia...................................... IT'S ALL WITHIN YOUR REACH 6065 May 5, 1998
Bolivia...................................... TODO A TU ALCANCE 6064 May 5, 1998
Brazil....................................... IT'S ALL WITHIN YOUR REACH 819891959 Apr. 22, 1997
Brazil....................................... TODO A SEU ALCANCE 820880574 Jun. 29, 1998
Chile........................................ IT'S ALL WITHIN YOUR REACH 414215 May 8, 1999
Chile........................................ TODO A TU ALCANCE 414213 May 8, 1999
Colombia..................................... IT'S ALL WITHIN YOUR REACH 98028803 May 21, 1999
Colombia..................................... TODO A TU ALCANCE 98028799 May 21, 1999
Peru......................................... IT'S ALL WITHIN YOUR REACH 15536 Sep. 10, 1998
Peru......................................... TODO A TU ALCANCE 15442 Aug. 31, 1998
</TABLE>
28
<PAGE> 337
EXHIBIT D
SCHEDULE D
LICENSED TRADE DRESS
1. The overall configurations of the AT&T and globe design corporate
signature as set forth more fully in the AT&T document Corporate Identity
Program: Graphic Standards Manual ("Graphic Standards Manual").
2. The AT&T Garamond typeface, namely AT&T's proprietary typeface used for
all marketing communications materials, including print and television
advertising, promotional brochures, pamphlets and other Marketing Materials and
as set forth in the AT&T document Guidelines For Print and TV Advertising.
3. The AT&T identification stripes, namely a rectangular band consisting of
three parallel lines: the top line being red (PANTONE(R) 485); the middle, blue
(PANTONE(R) Process Blue); the bottom, black (PANTONE(R)Process Black), as set
forth in the Graphic Standards Manual.
4. The acceptable color applications of the AT&T and globe design corporate
signature as set forth in the Graphic Standards Manual.
5. The acceptable graphic techniques relating to the AT&T and globe design
corporate signature as set forth in the Graphic Standards Manual.
6. The acceptable applications of the AT&T globe design corporate signature
and typography, as well as the visual style and design techniques (layout) as
applied to any product marking, as set forth in the AT&T document Product
Marking Reference Manual.
7. The acceptable applications of the AT&T globe design corporate signature
and typography, as well as the visual style and design techniques, as applied to
business stationery, and as set forth in the AT&T document Business Stationery
Specifications.
8. Nothing in this Schedule shall restrict or limit AT&T's claim of trade
dress rights in or protection of AT&T's Trade Dress.
29
<PAGE> 338
EXHIBIT D
SCHEDULE E
SERVICE SPECIFICATIONS
30
<PAGE> 339
EXHIBIT D
SCHEDULE F
LICENSED SERVICES
EXCLUSIVE SERVICES
- Local voice delivered through fixed-line connectivity
- Domestic long distance
- International long distance
- Point-to-point dedicated line
- Asynchronous Transfer Mode (ATM)
- Frame relay
- Internet access
- 1-800/toll free
- Packet X.25 (data)
- Virtual network services (data)
- Switched digital (data)
NONEXCLUSIVE SERVICES
- AT&T card services
- AT&T Direct(R) services
- E-commerce
- Web-hosting
- Fixed wireless for connectivity
- Voice over Internet Protocol
- Managed Network Services (as defined herein)
31
<PAGE> 340
EXHIBIT D
SCHEDULE G
CRITERIA FOR SUBLICENSEES
Neither sublicensees nor their affiliates (including any joint venture and
business alliance in which sublicensee is a participant) conduct business or
engage in business practices in any of the following areas:
- Illegal activities;
- Content or practices which demean, ridicule or attack individuals or
groups on the basis of age, color, national origin, race, religion, sex,
sexual orientation or handicap;
- Pornographic, obscene or sexually explicit/suggestive material or
content;
- Material deemed to be harmful to children;
- Tobacco or alcoholic beverages;
- Firearms, ammunition or fireworks;
- Gambling;
- Contraceptives;
- Violence;
- Vulgar or obscene language;
- Solicitation of funds;
- Extreme political or social activism.
32
<PAGE> 341
EXHIBIT E TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 342
EXHIBIT E TO THE
MERGER AGREEMENT
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
REGIONAL VEHICLE AGREEMENT
DATED AS OF
, 1999 BETWEEN
AT&T CORP.
AND
KIRI INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 343
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
ARTICLE I SCOPE............................................. 1
1.1. RV Business..................................... 1
ARTICLE II RV SERVICES...................................... 2
2.1. RV Exclusive Services........................... 2
2.2. RV Non-Exclusive Services....................... 2
2.3. Preferred Supplier to Parent.................... 2
ARTICLE III EXCLUDED ACTIVITIES............................. 2
3.1. Excluded Activities............................. 2
ARTICLE IV GLOBAL VENTURE................................... 2
4.1. Regional Vehicle's Provision of RV Services to
the Global Venture.................................... 2
4.2. Regional Vehicle's Distribution of Services of
and Purchase of Services from the Global
Venture......................................... 3
4.3. Services Reserved to the Global Venture......... 3
4.4. Managed Network Services........................ 3
ARTICLE V AT&T GLOBAL NETWORK............................... 4
5.1. AT&T Global Network Services.................... 4
5.2. Regional Vehicle's Provision of Services to the
AT&T Global Network................................... 4
5.3. AT&T Global Network Distribution Arrangements... 4
ARTICLE VI PARENT ACQUISITIONS, ETC. ....................... 4
6.1. Territory Acquisitions.......................... 4
6.2. FMV Determination............................... 5
6.3 Easymail Chile.................................. 6
ARTICLE VII TERM 8.......................................... 6
7.1. Term............................................ 6
ARTICLE VIII ARBITRATION.................................... 7
8.1. Arbitration..................................... 7
8.2. Number of Arbitrators/Selection................. 7
8.3. Certain Procedures.............................. 7
8.4. Arbitral Award.................................. 7
8.5. Confidentiality of Proceedings.................. 7
8.6. Judgment........................................ 8
ARTICLE IX MISCELLANEOUS.................................... 8
9.1. Amendment....................................... 8
9.2. Waiver.......................................... 8
9.3. Notices......................................... 8
9.4. Assignment; Binding Effect...................... 9
9.5. Entire Agreement................................ 9
9.6. Governing Law................................... 9
9.7. Further Assurances.............................. 9
9.8. Headings........................................ 9
9.9. Interpretation.................................. 9
9.10. Severability.................................... 9
9.11. Enforcement..................................... 9
9.12. Counterparts.................................... 10
</TABLE>
i
<PAGE> 344
EXHIBITS
<TABLE>
<CAPTION>
Exhibit A Definitions
<S> <C>
SCHEDULES
Schedule A-1 RV Exclusive Services
Schedule A-2 Parent Group Activities
Schedule B RV Non-Exclusive Services
Schedule C Excluded Activities
</TABLE>
ii
<PAGE> 345
REGIONAL VEHICLE AGREEMENT, dated as of , 1999,
between AT&T Corp., a New York corporation ("AT&T") and Kiri Inc., a Delaware
corporation ("Regional Vehicle"). Certain capitalized terms used herein without
definition shall have the meanings specified in Exhibit A.
RECITALS
A. Parent, Regional Vehicle, a Delaware Corporation, FirstCom Corporation,
a Texas Corporation (the "Company"), and a subsidiary of Regional Vehicle
("Merger Sub") have entered into an Agreement and Plan of Merger, dated November
1, 1999 (the "Merger Agreement"), pursuant to which the Company will merge with
and into Merger Sub (the "Merger"). Immediately following the Merger, it is
intended that, on a fully-diluted basis, (i) the former shareholders of the
Company will own, collectively, approximately 34% of the shares of common stock
of Regional Vehicle, (ii) Parent will own, directly or indirectly, approximately
60% of the shares of common stock of Regional Vehicle, and (iii) Promon
Tecnologia S.A., or an Affiliate thereof, will own approximately 6% of the
shares of common stock of the Regional Vehicle.
B. Parent and Regional Vehicle anticipate that the establishment of
Regional Vehicle and the commercial arrangements contemplated hereby will enable
the delivery of competitive, comprehensive packages of end-to-end integrated
broadband services to customers in the Territory.
C. Regional Vehicle will benefit from its relationship with Parent as a
result of certain contractual arrangements of Parent, including the Framework
Agreement, dated as of October 23, 1998, among Parent, VLT Corporation, British
Telecommunications PLC, BT (Netherlands) Holdings B.V. and Thistle B.V. (as
amended from time to time, the "Framework Agreement"). Regional Vehicle is also
expected to have increased demand for its services as a result of the commercial
arrangements contemplated hereby. Parent will grant concurrently with the Merger
a non-exclusive license to Regional Vehicle to use certain Brands (the "Licensed
Brands") pursuant to the Brand License Agreement.
D. Regional Vehicle shall serve as Parent's strategic vehicle for
in-country investments in the Territory for the provision of broadband
high-speed connectivity to business customers in the Territory and for the
provision of certain other telecommunications services in the Territory, in each
case to the extent set forth in this Agreement.
E. In consideration of the mutual undertakings of the parties contained
herein and as an inducement to the parties to enter into the Merger Agreement,
Regional Vehicle and Parent desire to define the scope of Regional Vehicle's
business and its relationship with Parent and certain Affiliates and joint
ventures of Parent as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
SCOPE
1.1. RV Business. (a) Regional Vehicle has been established primarily to
provide broadband, high-speed connectivity to business customers in the
Territory and, in connection therewith, to provide, offer, distribute, market
and sell primarily to business customers RV Exclusive Services and
<PAGE> 346
RV Non-Exclusive Services, own facilities and other assets related thereto and
engage in incidental activities related thereto, in each case in the Territory,
in accordance with the terms of this Agreement. Regional Vehicle may conduct its
business through its Subsidiaries in the Territory, provided that Regional
Vehicle shall cause such Subsidiaries to comply with all of the provisions of
this Agreement applicable to Regional Vehicle as if they were signatories
hereof.
(b) Regional Vehicle shall provide, offer, distribute, market and sell all
of its RV Exclusive Services and RV Non-Exclusive Services under (i) the
Licensed Brands, (ii) Brands specified by the Global Venture, subject to the
prior written consent of the Global Venture, in the case of services relating to
the Global Venture or (iii) subject to the approval of Parent as provided in the
Brand License Agreement, Brands created by Regional Vehicle and owned by Parent
or Regional Vehicle.
ARTICLE II
RV SERVICES
2.1. RV Exclusive Services. The services listed in the Schedule of RV
Exclusive Services attached hereto as Schedule A-1 are referred to herein as the
"RV Exclusive Services." Except as identified in the Schedule of Parent Group
Activities attached hereto as Schedule A-2 hereof or as provided in Article V,
Parent will not, and will cause the other members of the Parent Group not to,
provide, offer, distribute, market or sell RV Exclusive Services in the
Territory unless Regional Vehicle supplies such services to Parent or such
member of the Parent Group.
2.2. RV Non-Exclusive Services. The services listed in the Schedule of RV
Non-Exclusive Services attached hereto as Schedule B may, subject to the terms
of this Agreement, be provided, offered, distributed, marketed or sold by any
Person and such services are referred to herein as the "RV Non-Exclusive
Services," and, together with the RV Exclusive Services, as the "RV Services."
2.3. Preferred Supplier to Parent. The Regional Vehicle shall be a
Preferred Supplier of RV Exclusive Services in the Territory to Parent and its
wholly-owned Subsidiaries, except to the extent Parent and its wholly-owned
Subsidiaries are obligated to purchase such services from the Global Venture.
ARTICLE III
EXCLUDED ACTIVITIES
3.1. Excluded Activities. Regional Vehicle shall not provide, offer,
distribute, market or sell any service listed in the schedule of Excluded
Activities attached hereto as Schedule C or take any other action that
contravenes Section 4.3 relating to the Global Venture (collectively, the
"Excluded Activities").
ARTICLE IV
GLOBAL VENTURE
4.1. Regional Vehicle's Provision of RV Services to the Global
Venture. The Regional Vehicle shall be a Preferred Supplier of RV Services in
the Territory to the Global Venture in accordance with and subject to the
Framework Agreement on commercially reasonable terms as agreed between Regional
Vehicle and the Global Venture.
2
<PAGE> 347
4.2. Regional Vehicle's Distribution of Services of and Purchase of
Services from the Global Venture. (a) Parent shall request that the Global
Venture grant to Regional Vehicle distribution rights with respect to Global
Business Communications Services of the Global Venture in the Territory on
commercially reasonable terms in accordance with and subject to the terms of the
Framework Agreement.
(b) Regional Vehicle shall purchase all of its requirements for Global
Communications Services from the Global Venture pursuant to commercially
reasonable terms to be set forth in (i) an agreement between the Regional
Vehicle and the Global Venture or (ii) if applicable, an agreement between
Parent and the Global Venture governing the purchase of Global Communications
Services by Parent and its Subsidiaries.
(c) Regional Vehicle shall purchase all of its requirements for
International Traffic Termination Services from the Global Venture, provided
that such services are provided by the Global Venture to Regional Vehicle on
commercially reasonable terms.
4.3. Services Reserved to the Global Venture. Unless Regional Vehicle is a
Limited Cross Border Network Services Provider or as otherwise agreed by Parent
and the Global Venture and any other party whose consent may be required under
the Framework Agreement, Regional Vehicle shall not:
(a) offer, sell or distribute Global Business Communications Services
or any services competitive with the Global Business Communications
Services provided through the Global Venture except as permitted pursuant
to Section 4.2;
(b) offer, sell or distribute any Communications Services, except
through the Global Venture, to any Person that is a Qualifying MNC Customer
(as such term is defined in the Framework Agreement)(each such Person, a
"Qualifying MNC"), a list of which Parent has previously delivered to
Regional Vehicle, and which Parent will update periodically;
(c) own, operate, lease or manage Global Network Facilities; or
(d) provide any International Carrier Services.
Regional Vehicle shall be deemed a "Limited Cross Border Network Services
Provider" for so long as Regional Vehicle and any Person in which it has a
direct or indirect equity interest do not derive aggregate annual revenues
("Cross Border Revenues") that exceed $150 million, directly or indirectly,
whether acting alone or in association with, or through one or more Persons,
from Global Business Communications Services and other services provided over a
cross border network owned by Regional Vehicle or its Subsidiaries or provided
by any cross border network, alliance or consortium in which Regional Vehicle
has any direct or indirect equity interest. For purposes of calculating such
aggregate annual revenues, the actual pro rata share of revenues of any Persons
in which Regional Vehicle owns a direct or indirect equity interest shall be
included with respect to any investments in a Person that is not wholly-owned by
the Regional Vehicle. Within 90 days of the end of each Regional Vehicle fiscal
year, Regional Vehicle shall provide Parent with a certificate executed by the
chief executive officer and chief financial officer of Regional Vehicle
certifying the amount of Cross Border Revenues for such fiscal year and setting
forth the breakdown and calculation thereof in reasonable detail.
4.4. Managed Network Services. Regional Vehicle shall not provide Managed
Network Services to any Qualifying MNC except as contracted through the Global
Venture.
3
<PAGE> 348
ARTICLE V
AT&T GLOBAL NETWORK
5.1. AT&T Global Network Services. Any current or future services provided
by any member of the Parent Group using any assets owned or controlled now or in
the future by the AT&T Global Network are referred to herein as the "AT&T Global
Network Services". Notwithstanding Section 2.1, Parent or any member of the
Parent Group may provide, offer, market, distribute or sell to any Person, and,
subject to 5.3, may appoint any Person as a distributor of, AT&T Global Network
Services in the Territory.
5.2. Regional Vehicle's Provision of Services to the AT&T Global
Network. Regional Vehicle shall be a Preferred Supplier of RV Services to the
AT&T Global Network on commercially reasonable terms as agreed between Regional
Vehicle and Parent.
5.3. AT&T Global Network Distribution Arrangements. Promptly after the
execution of this Agreement, Parent will cause the appropriate AT&T Global
Network Person to discuss with Regional Vehicle possible arrangements for the
distribution of AT&T Global Network Services by Regional Vehicle in the
Territory. While the parties have not reached any understanding as to the
outcome of such discussions, they have agreed that Regional Vehicle shall be an
exclusive distributor of AT&T Global Network Services in one or more countries
in the Territory on commercially reasonable terms as may be agreed between
Regional Vehicle and Parent, provided that such exclusive distributorship shall
(i) be subject to Regional Vehicle's ability to meet performance and service
level requirements established by AT&T Global Network; (ii) not limit the rights
of any Person under the Master Services Agreement, dated December 7, 1998 by and
between International Business Machines Corporation and AT&T Solutions, Inc.,
the Master Asset Purchase Agreement, dated December 7, 1998, between
International Business Machines Corporation and AT&T or any related agreements,
or the ability of any such Person to comply with its obligations thereunder; and
(iii) not limit the rights of any member of the Parent Group or any AT&T Global
Network Person to (x) distribute AT&T Global Network Services directly to
customers in the Territory, (y) have its employees market or sell such services
to customers in the Territory or (z) appoint remarketers or global value added
resellers (VARs) of AT&T Global Network Services.
ARTICLE VI
PARENT ACQUISITIONS, ETC.
6.1. Territory Acquisitions. (a) If (i) a member of the Parent Group
acquires (including as a result of a merger or any other business combination
transaction) an interest in any Person that derived (including through any
consolidated Subsidiaries of such Person) revenues in the immediately preceding
fiscal year from assets or customers in the Territory (such revenues, the
"Territory Revenues") (such Person, an " Acquired Person," and together with its
Subsidiaries, if any, an "Acquired Group"), (ii) more than 50% of such Territory
Revenues were derived from the provision of RV Exclusive Services and (iii) such
acquisition would otherwise result in any member of the Acquired Group becoming
a member of the Parent Group (such case, a "Covered Acquisition"), Parent shall
comply with the provisions of Section 6.1(b).
(b) In the case of a Covered Acquisition, within (i) eighteen months, if
the Territory Revenues of such Acquired Group were greater than 33 1/3% of such
Acquired Group's consolidated gross revenues for its immediately preceding
fiscal year, or (ii) thirty months, if the Territory Revenues of such Acquired
Group were less than 33 1/3% of such Acquired Group's consolidated gross
revenues for its immediately preceding fiscal year, after the acquisition of
such Acquired Person, Parent shall
4
<PAGE> 349
either (x) cause the members of such Acquired Group to cease in all material
respects providing RV Exclusive Services in the Territory or (y) offer, or cause
the relevant member of the Parent Group to offer, in writing (an "Offer") to
sell to the Regional Vehicle for cash that portion of the Acquired Group's
business that primarily relates to the provision of such RV Exclusive Services
in the Territory (the "Offered Assets") at their Fair Market Value, provided
that this Section 6.1(b) shall not apply if selling such Offered Assets (x)
would conflict with or contravene applicable law or a pre-existing contractual
obligation of any member of the Acquired Group or that is binding on any
material assets of such a member and such obligation is not waived or amended,
(y) would result in a tax obligation for members of the Parent Group that is
material in relation to the consideration paid for the Offered Assets by the
relevant member of the Parent Group or (z) in the case of a business that is not
owned by a direct or indirect substantially wholly-owned Subsidiary of Parent,
would, in the good faith determination of the Board of Directors of any relevant
member of a Parent Group, having received advice of outside counsel with respect
to fiduciary duties to minority shareholders, violate any such fiduciary duties
(each of subsection (x), (y) and (z), an "Offer Exception"), provided further
that Offered Assets shall not include any assets held by a Person that is not
controlled by Parent. Such Offer may be accepted by Regional Vehicle by written
notice to Parent until the later of (A) the one hundred twentieth day after the
date of the Offer and (B) 25 days after the date of determination of the Fair
Market Value of such Offered Assets pursuant to Section 6.3 (such period being
referred to herein as, the "Offer Response Period").
(c) No member of an Acquired Group shall be included in the Parent Group
except as provided below in the case of a Covered Acquisition. In the case of a
Covered Acquisition, no member of an Acquired Group shall be included as a
member of the Parent Group until the later of (i) the day after the expiration
of the Offer Response Period, (ii) two years after such member's acquisition and
(iii) the date of the actual transfer of the Offered Assets to Regional Vehicle
if Regional Vehicle accepts the Offer, provided that, if (x) Regional Vehicle
shall not accept an Offer within the Offer Response Period or (y) a member of a
Acquired Group is subject to an Offer Exception, such member shall not be
included as a member of the Parent Group at any time.
6.2. FMV Determination. (a) Parent shall set forth in any Offer its
determination of the Fair Market Value of the Offered Assets that are the
subject of such Offer. If Regional Vehicle does not agree that the Fair Market
Value set forth in the Offer represents the value Parent could obtain in an
arm's length sale of the Offered Assets to an unaffiliated third party, Regional
Vehicle shall deliver a written notice (an "FMV Notice") to Parent requesting
that a determination of Fair Market Value be made pursuant to this Section 6.2.
If Regional Vehicle does not deliver such FMV Notice within 45 days after the
date of the Offer, the Fair Market Value of the Offered Assets shall be the
amount set forth in the Offer.
(b) If Regional Vehicle delivers an FMV Notice, each of Parent and Regional
Vehicle shall retain within 15 days of such delivery, and provide relevant
information to, an internationally recognized investment banking firm (each, an
"appraiser", together the "Initial Appraisers") to determine the Fair Market
Value of the Offered Assets. Within 30 days following the provision of relevant
information by Parent and Regional Vehicle to the Initial Appraisers, which
information shall be provided within 30 days after retention of the Initial
Appraisers, the Initial Appraisers shall submit their determinations of the Fair
Market Value of the Offered Assets to Parent and Regional Vehicle. If the
difference between the determinations submitted by the Initial Appraisers is
less than 20 percent of the lowest of such determinations, then the average of
the determinations submitted by the appraisers shall be deemed to be the Fair
Market Value for the Offered Assets.
(c) If the difference between the determinations submitted by each
appraiser equals or exceeds 20 percent of the lowest of such determinations, the
Initial Appraisers will within 15 days select a third internationally recognized
investment banking firm to make such determination, provided if the
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<PAGE> 350
Initial Appraisers cannot agree to a third internationally recognized investment
banking firm, such firm shall be chosen by the CPR Institute for Dispute
Resolution. Regional Vehicle and Parent shall provide information to the third
appraiser within ten days after such appraiser is appointed. The third appraiser
shall submit its determination of the Fair Market Value for the Offered Assets
to Regional Vehicle within 30 days following the provision of relevant
information by Regional Vehicle and Parent. The average of the determination
provided by such third appraiser and the determination submitted by the Initial
Appraisers that is closer to the determination provided by such third appraiser
shall be deemed to be the Fair Market Value of the Offered Assets, provided,
however, that to the extent such average is greater than the higher price
submitted by the Initial Appraisers (the "High Price"), the Fair Market Value of
the Offered Assets shall be the High Price or, to the extent such average is
less than the lower price submitted by the Initial Appraisers (the "Low Price"),
the Fair Market Value of the Offered Assets shall be the Low Price. The fees and
expenses of the Initial Appraisers shall be borne by the respective parties that
appointed them. The fees and expenses of any third appraiser shall be split
equally between Regional Vehicle and Parent.
6.3. Easymail Chile. Prior to any sale or transfer of any interest in
Easymail Chile S.A. (an "Easymail Interest") held by Parent or any Subsidiaries
of Parent (such holder, a "Selling Person") to a Person other than Parent or
another Affiliate of Parent, Parent shall, or cause such Selling Person to,
offer in writing (an "Easymail Offer") to sell to Regional Vehicle for cash such
Easymail Interest at its Fair Market Value, provided that this Section 6.3 shall
not apply if selling such Easymail Interest would conflict with or contravene
applicable law or a pre-existing contractual obligation of Parent or such
Selling Person. The Selling Person shall set forth in any Easymail Offer its
determination of the Fair Market Value of such Easymail Interest. If Regional
Vehicle does not agree that the Fair Market Value set forth in the Easymail
Offer represents the value such Selling Person could obtain in an arm's length
sale of such Easymail Interest to an unaffiliated third party, Regional Vehicle
shall deliver a written notice (an "Easymail FMV Notice") to Parent requesting
that a determination of Fair Market Value be made in accordance with the
procedures set forth in Sections 6.2(b) and 6.2(c). If Regional Vehicle does not
deliver such Easymail FMV Notice within 45 days after the date of the Easymail
Offer, the Fair Market Value of the Easymail Interest shall be the amount set
forth in the Easymail Offer. Otherwise the Fair Market Value shall be that value
determined in accordance with the procedures set forth in Sections 6.2(b) and
6.2(c), provided that in the case of any Selling Person other than Parent, a
reference to Parent in such Section shall be deemed to be a reference to such
Selling Person and a reference to Offered Assets shall be deemed to be a
reference to such Easymail Interest. Such Easymail Offer may be accepted by
Regional Vehicle by written notice to Parent until the later of (a) the one
hundred twentieth day after the date of the Easymail Offer and (b) 25 days after
the date of determination of the Fair Market Value of such Easymail Interest in
accordance with the procedures set forth in Sections 6.2(b) and 6.2(c) (such
period being referred to herein as, the "Easymail Offer Response Period"). If
Regional Vehicle does not accept such Easymail Offer within the Easymail Offer
Response Period, such Selling Person may sell its Easymail Interest at any time
to any Person.
ARTICLE VII
TERM
7.1. Term. The term of this Agreement shall begin on the date hereof and
shall terminate upon mutual agreement of the parties hereto; provided that
Parent may in its sole discretion terminate this Agreement at any time after the
termination of the Brand License Agreement.
6
<PAGE> 351
ARTICLE VIII
ARBITRATION
8.1. Arbitration. Any dispute, controversy or claim arising out of,
relating to, or in connection with, this Agreement, or the breach, termination
or validity thereof, whether based on contract, tort, statute, fraud,
misrepresentation or any other legal or equitable theory (each a "Claim"), shall
be finally settled by binding arbitration. The arbitration shall be conducted in
accordance with the CPR Rules for Non-Administered Arbitration in effect at the
time of the arbitration, except as they may be modified herein or by mutual
agreement of the parties. The seat of the arbitration shall be New York City,
New York, and it shall be conducted in the English language. Notwithstanding
Section 9.6 hereof, the arbitration and this clause shall be governed by Title 9
(Arbitration) of the United States Code. Any request for interim measures
pursuant to Section 9.11 hereof or otherwise shall not be deemed incompatible
with, or a waiver of, this agreement to arbitrate.
8.2. Number of Arbitrators/Selection. The arbitration shall be conducted
by three arbitrators. The party initiating arbitration (the "Claimant") shall
appoint an arbitrator in its request for arbitration (the "Request"). The other
party (the "Respondent") shall appoint an arbitrator within 30 days of receipt
of the Request and shall notify the Claimant of such appointment in writing. If
within 30 days of receipt of the Request by the Respondent, either party has not
appointed an arbitrator, then that arbitrator shall be appointed by CPR
Institute for Dispute Resolution. The first two arbitrators appointed in accord
with this provision shall appoint a third arbitrator within 30 days after the
Respondent has notified Claimant of the appointment of the Respondent's
arbitrator or, in the event of a failure by a party to appoint, within 30 days
after the CPR Institute for Dispute Resolution has notified the parties and any
arbitrator already appointed of its appointment of an arbitrator on behalf of
the party failing to appoint. When the third arbitrator has accepted the
appointment, the two arbitrators making the appointment shall promptly notify
the parties of the appointment. If the first two arbitrators appointed fail to
appoint a third arbitrator or so to notify the parties within the time period
prescribed above, then the CPR Institute for Dispute Resolution shall appoint
the third arbitrator and shall promptly notify the parties of the appointment.
The third arbitrator shall act as Chair of the tribunal.
8.3. Certain Procedures. The arbitration panel shall strictly limit
discovery to the production of documents directly relevant to the facts alleged
by the Claimant and the Respondent, and if depositions are required, each party
shall be limited to five depositions. Each party shall bear its own expenses,
but those related to the compensation of the arbitrators shall be borne equally.
8.4. Arbitral Award. The arbitral award shall be in writing, state only
the damages and injunctive relief granted and be final and binding on the
parties. The parties hereto expressly waive and forgo any right to punitive,
exemplary or similar damages as a result of any Claim. The arbitrators shall
orally state the reasoning on which the arbitral award rests but shall not state
such reasoning in any writing. The arbitration panel shall endeavor to issue the
arbitral award within six months of the Request, but failure to do so shall not
effect the validity of the arbitral award. The parties agree that the existence
and contents of the entire arbitration, including the award, shall be deemed a
compromise of a dispute under Rule 408 of the Federal Rules of Evidence, shall
not be discoverable in any proceeding, shall not be admissible in any court
(except for the enforcement thereof) or arbitration and shall not bind or
collaterally estop either party with respect to any claim or defense made by any
third party.
8.5. Confidentiality of Proceedings. All proceedings in connection with
any arbitration, including its existence, the content of the proceedings and any
decision, shall be kept confidential to the maximum extent possible consistent
with the law. The arbitrator shall issue an order preventing
7
<PAGE> 352
the parties, CPR Institute for Dispute Resolution and any other participants to
the arbitration from disclosing to any third party any information obtained via
the arbitration, including discovery of documents, evidence, testimony and the
award except as may be required by law.
8.6. Judgment. Judgment upon the decision may be entered by any court
having jurisdiction thereof or having jurisdiction over the relevant party or
its assets, provided that the party entering the award shall request that the
court prevent the award from becoming publicly available except as may be
required by law.
ARTICLE IX
MISCELLANEOUS
9.1. Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of the parties.
9.2. Waiver. No waivers of or consents to departures from the provisions
hereof shall be effective, unless set forth in a writing signed by Parent and
Regional Vehicle. No failure or delay of any party in exercising any power or
right under this Agreement will operate as a waiver thereof, nor will any single
or partial exercise of any right or power, or any abandonment or discontinuance
of steps to enforce such right or power, preclude any other or further exercise
thereof or the exercise of any other right or power.
9.3. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
<TABLE>
<CAPTION>
IF TO REGIONAL VEHICLE: IF TO PARENT:
----------------------- -------------
<S> <C>
2333 Ponce de Leon Blvd. AT&T Corp.
Coral Gables, FL 33134 295 North Maple Avenue
Room 3353J1
Basking Ridge, NJ 07920
Facsimile: 1-305-774-2001 Facsimile: 1-908-630-1744
Attention: Chief Executive Officer Attention: John Haigh
Vice President --
Strategy and Development
</TABLE>
<TABLE>
<CAPTION>
WITH A COPY (WHICH COPY SHALL NOT CONSTITUTE NOTICE) TO: WITH A COPY (WHICH COPY SHALL NOT CONSTITUTE NOTICE) TO:
-------------------------------------------------------- --------------------------------------------------------
<S> <C>
2333 Ponce de Leon Blvd. AT&T Corp.
Coral Gables, FL 33134 295 North Maple Avenue
Room 1212P2
Basking Ridge, NJ 07920
Facsimile: 1-305-774-2001 Facsimile: 1-908-221-6618
Attention: General Counsel Attention: Marilyn Wasser
Vice President -- Law and
Corporate Secretary
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8
<PAGE> 353
9.4. Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.5. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings among the parties with respect thereto.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its rules of
conflict of laws. Subject to Article VIII hereof, each of Regional Vehicle and
Parent hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States of America located in the State of New York (the "New York Courts") for
any litigation arising out of or relating to this agreement and the transactions
contemplated hereby (and agrees not to commence any litigation in a court
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the New York Courts and agrees not to plead or
claim in any New York Court that such litigation brought therein has been
brought in an inconvenient forum.
9.7. Further Assurances. Each party hereto shall, and shall cause each of
its Subsidiaries (which, in the case of Parent shall not include Regional
Vehicle or its Subsidiaries) to, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such other
actions as shall be necessary, or otherwise may reasonably be requested by the
other party hereto, to confirm and assure the rights and obligations provided
for in this Agreement, or otherwise to carry out the intent and purposes of this
Agreement.
9.8. Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
9.9. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
9.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.11. Enforcement. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any New York Court, this being in addition to
any other remedy to which they are entitled at law or in equity.
9
<PAGE> 354
9.12. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]
10
<PAGE> 355
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
AT&T Corp.
--------------------------------------
By:
Title:
KIRI INC.
--------------------------------------
By:
Title:
11
<PAGE> 356
EXHIBIT A
TO REGIONAL VEHICLE AGREEMENT
DEFINITIONS
1. Defined Terms. The following capitalized terms, when used in this
Agreement, shall have the following respective meanings (each such definition to
be equally applicable to the plural and singular forms of the respective terms
so defined):
"Affiliate" means, with respect to any Person, a Person that directly
or indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person, including but not
limited to a Subsidiary of the first Person, a Person of which the first
Person is a Subsidiary, or another Subsidiary of a Person of which the
first Person is also a Subsidiary.
"Agreement" means this Regional Vehicle Agreement, as the same may be
amended or modified from time to time in accordance with its terms.
"AT&T Global Network" means AT&T Global Network Services Group LLC or
AT&T Global Network Services LLC, any other Person in which such Persons
own any direct or indirect equity interest or any of their respective
successors or assigns. Each of such Persons is sometimes referred to herein
as an "AT&T Global Network Person."
"Brand License Agreement" means that certain Service Mark License
Agreement between Regional Vehicle and Parent (the form of which was
attached as an Exhibit to the Merger Agreement), as amended from time to
time.
"Brands" means any name, brand, mark, trademark, service mark, trade
dress, trade name, business name or other indicia of origin.
"Carrier Services" means the provision of carriage, including hubbing,
routing, transit, reorigination and least cost routing on Global Network
Facilities primarily between two or more countries to other International
Carriers.
"Communications Services" shall mean any services and applications,
including enhanced services and applications, that involve the transmission
of voice, data, sound, music, still and moving image or video and other
elements by fixed media (such as wire, cable or fiber), or radio or other
wave signal, and any similar or substitute service available or offered
from time to time, and the business of developing, designing or offering
content-based applications.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management policies of a Person,
whether through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
"global", when used with respect to Communications Services, shall
mean Communications Services between or among two or more countries.
"Global Business Communications Services" shall mean global
Communications Services provided or targeted to businesses and to their
employees in their capacity as employees.
"Global Communications Services" shall mean current or future (a)
global end-to-end managed and (b) all other global Communications Services
of a type intended for use by end
Def.-1
<PAGE> 357
user customers and resellers, but excluding Satellite & Radio Services,
basic switched voice and basic telex.
"Global Network Facilities" shall mean all facilities that support
bandwidth, transmission, signaling, routing, network service intelligence,
network control intelligence, switching and Operational Systems Support
(including any related software support) in connection with the
transmission of voice, data, sound, music, still and moving image, or video
and other elements by fixed media (such as wire, cable or fiber), or radio
or other wave signal, exclusively or predominantly between or among two or
more countries (it being understood that facilities that are predominantly
designed to support such transmission between or among two or more
countries may also support, as a non-predominant use, transmission within
one or more of such countries). Global Network Facilities shall not include
any system or systems that provide Communications Services exclusively
within a given country.
"Global Venture" means each of those certain Persons formed for the
provision of certain telecommunications and related services pursuant to
the Framework Agreement. Each of such Persons is sometimes referred to
herein as a "Global Venture Person."
"International Carrier" shall mean a Person which (a) is licensed or
authorized, or is otherwise permitted to provide, or operates where no
license or authorization is required, crossborder Communications Services
to the public, or (b) owns or operates, or is licensed to own or operate,
the underlying facilities used to provide crossborder Communications
Services to the public.
"International Carrier Services" shall mean Carrier Services and
International Traffic Termination Services.
"International Settlement Process" means the system of accounting and
settlement rates for the exchange of international traffic of a type
referred to in Section 64.1001 of the regulations of the FCC and any
subsequent regime for arranging and managing inbound/outbound traffic
termination terms and conditions with an International Carrier.
"International Traffic Termination Services" shall mean the
arrangement, management and delivery of inbound/outbound traffic
termination of all the communications traffic, including voice and Internet
Protocol traffic, of the Parent Group, including through the International
Settlement Process and least cost routing alternatives, but excluding all
Global Business Communications Services.
"Liberty Media" means Liberty Media Corporation and any Person in
which Liberty Media Corporation owns any direct or indirect equity
interests.
"Managed Network Services" shall mean the provision of (a) service to
a customer consisting solely of the provisioning and maintenance of the
logical and physical elements of the customer's wide area communications
network, and, to the extent relating to a customer's wide area
communications network, directly related planning, design, installation,
maintenance and ongoing life cycle support functions, and (b) equipment on
the customer's premises at the interface between a wide area communications
network and the remainder of the customer's networking environment insofar
as the equipment so provided facilitates (i) the maintenance of the
customer's wide area communication services, (ii) the recording of
performance data with respect to the customer's wide area communications
services, (iii) the provisioning of new wide area communications services
to the customer or changes in the parameters of the wide area
communications services provided to the customer, or (iv) the integration
of multiple wide area communications services, but excluding in the case of
clause (a) or (b) any such service or
Def.-2
<PAGE> 358
equipment that materially extends services beyond the interface described
above further into the customer's non-wide area communications network.
"Media One" means Mediaone Group, Inc., Meteor Acquisition Inc., any
successors thereto and any Person in which Mediaone Group, Inc., Meteor
Acquisition Inc. or any successors or assigns thereof own any direct or
indirect equity interests.
"Operational Support Systems" means the computer systems on which a
Person depends for providing management support of all of its operations,
including service delivery and provision, network usage and control,
billing of customers, network planning, fraud identification, resource
planning and facility management.
"Outsourcing Professional Services" shall mean the provision of
professional services relating to network architecture validation,
implementation, operations and life cycle management, including business
process consulting, migration planning and implementation, but excluding
Managed Network Services, and may include the ownership and acquisition of
assets from and on behalf of customers related to the provision of
Outsourcing Professional Services.
"Outsourcing Services" shall mean Outsourcing Professional Services
and Managed Network Services.
"Parent" means AT&T, provided that Parent shall not include Liberty
Media and Media One.
"Parent Group" means Parent and any Subsidiary of Parent except
Liberty Media and Media One, provided that (a) neither Regional Vehicle and
its Subsidiaries, any Global Venture Person nor any AT&T Global Network
Person or any Subsidiaries thereof shall be included in the Parent Group
and (b) no member of a Territory Acquired Group excluded from Parent Group
as provided in Section 6.1(b) shall be included in the Parent Group.
"Person" means any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust or
other entity.
"Preferred Supplier" to a Person (the "Purchaser") means that, to the
extent that the designated Preferred Supplier is able to provide certain
services, products or facilities to the Purchaser on terms and conditions
and standards at least as favorable regarding price, quality and service as
the Purchaser would be able to obtain in an arm's length transaction with a
Person that is not an Affiliate of the Purchaser, such Purchaser shall not,
and shall cause each of its wholly-owned Subsidiaries not to, purchase such
services, products or facilities from any Person other than the designated
Preferred Supplier unless such Person is also a Preferred Supplier to such
Purchaser.
"Satellite & Radio Services" shall mean Communications Services (other
than VSAT services) delivered through satellites using existing and future
satellite constellations and associated ground networks and equipment
through any satellite business and terrestrial radio solutions targeted at
maritime and aeronautical applications using existing and future long,
medium and short-range radio systems.
"Subsidiaries" means each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other
equity interests representing more than 50% of the outstanding voting stock
or other equity interests.
"Systems Integration" shall mean advising clients on how best to use
information technology to achieve their ends, to reengineer business
processes to make organizations work
Def.-3
<PAGE> 359
more effectively, specifying, designing or building or specifying,
designing and building integrated business systems for or on behalf of
clients managing the change to such systems for or on behalf of clients,
supporting, maintaining, enhancing, operating or further developing such
systems for or on behalf of clients, providing program or project
management and integration of customer defined individual customer
solutions and providing other related services required or requested by
clients in connection with any of the foregoing. Systems Integration does
not include (a) the underlying capability to provide Communications
Services or (b) Outsourcing Services.
"Territory" means Antigua and Barbuda, Argentina, Bahamas, Barbados,
Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic, Ecuador,
Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, St. Kitts and Nevis, Trinidad and
Tobago and Uruguay.
2. Other Defined Terms. All references to "Dollar", "US$" or "$" shall be
deemed to be references to the lawful currency of the United States of America.
The following capitalized terms,
Def.-4
<PAGE> 360
when used in this Agreement without definition, shall have the meanings set
forth in the Sections of this Agreement indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE
------------ -----------------
<S> <C>
appraiser............................................ Section 6.2(b)
Acquired Group....................................... Section 6.1(a)
Acquired Person...................................... Section 6.1(a)
AT&T................................................. First Paragraph
AT&T Global Network Services......................... Section 5.1
Claim................................................ Section 8.1
Claimant............................................. Section 8.2
Company.............................................. Recital A
Cross Border Revenues................................ Section 4.3
Covered Acquisition.................................. Section 6.1(a)
Excluded Activities.................................. Section 3.1
FMV Notice........................................... Section 6.2(a)
Framework Agreement.................................. Recital B
Global Venture Person................................ Definition of Global Venture
High Price........................................... Section 6.2(c)
Initial Appraiser.................................... Section 6.2(b)
Licensed Brands...................................... Recital B
Limited Cross Border Network Service Provider........ Section 4.3
Low Price............................................ Section 6.2(c)
Merger............................................... Recital A
Merger Agreement..................................... Recital A
Merger Sub........................................... Recital A
New York Courts...................................... Section 9.6
Offer................................................ Section 6.1(b)
Offered Assets....................................... Section 6.1(b)
Offer Exception...................................... Section 6.1(b)
Offer Response Period................................ Section 6.1(b)
Definition of Preferred
Purchaser............................................ Supplier
Qualifying MNC....................................... Section 4.3(b)
Regional Vehicle..................................... First Paragraph
Request.............................................. Section 8.2
Respondent........................................... Section 8.2
RV Exclusive Services................................ Section 2.1
RV Non-Exclusive Services............................ Section 2.2
RV Services.......................................... Section 2.2
Territory Revenues................................... Section 6.1(a)
</TABLE>
Def.-5
<PAGE> 361
SCHEDULE A-1
TO REGIONAL VEHICLE AGREEMENT
RV EXCLUSIVE SERVICES
Local voice delivered through fixed-line connectivity
Domestic long distance
International long distance
Point-to-point dedicated line
Asynchronous Transfer Mode (ATM)
Frame relay
Internet access
1-800/toll free
Packet X.25 (data)
Virtual network services (data)
Switched digital (data)
A-1-1
<PAGE> 362
SCHEDULE A-2
TO REGIONAL VEHICLE AGREEMENT
PARENT GROUP ACTIVITIES
Any services provided by Parent Group using assets that any member of
Parent Group is obligated under the Framework Agreement, as in effect on the
date hereof, to contribute to the Global Venture.
Service provided to customers in connection with the provision of, or
pursuant to contracts for, Outsourcing Services.
A-2-1
<PAGE> 363
SCHEDULE B
TO REGIONAL VEHICLE AGREEMENT
RV NON-EXCLUSIVE SERVICES
AT&T card services
AT&T Direct(R) services
E-commerce
Web-hosting
Fixed wireless for connectivity
Voice over Internet Protocol
Managed Network Services
B-1
<PAGE> 364
SCHEDULE C
TO REGIONAL VEHICLE AGREEMENT
EXCLUDED ACTIVITIES
International Carrier Services
Mobile wireless/PCS
Cable and cable telephony
Solution services, including Outsourcing Professional Services, other than
Managed Network Services
Systems Integration
Messaging Services in Chile, to the extent providing such services would cause a
breach of obligations of Parent or any of its Affiliates under the Shareholders
Agreement, dated as of December 9, 1993, among Easymail Chile S.A., AT&T
International, Inc., Inversiones Rapel, S.A. et al or any related agreements.
C-1
<PAGE> 365
EXHIBIT F TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 366
EXHIBIT F TO MERGER AGREEMENT
REGIONAL VEHICLE REVOLVING CREDIT FACILITY
SUMMARY INDICATIVE TERMS AND CONDITIONS
Borrower: Regional Vehicle ("RV") or its subsidiaries.
AT&T will have the right to decide whether to
lend at either the holding company or
individual operating company level.
Lender: AT&T or AT&T Subsidiary
Facility: US$100 million, to be reduced by any new vendor
financing arrangements. AT&T has the option to
structure the facility through debt or
redeemable preferred.
Purpose: To make loans to RV and its subsidiaries in the
Territory (as defined in the RV Agreement), the
proceeds of which are to be used to (i) fund
capital expenditures and working capital
requirements, (ii) pay cash interest and (iii)
fund operating costs.
Availability: In multiple drawdowns prior to Maturity,
following request by RV via a borrowing
certificate executed by CEO or CFO (relating to
consistency with business plan, absence of
defaults and other conditions to be agreed).
Final Maturity: 24 months from Closing
Amortization: Single repayment at maturity
Interest Rate: To be paid quarterly and calculated (on the
basis of a 360-day year of 30-day months) at
11.0%.
Security: - Lender will have the right at any time to
obtain a security interest in the tangible
and intangible assets of FirstCom/Netstream
and subsidiaries to which loans (including
Inter-company Loans) have been extended
- 100% of the capital stock in FirstCom
Corporation, Netstream and its subsidiaries
Financial Covenants: Maximum Capital Expenditures
In any month, not more than 110% of level
provided for in latest Board-approved business
plan.
Maximum Total Debt
In any month, not more than 110% of level
provided for in latest Board-approved business
plan.
Mandatory Prepayments: Facility to be repaid without penalty from 100%
of proceeds of (i) any capital markets issues,
(ii) equity issues, (iii) international or
local bank financings, and (iv) sales of
material assets.
F-1
<PAGE> 367
Negative Covenants: Including but not limited to the following:
- Limitation on other indebtedness (permitted
local currency working capital facilities and
vendor financing, etc.)
- Limitation on liens (US$10 million)
- Limitation on leases (US$10 million)
- Disposal of assets (in excess of US$5
million)
- Limitation on investments (US$5 million)
Events of Default: Including but not limited to the following:
- Failure to pay principal or interest when due
under the Facility
- Cross default to other Indebtedness (US$5
million notional amount)
- Bankruptcy or other insolvency event at any
subsidiary
- Monetary judgments (US$3 million)
- Revocation of material licenses
- Political risk events, such as
expropriation/nationalization, currency
inconvertibility/transferability,
war/political violence
F-2
<PAGE> 368
EXHIBIT G TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 369
EXHIBIT G TO AGREEMENT
AND PLAN OF MERGER
[ INC.]
---------------------
CERTIFICATE OF DESIGNATION
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
---------------------
SERIES A CONVERTIBLE PREFERRED STOCK
---------------------
, a Delaware corporation (the "Corporation"), certifies that
pursuant to the authority contained in its Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), the Board of Directors of
the Corporation has duly adopted the following recitals and resolution:
WHEREAS, Article FOURTH of the Certificate of Incorporation provides that
the Corporation may issue Preferred Stock, par value $0.001 per share
("Preferred Stock") from time to time in one or more series or classes, having
such voting powers and such designations, preferences and relative,
participating, optional and other special rights and qualifications, limitations
or restrictions, as the Board of Directors determines;
WHEREAS, pursuant to Article FOURTH of the Certificate of Incorporation and
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware, the Board of Directors has adopted the following
resolution creating a series of its Preferred Stock, designated as Series A
Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $0.001 per share, of the Corporation be hereby created, and that the
voting powers and designation, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:
1. Designation and Amount. This series of Preferred Stock shall be
designated as the Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), and the authorized number of shares constituting such series shall be
1,666,667, par value $0.001 per share.
2. Dividends.
(a) The holders of Series A Preferred Stock shall have the right to
receive, in preference to the holders of Junior Stock, dividends, payable
when and as declared by the Board of Directors of the Corporation out of
assets legally available therefor, as provided in this Section 2(a).
Dividends shall accrue on each share of Series A Preferred Stock at an
annual rate of fifteen percent (15%) on the sum of (i) $8.00 (the "Series A
Purchase Price") and (ii) all accumulated and unpaid dividends accrued
thereon pursuant to this Section 2(a) from the date of issuance thereof
(the "Series A Dividends" and, the sum of the Series A Purchase Price and
Series A Dividends is referred to herein as the "Series A Preference
Amount"). Such dividends will be calculated and, to the extent such
dividends remain unpaid, compounded quarterly in arrears on the first day
of each January, April, July and October of each year prorated on a daily
basis for partial periods. Such dividends shall commence to accrue on each
share of Series A Preferred Stock from the date of issuance of such share
of Series A Preferred Stock whether or not they have been declared and
whether or not there are profits, surplus or other funds legally
<PAGE> 370
available for the payment of dividends and shall continue to accrue until
paid out of assets legally available therefor; provided, however, that for
the period from the Original Issue Date until (and including) the first day
of July 2001 (the "PIK Period"), the Corporation shall pay dividends on
each dividend payment date in additional shares of Series A Preferred Stock
(such dividends paid in kind being herein referred to as "PIK Dividend");
and provided further that the amount payable as a PIK Dividend on the final
dividend payment date during the PIK Period shall be adjusted so that the
total number of shares of Series A Preferred Stock paid as PIK Dividends is
equal to (1) and any amount of unpaid dividend resulting
from such adjustment shall accrue as otherwise provided in this Section 2;
and provided further that in the event that the Corporation shall exercise
its right to redeem the Series A Preferred Stock after the closing of a
Strategic Investment as provided in Section 7, then the payment of all PIK
Dividends for the PIK Period shall be accelerated and any PIK Dividends not
previously paid shall be immediately paid to the holders of the Series A
Preferred Stock as described in the next paragraph (notwithstanding any
subsequent conversion pursuant to Section 5 or 6 or redemption pursuant to
Section 8). In addition, the holders of Series A Preferred Stock shall have
the right to receive dividends or other distributions (as defined below),
ratable and equally with the holders of Common Stock, when and as declared
by the Board of Directors of the Corporation out of assets legally
available therefor; provided, however, that each holder of Series A
Preferred Stock shall be entitled to receive dividends or other
distributions on the outstanding shares of Series A Preferred Stock held by
such holder in an amount equal to the product of (i) the per share amount,
if any, of the dividend or other distribution to be declared, paid or set
aside for the Common Stock, multiplied by (ii) the number of whole shares
of Common Stock into which such shares of Series A Preferred Stock are then
convertible.
(b) PIK Dividends shall be paid by delivering to the record holders of
Series A Preferred Stock a number of shares of Series A Preferred Stock
determined by dividing the amount of the payment which otherwise would be
payable on the dividend payment date to each respective holder in cash by
the Series A Purchase Price per share. The issuance of any such PIK
Dividend in such amount shall constitute full payment of such dividend.
Fractional shares of Series A Preferred Stock payable as PIK Dividends may
be paid in cash by the Corporation. Any additional shares of Series A
Preferred Stock issued pursuant to this section shall be subject in all
respects, except as to issue date and the date from which dividends accrue
and cumulate as set forth above, to the same terms as the shares of Series
A Preferred Stock originally issued hereunder.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, or the
purchase or redemption of shares of the Corporation for cash or property,
including any such transfer, purchase or redemption by a subsidiary of this
Corporation.
3. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
Upon a liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, (each, a "Liquidation"), each holder of Series A
Preferred Stock shall be entitled, after provision for the payment of the
Corporation's debts and other liabilities, to be paid in cash in full, before
any distribution is made on any Junior Stock, an amount in cash equal to the
Series A Preference Amount of all Series A Preferred Shares held by such holder.
If, upon a Liquidation, the net assets of the Corporation distributable among
the holders of all outstanding Series A Preferred Stock shall be insufficient to
permit the payment of the Series A Preference Amount in full, then the
---------------
1. [1,666,667 less amount issued initially]
2
<PAGE> 371
entire net assets of the Corporation remaining after the provision for the
payment of the Corporation's debts and other liabilities shall be distributed
among the holders of the Series A Preferred Stock ratably in proportion to the
full preferential amounts to which they would otherwise be respectively entitled
on account of their Series A Preferred Stock. A merger or consolidation of the
Corporation (except one in which the holders of capital stock of the Corporation
immediately prior to such merger or consolidation continue to hold more than 50%
by voting power of the equity interests of the surviving entity), a single
transaction or a series of transactions pursuant to which holders of capital
stock of the Corporation immediately prior to such transaction or series of
transactions do not continue to hold more than 50% by voting power of the
capital stock after such transaction or series of transactions, or the sale of
all or substantially all the assets of the Corporation, shall be deemed to be a
Liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation), or
all consideration payable to the Corporation, together with all other available
assets of the Corporation (in the case of an asset sale), shall be distributed
to the holders of capital stock of the Corporation in accordance with the
foregoing provisions of this Section 3.
4. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock
held by such holder are then convertible (as adjusted from time to time
pursuant to Section 5 hereof), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration except as provided by law, by
the provisions of Subsection 4(b) below or elsewhere in the Corporation's
Certificate of Incorporation, as amended, holders of Series A Preferred
Stock shall vote together with the holders of Common Stock and Preferred
Stock as a single class.
(b) Except as provided by law, the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of
at least 75% of the then outstanding shares of Series A Preferred Stock,
voting together as a single class of Preferred Stock:
(i) Amend, repeal, alter or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws,
if such action could have a material adverse effect on the rights,
preferences or privileges of the Series A Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to
dividends, liquidation preference, assets or voting superior to or on
parity with any such preference or priority of the Series A Preferred
Stock or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable
for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends,
liquidation preference, assets or voting superior to or on parity with
any such preference or priority of the Series A Preferred Stock;
(iii) Redeem, purchase or otherwise acquire, directly or
indirectly, any Junior Stock; or
(iv) Authorize or effect the declaration or payment of dividends or
other distributions upon any Junior Stock.
3
<PAGE> 372
5. Optional Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $6.00 by the Series A Conversion
Price in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $6.00. The rate at which shares of Series A Preferred
Stock may be converted into shares of Common Stock shall be subject to
adjustment as provided below.
In the event of a Liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on Liquidation to the
holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to convert
such shares into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Series A Preferred Stock
at the office of the transfer agent for the Series A Preferred Stock (or
at the principal office of the Corporation if the Corporation serves as
its own transfer agent), together with written notice (a "Conversion
Demand") that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock represented by such certificate
of certificates. Such Conversion Demand shall state such holder's name
or the names of the nominees in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued. If required by
the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder of his or its attorney duly authorized in writing. The
date of receipt of such certificates and Conversion Demand notice by the
transfer agent (or by the Corporation if the Corporation serves as its
own transfer agent) shall be the conversion date ("Conversion Date").
The Corporation shall, as soon as practicable after the Conversion Date,
issue and deliver at such office to such holder of Series A Preferred
Stock, or to his or its nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A
Preferred Stock. Before taking any action which would cause an
adjustment reducing the Series A Conversion Price below the then par
value of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Series A Conversion Price.
4
<PAGE> 373
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price shall be made for any declared but unpaid dividends on
the Series A Preferred Stock surrendered for conversion or on the Common
Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the
holders thereof to receive shares of Common Stock in exchange therefor
and payment of any dividends declared but unpaid thereon. Any shares of
Series A Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Corporation (without the need for
stockholder action) may from time to time take such appropriate action
as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock
pursuant to this Section 5. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a
name other than that in which the shares of Series A Preferred Stock so
converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has
paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
(vi) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred Stock is to be made in connection with a public
offering of Common Stock, the conversion of any shares of Series A
Preferred Stock may, at the election of the holder of such shares, be
conditioned upon the consummation of such public offering in which case
such conversion shall not be deemed to be effective until the
consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of Subsections 5(d)-5(g), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in subsection 5(d)(i)(C)(IV)
below.
(B) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(C) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Subsection 5(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock (or, in the case of clause IV
below, options or warrants to purchase shares of Common Stock) issued
or issuable:
(I) upon conversion of any Convertible Securities
outstanding on the Original Issue Date, or upon exercise of any
Options outstanding on the Original Issue Date;
5
<PAGE> 374
(II) as a dividend or distribution on Series A Preferred
Stock;
(III) by reason of a dividend, stock split, split up or
other distribution on shares of Common Stock that is covered by
Subsection 5(c) or 5(f) below;
(IV) to employees, directors, officers or managers of, or
consultants to, the Corporation or any of its subsidiaries
pursuant in a plan adopted by the Board of Directors of the
Corporation in good faith; or
(V) to a Strategic Investor in connection with a Strategic
Investment within nine months after the Original Issue Date;
provided that the average daily closing or last sale price per
share of Common Stock for the ninety (90) days immediately
following such Strategic Investment, as reported on a national
securities exchange or NASDAQ, is greater than or equal to
$9.00.
(ii) No Adjustment of Conversion Price. No adjustment in the number
of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made, by adjustment in the Series A Conversion
Price, as applicable, unless the consideration per share (determined
pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Series
A Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
If the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set
forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 5(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Series A Conversion Price,
as applicable, in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(A) No further adjustment in the Series A Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares
of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series A Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such
Convertible Securities;
6
<PAGE> 375
(C) Upon the expiration or termination of any unexercised Option
or any unexercised rights of conversion or exchange under any
Convertible Security, the Series A Conversion Price shall be
readjusted to eliminate the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option or such
Convertible Security.
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, the
Series A Conversion Price then in effect shall forthwith be
readjusted to such Conversion Price as would have been obtained had
the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change
been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D) above
shall have the effect of increasing the Series A Conversion Price to
an amount which exceeds the lower of (i) the Series A Conversion
Price on the original adjustment date, or (ii) the Series A
Conversion Price that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date,
amends the terms of any Options or Convertible Securities (whether
such Options or Convertible Securities were outstanding on the
Original Issue Date or were issued after the Original Issue Date),
then such Options or Convertible Securities, as so amended, shall be
deemed to have been issued after the Original Issue Date and the
provisions of this Subsection 5(d)(iii) shall apply.
It is expressly acknowledged that options issued to persons
described in Subsection 5(d)(i)(C)(IV) are excluded from the
definition of "Option" as provided in Subsection 5(d)(i)(A).
(iv) Adjustment of Series A Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall at any time after the Original
Issue Date issue Additional Shares of Common Stock without consideration
or for a consideration per share less than the applicable Series A
Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Series A Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Series A Conversion Price
by a fraction, (A) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue plus
(2) the number of shares of Common Stock with the aggregate
consideration received or to be received by the Corporation for the
total number of Additional Shares of Common stock so issued would
purchase at such Series A Conversion Price; and (B) the denominator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided that (i) for the purpose of
this Subsection 5(d)(iv), all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and
(ii) the number of shares of Common Stock deemed issuable upon exercise
or conversion of such outstanding Options and Convertible Securities
shall not give effect to any adjustments to
7
<PAGE> 376
the conversion price or conversion rate of such Options of Convertible
Securities resulting from the issuance of Additional Shares of Common
Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this Subsection
5(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors;
and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (I) and (II) above, as determined in good
faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to Subsection 5(d)(iii),
relating to Options and Convertible Securities, shall be determined
by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock, and such
issuance dates occur within a period of no more than 30 days, then the
Series A Conversion Price shall each be adjusted only once on account of
such issuance, with such adjustment to occur upon the final such
issuance and to give effect to all such issuances as if they occurred on
the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect
a subdivision of the outstanding Common Stock, the Series A Conversion
Price then in effect immediately before that subdivision shall
8
<PAGE> 377
each be proportionately decreased. For example, if there are two
outstanding shares of Common Stock which are subdivided into a total of
four shares of Common Stock and the Series A Conversion Price in effect
immediately prior to such subdivision is $6.00, then the Series A
Conversion Price after giving effect to such subdivision shall be $3.00. If
the Corporation shall at any time or from time to time after the Original
Issue Date effect a subdivision of the Series A Preferred Stock, the Series
A Conversion Price then in effect immediately before that subdivision shall
be proportionately increased. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares
of Common Stock, the Series A Conversion Price then in effect immediately
before the combination shall each be proportionately increased. For
example, if there are two outstanding shares of Common Stock which are
combined into a total of one share of Common Stock and the Series A
Conversion Price in effect immediately prior to such combination is
[$6.00], then the Series A Conversion Price after giving effect to such
combination shall be [$12.00]. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares
of Series A Preferred Stock, the Series A Conversion Price then in effect
immediately before the combination shall be proportionately deceased. Any
adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in Additional Shares of Common Stock, then and in each
such event the Series A Conversion Price then in effect shall each be
decreased as of the time of such issuance or, in the event such a record
date shall have been fixed, as of the close of business on such record
date, by multiplying the Series A Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the name of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Series A Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter
the Series A Conversion Price shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or distributions; and
provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock simultaneously receive a dividend or
other distribution of shares of Common Stock in a number equal to the
number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into
Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that
the holders of the Series A Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common
9
<PAGE> 378
Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had the Series A Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of
the holders of the Series A Preferred Stock; and provided further, however,
that no such adjustment shall be made if the holders of Series A Preferred
Stock simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities was they
would have received if all outstanding shares of Series A Preferred Stock
had been converted into Common Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend, provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number
of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is
covered by Subsection 2(b)), each share of Series A Preferred Stock shall
thereafter be converted (or shall be converted into a security which shall
be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 5 set forth with respect to the rights and
interest thereafter of the holders of the Series A Preferred Stock to the
end that the provisions set forth in this Section 5 (including provisions
with respect to changes in and other adjustments of the Series A Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series A Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this Section 5 and in the taking of all such
action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to
this Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is
10
<PAGE> 379
based. The Corporation shall, upon the written request at any time of any
holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Series A Conversion Price then in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series A
Preferred Stock.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or substantially all of
the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at
the office of the transfer agent of the Series A Preferred Stock and shall
cause to be mailed to the holders of the Series A Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty
days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, dissolution
or winding up.
(m) Notwithstanding anything to the contrary, the provisions of
Section 5(d) shall not apply (i) to any share of Series A Preferred Stock
held by a holder other than a 25% Holder or (ii) on or after the fifth
anniversary of the Original Issue Date.
6. Mandatory Conversion.
(a) On the first Business Day following a Mandatory Conversion Period
(the "Mandatory Conversion Date"), all outstanding shares of Series A
Preferred Stock shall automatically be converted into shares of Common
Stock at the then effective conversion rate.
(b) All holders of record of shares of Series A Preferred Stock will
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all shares of Series A Preferred
Stock pursuant to this Section 6. Such notice shall be sent by first class
or registered mail, postage prepaid, to each record holder of Series A
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred
11
<PAGE> 380
Stock, as the case may be (or the records of the Corporation, if it serves
as its own transfer agent). Upon receipt of such notice, each holder of
shares of Series A Preferred Stock shall surrender his or its certificate
or certificates for all such shares to the Corporation at the place
designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 6. On the Mandatory Conversion Date, all rights
with respect to the Series A Preferred Stock so converted, including the
rights, if any, to receive notices and vote, will terminate, except only
the rights of the holder thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series A Preferred Stock has been converted,
and payment of any declared but unpaid dividends thereon. If so required by
the Corporation, certificates surrendered for conversion shall be endorsed
or accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable
after the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to
be issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and
cash as provided in Subsection 5(b) in respect of any fraction of a share
of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be
deemed to have been retired and canceled and the shares of Series A
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A Preferred
Stock accordingly.
(d) Any Series A Preferred Stock converted pursuant to this Section 6
will be canceled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred
Stock accordingly.
7. Redemption at Corporation's Option.
(a) The Corporation shall have the right (the "Redemption Right"), in
its sole discretion, to redeem all but not less than all of the outstanding
shares of Series A Preferred Stock in accordance with the further
provisions of this Section 7. The Redemption Rights shall be exercisable
(i) at any time after June 30, 2001 or (ii) at any time not less than
ninety (90) and not more than one hundred and eighty (180) days after the
closing of a Strategic Investment provided that the closing of such
Strategic Investment occurs within nine (9) months after the Original Issue
Date. The redemption price (the "Corporation Redemption Price") of each
share of Series A Preferred Stock redeemed pursuant to the Redemption Right
shall be equal to the Anniversary Redemption Price as of the Corporation
Redemption Date, in the case of clause (i) in the immediately preceding
sentence, or the Strategic Redemption Price in the case of clause (ii) in
the immediately preceding sentence.
(b) The Corporation may elect to exercise its Redemption Right
pursuant to Section 7(a) by mailing written notice (a "Corporation Notice
of Redemption") to each registered holder specifying the time and place of
such redemption and the number of shares of Series A Preferred Stock held
by such holder to be redeemed. Such Corporation Notice of Redemption
12
<PAGE> 381
shall be mailed by certified mail, return receipt requested, at least 30,
and not more than 60 days prior to the date specified for redemption (the
"Corporation Redemption Date"), to each registered holder of the shares of
Series A Preferred Stock at such holder's last address as it appears on the
Corporation's books. At the closing, the Corporation shall pay to each of
the holders of the Series A Preferred Stock called for redemption, against
the Corporation's receipt from such holder of the certificate or
certificates representing the shares of such Series A Preferred Stock then
held by such holder, an amount equal to the aggregate payment due pursuant
to this Section 7 for all such shares, by wire transfer of immediately
available funds, or if such holder shall not have specified wire transfer
instructions to the Corporation prior to the closing, by certified or
official bank check made payable to the order of such holder.
(c) Notwithstanding anything to the contrary contained in this Section
7, the outstanding shares of Series A Preferred Stock shall remain subject
to (i) conversion pursuant to Section 5 and 6 and (ii) redemption pursuant
to Section 8, in each case, at all times on or prior to the Corporation
Redemption Date.
(d) In the case of any redemption pursuant to this Section 7, unless
the Corporation defaults in the payment in full of the Corporation
Redemption Price, dividends on the shares called for redemption shall cease
to accumulate on the applicable Corporation Redemption Date, and all rights
of the holders of the shares of Series A Preferred Stock subject to such
redemption by reason of their ownership of such shares shall cease on such
Corporation Redemption Date, except the right to receive the Corporation
Redemption Price on surrender to the Corporation of the certificates
representing such shares. After the applicable Corporation Redemption Date,
the shares shall not be deemed to be outstanding and shall not be
transferable on the books of the Corporation, except to the Corporation.
(e) Any shares of Series A Preferred Stock redeemed by the Corporation
pursuant to this Section 7 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
8. Redemption at Holder's Option.
(a) Each holder of Series A Preferred Stock shall have the right (the
"Put Right"), in its sole discretion, to require the Corporation to redeem
all or any portion of its outstanding shares of Series A Preferred Stock at
a redemption price (the "Holder Redemption Price") equal to the Series A
Preference Amount as of the Holder Redemption Date in accordance with the
further provisions of this Section 8. The Put Right shall be exercisable
for a period of 70 days after (i) the ninety-first day after the Senior
Note Maturity Date, (ii) any Major Liquidity Event or (iii) a Change of
Control.
(b) A holder of Series A Preferred Stock may elect to exercise its Put
Right pursuant to Section 8(a) by mailing written notice (a "Holder
Redemption Notice") to the Corporation by certified mail, return receipt
requested. The Holder Redemption Notice shall specify:
(i) the name of the holder of shares of Series A Preferred Stock
delivering such Holder Redemption Notice;
(ii) that such holder is exercising its option, pursuant to Section
8, to require the Corporation to redeem shares of Series A Preferred
Stock held by such holder; and
(iii) the number of, and a description of, the shares of Series A
Preferred Stock to be subject to such redemption.
13
<PAGE> 382
(c) The Corporation shall, within thirty (30) days of receipt of such
Holder Redemption Notice, deliver to the holder exercising its rights to
require redemption of shares pursuant to Section 8(b), a notice (the
"Corporation Notice") specifying the date set for such redemption, which
date shall be no more than thirty (30) days after the Corporation Notice
(the "Holder Redemption Date").
(d) Notwithstanding anything contained in this Section 8 to the
contrary, the Corporation shall not be obligated to redeem shares of Series
A Preferred Stock which are the subject of a Holder Redemption Notice if
such redemption would result in a breach of, or would cause a default or
event of default under, the Notes Indenture.
provided, however, if such breach, event of default or default would not
result from the purchase of any number of shares of Series A Preferred
Stock which is less than the total number of shares the Corporation is
obligated to redeem on the Holder Redemption Date, the Corporation shall
purchase on the Holder Redemption Date the maximum number of shares of
Series A Preferred Stock it may so purchase, allocated among the holders
which have elected to have their shares so repurchased ratably according to
the number of shares so tendered; provided, further, however, the
Corporation shall use its reasonable efforts to cure such default or
violation on a timely manner and remove any associated restrictions or
limitations which are applicable to the rights of the holders of Series A
Preferred Stock contained in this Section 8.
(e) In the case of any redemption pursuant to this Section 8, unless
the Corporation defaults in the payment in full of the Holder Redemption
Price, dividends on the shares called for redemption shall cease to
accumulate on the applicable Holder Redemption Date, and all rights of the
holders of the shares of Series A Preferred Stock subject to such
redemption by reason of their ownership of such shares shall cease on such
redemption date, except the right to receive the Holder Redemption Price on
surrender to the Corporation of the certificates representing such shares.
After the applicable Holder Redemption Date, the shares shall not be deemed
to be outstanding and shall not be transferable on the books of the
Corporation, except to the Corporation.
(f) Any shares of Series A Preferred Stock redeemed by the Corporation
pursuant to this Section 8 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
9. Definitions.
As used in this Certificate of Designation, and unless the context requires
a different meaning, the following terms have the meanings indicated:
(i) "Anniversary Redemption Price" shall mean an amount per share
equal to (a) the Series A Purchase Price plus (b) an amount then necessary
to provide a holder of Series A Preferred Stock with a 25.0% internal rate
of return on such holder's investment in a share of Series A Preferred
Stock as if such holder held such share of Series A Preferred Stock from
14
<PAGE> 383
, 2000. Such internal rate of return shall be determined in accordance with
the following formula:
IRR = (P/I) I/N1
where:
<TABLE>
<S> <C> <C>
IRR = Internal Rate of Return.
P = Anniversary Redemption Price.
I = Series A Purchase Price
N = Number of years from the Original Issue Date to the
Corporation Redemption Date, calculated on the basis of a
365-day year.
</TABLE>
(ii) "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the
City of New York are authorized or obligated by law or executive order to
close.
(iii)"Change of Control" shall mean a Change of Control as defined in
the Notes Indenture.
(iv) "Common Stock" shall mean the Common Stock of the Corporation,
par value $.001 per share.
(v) "Junior Stock" shall mean any of the Corporation's Common Stock,
and all other equity securities of the Corporation other than the Series A
Preferred Stock.
(vi) "Major Liquidity Event" shall mean (a) a Public Offering or (b) a
Strategic Investment.
(vii) "Mandatory Conversion Period" shall mean, at any time after the
second anniversary of the Original Issue Date, a period of thirty (30)
consecutive trading days during which the daily closing or last sale price
per share of Common Stock, as reported on a national securities exchange or
NASDAQ, is greater than $15.00 per share.
(viii) "NASDAQ" means the National Association of Securities Dealers,
Inc., Automated Quotation System.
(ix) "Notes Indenture" shall mean that certain Indenture, dated as of
October 27, 1997, between FirstCom Corporation, a Texas corporation, and
State Street Bank and Trust Company, N.A., (as Trustee), as in effect on
June 30, 1999 or any supplemental indenture.
(x) "Original Issue Date" shall mean the date on which a share of
Series A Preferred Stock was first issued.
(xi) "Public Offering" shall mean the closing of an underwritten
public offering of shares of Common Stock pursuant to an effective
registration statement filed with the Securities and Exchange Commission
for a public offering and sale of securities of the Corporation (other than
a registration statement on Form S-8 or Form S-4, or their successors, or
any other form for a similar limited purpose, or any registration statement
covering only securities proposed to be issued in exchange for securities
or assets of another corporation).
15
<PAGE> 384
(xii) "Senior Note Maturity Date" shall mean the date that the Senior
Notes issued pursuant to the Notes Indenture are paid in full.
(xiii) "Strategic Investment" shall mean the purchase by a Strategic
Investor of thirty-five percent (35%) or more (on an as converted basis) of
the capital stock of the Corporation.
(xiv) "Strategic Investor" shall mean (i) a telecommunications
operator with assets in excess of $2 billion or (ii) an entity with
controlling equity investments in excess of $1 billion in companies
operating in the telecommunications industry; provide that such entity is
not a private equity investment firm or other like entity.
(xv) "Strategic Redemption Price" shall mean $9.00.
(xvi) "25% Holder" shall mean SFG-N Inc., the AIG-GE Capital Latin
American Infrastructure Fund L.P. and/or any of its affiliates and any
holder of not less than twenty-five percent (25%) of the shares of Common
Stock issued or issuable upon conversion of the Series A Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series A Non-Voting Participating Convertible Preferred Stock to
be duly executed by its Secretary this [ ]th day of
[ ], [ ].
[ INC.]
By
--------------------------------------
Name:
Title: Secretary
16
<PAGE> 385
ANNEX A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 386
ANNEX A
[LETTERHEAD OF FIRSTCOM CORPORATION]
[Date]
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
AGREEMENT AND PLAN OF MERGER
Ladies and Gentlemen:
We are furnishing the following representations to you to enable you to
prepare and deliver your tax opinion in accordance with Section 5.2(f) of the
Agreement and Plan of Merger, dated as of November 1, 1999 (the "Merger
Agreement"), by and among AT&T Corp., a New York corporation ("Parent"), Kiri
Inc., a Delaware corporation (the "Buyer"), Frantis, Inc., a Delaware
corporation and wholly-owned subsidiary of the Buyer ("Merger Sub"), and
FirstCom Corporation, a Texas corporation (the "Company"). We understand you
will be relying on such representations in rendering your opinion. Unless
otherwise defined herein, capitalized terms have the meanings ascribed to them
in the Merger Agreement.
The Company hereby represents and covenants that:
1. Neither the Company nor any "related person" (within the meaning of
Treas. Reg. sec. 1.368-1T(e)(2)(ii)) has any plan or intention to redeem or
otherwise acquire any Company Common Stock or Preferred Stock prior to and
in connection with the Merger. No "extraordinary distribution" (within the
meaning of Treas. Reg. sec. 1.368-1T(e)(1)(ii)(A)) with respect to Company
Common Stock or Preferred Stock has or will be made prior to and in
connection with the Merger.
2. The fair market value of the consideration received by the
shareholders of the Company in the Merger will be approximately equal to
the fair market value of the Company Common Stock and the Preferred Stock
surrendered in the Merger. The RV Class A Common Stock issued to
shareholders of the Company in the Merger will have a fair market value, as
of the Effective Time, that is greater than or equal to 50 percent of the
fair market value of all of the formerly outstanding Company Common Stock
and Preferred Stock as of the same time. For purposes of this
representation, shares of Company Common Stock and Preferred Stock
exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of RV Class A Common Stock
will be treated as outstanding as of the Effective Time. Moreover, Company
Common Stock and Preferred Stock that is redeemed by the Company prior to
the Merger will be considered as outstanding in making this representation.
3. The liabilities of the Company assumed by Merger Sub in the Merger
and the liabilities to which the assets of the Company transferred in the
Merger are subject were incurred by the Company in the ordinary course of
its business.
4. The Company will pay its own expenses, if any, incurred in
connection with the Merger.
<PAGE> 387
5. There is no intercorporate indebtedness existing between the
Company and the Buyer, or the Company and Merger Sub, that was issued,
acquired, or will be settled at a discount.
6. The Company is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
7. The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
8. Merger Sub will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross
assets held by the Company immediately prior to the Merger. For purposes of
this representation, amounts paid by the Company to shareholders who
receive cash or other property, Company assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company immediately preceding the
Merger will be included as assets of the Company held immediately prior to
the Merger.
9. The fair market value of the assets of the Company transferred to
Merger Sub in the Merger will equal or exceed the sum of the liabilities
assumed by Merger Sub in the Merger plus the amount of liabilities, if any,
to which the transferred assets are subject.
10. The Merger will be effected in accordance with the Agreement and
will be effected for bona-fide, non-tax business reasons.
11. None of the compensation received by any stockholder-employee of
the Company in respect of periods that end on or prior to the Closing Date
represents separate consideration for, or is allocable to, any of such
stockholder-employee's Company capital stock. None of the RV Class A Common
Stock that will be received by any Company stockholder-employee in the
Merger represents separately bargained-for consideration that is allocable
to any employment agreement or arrangement. The compensation paid to any
stockholder-employee will be for services actually rendered and will be
determined by bargaining at arm's-length.
The information in this letter is provided in connection with the
preparation of your opinion. We understand that your opinion will be premised on
the basis that all of the facts, representations and assumptions on which you
are relying, whether contained herein or in the documents described herein, are
accurate and complete and will be accurate and complete at the Effective Time.
We further understand that your opinion will be subject to the qualifications
and limitations set forth in your opinion letters.
Very truly yours,
FirstCom Corporation
By:
------------------------------------
Name:
Title:
2
<PAGE> 388
[LETTERHEAD OF RV]
[DATE]
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
AGREEMENT AND PLAN OF MERGER
Ladies and Gentlemen:
We are furnishing the following representations to you to enable you to
prepare and deliver your tax opinion in accordance with Section 5.2(f) of the
Agreement and Plan of Merger, dated as of November 1, 1999 (the "Merger
Agreement"), by and among AT&T Corp., a New York corporation ("Parent"), Kiri
Inc., a Delaware corporation (the "Buyer"), Frantis, Inc., a Delaware
corporation and wholly-owned subsidiary of the Buyer ("Merger Sub"), and
FirstCom Corporation, a Texas corporation (the "Company"). We understand you
will be relying on such representations in rendering your opinion. Unless
otherwise defined herein, capitalized terms have the meanings ascribed to them
in the Merger Agreement.
The Buyer, on behalf of itself and Merger Sub, hereby represents and
covenants that:
1. Neither the Buyer nor any "related person" (within the meaning of
Treas. Reg. sec. 1.368-1(e)(3)) has any plan or intention to redeem or
otherwise acquire any of the RV Class A Common Stock issued in the Merger.
2. The fair market value of the consideration received by the
shareholders of the Company in the Merger will be approximately equal to
the fair market value of the Company Common Stock and the Preferred Stock
surrendered in the Merger. The RV Class A Common Stock issued to
shareholders of the Company in the Merger will have a fair market value, as
of the Effective Time, that is greater than or equal to 50 percent of the
fair market value of all of the formerly outstanding Company Common Stock
and Preferred Stock as of the same time. For purposes of this
representation, shares of Company Common Stock and Preferred Stock
exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of RV Class A Common Stock
will be treated as outstanding as of the Effective Time. Moreover, Company
Common Stock and Preferred Stock that is redeemed by the Company prior to
the Merger will be considered as outstanding in making this representation.
3. Neither the Buyer nor any "related person" (within the meaning of
Treas. Reg. sec. 1.368-1(e)(3)) owns, or has in the last five years owned,
any capital stock of the Company.
4. Prior to and at the Effective Time, the Buyer will be in "control"
of Merger Sub within the meaning of Section 368(c) of the Code.
5. Merger Sub has no plan or intention to issue additional shares of
its stock after the Merger that would result in the Buyer losing "control"
of Merger Sub within the meaning of Section 368(c) of the Code.
6. The Buyer has no plan or intention to liquidate Merger Sub; to
merge Merger Sub with and into another corporation; to sell or otherwise
dispose of the stock of Merger Sub; or to cause
<PAGE> 389
Merger Sub to sell or otherwise dispose of any of the assets of the Company
acquired in the Merger, except for dispositions made in the ordinary course
of business or transfers described in Section 368(a)(2)(C) of the Code.
7. Following the Merger, Merger Sub will continue the historic
business of the Company or use a significant portion of the Company's
historic business assets in a business (as such terms are defined in Treas.
Reg. 1.368-1(d)).
8. The Buyer and Merger Sub will pay their own expenses, if any,
incurred in connection with the Merger.
9. There is no intercorporate indebtedness existing between the
Company and the Buyer, or the Company and Merger Sub, that was issued,
acquired, or will be settled at a discount.
10. Neither the Buyer nor Merger Sub is an "investment company" as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
11. The fair market value of the assets of the Company transferred to
Merger Sub will equal or exceed the sum of the liabilities assumed by
Merger Sub plus the amount of liabilities, if any, to which the transferred
assets are subject.
12. Any payment of cash by the Buyer in lieu of fractional shares of
Buyer Common Stock is solely for the purpose of avoiding the expense and
inconvenience to the Buyer of issuing fractional shares and does not
represent separately bargained-for consideration. No shareholder of the
Company will receive cash in an amount equal to or greater than the value
of one full share of Buyer Common Stock.
13. The Merger will be effected in accordance with the Agreement and
will be effected for bona-fide, non-tax business reasons.
14. Merger Sub will acquire at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross
assets held by the Company immediately prior to the Merger. For purposes of
this representation, amounts paid by the Company to shareholders who
receive cash or other property, Company assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company immediately preceding the
Merger will be included as assets of the Company held immediately prior to
the Merger.
15. No dividends or distributions will be made to former Company
shareholders by the Buyer, other than regular, normal dividend
distributions made (i) with regard to all shares of Buyer Common Stock or
(ii) with regard to RV Preferred Stock in accordance with its terms.
16. No stock of Merger Sub will be issued in the Merger. The
information in this letter is provided in connection with the preparation
of your opinion. We understand that your opinion will be premised on the
basis that all of the facts, representations and assumptions on which you
are relying, whether contained herein or in the documents described herein,
are accurate and
2
<PAGE> 390
complete and will be accurate and complete at the Effective Time. We
further understand that your opinion will be subject to the qualifications
and limitations set forth in your opinion letters.
Very truly yours,
[RV]
By:
------------------------------------
Name:
Title:
3
<PAGE> 391
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment") is entered
into as of February 1, 2000 by and among AT&T Corp. ("Parent"), a New York
corporation, AT&T Latin America Corp. ("RV"), a Delaware corporation (formerly
named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware corporation, and
FirstCom Corporation (the "Company"), a Texas Corporation.
RECITALS
A. Parent, RV, Merger Sub and the Company have entered into an Agreement
and Plan of Merger, dated as of November 1, 1999 (the "Merger Agreement").
B. Each of Parent and the Company desire to extend the date on which either
of them may terminate the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without definition shall
have the respective meanings ascribed to them in the Merger Agreement.
2. EXTENSION OF DATE. The date of April 30, 2000 appearing in clause (i)
of Section 6.1(b) of the Merger Agreement is hereby amended to read "May 31,
2000."
3. NO OTHER AMENDMENT OR MODIFICATION. The Merger Agreement shall remain
in full force and effect except as expressly amended or modified hereby.
4. COUNTERPARTS. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
5. EFFECTIVENESS. This Amendment shall be effective only upon execution
and delivery by each of the parties hereto.
[rest of page intentionally left blank; signature page follows]
<PAGE> 392
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first written above.
AT&T Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T Latin America Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: Vice President
Frantis, Inc.
By: /s/ FRED DIBLASIO
--------------------------------------
Name: Fred DiBlasio
Title: President
FirstCom Corporation
By: /s/ PATRICIO E. NORTHLAND
--------------------------------------
Name: Patricio E. Northland
Title: President and Chief Executive
Officer
<PAGE> 393
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment") is entered
into as of February 22, 2000 by and among AT&T Corp. ("Parent"), a New York
corporation, AT&T Latin America Corp. ("ATTL"), a Delaware corporation (formerly
named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware corporation, and
FirstCom Corporation (the "Company"), a Texas corporation.
RECITALS
A. Parent, ATTL, Merger Sub and the Company have entered into an Agreement
and Plan of Merger, dated as of November 1, 1999 (as amended, the "Merger
Agreement").
B. ATTL desires to enter into certain agreements (the "Keytech Acquisition
Agreements"), in the forms previously delivered to the Company, providing for
the purchase by ATTL (or one or more affiliates designated by it) of 100% of the
capital stock of Keytech LD S.A. ("Keytech") and certain other transactions as
set forth therein.
C. ATTL and the other parties to the Keytech Acquisition Agreements
anticipate that the closing thereunder will occur prior to the Closing.
D. Pursuant to the Merger Agreement, ATTL requires the consent of the
Company in order to purchase the capital stock of Keytech and to issue shares of
ATTL Class A Common Stock in partial payment therefor, as contemplated by the
Keytech Acquisition Agreements.
E. Assuming that the closing under the Keytech Acquisition Agreements
occurs prior to the Closing, each of Parent, ATTL, Merger Sub and the Company
intend that, immediately following the Effective Time, on a fully-diluted basis
and after giving effect to such closing, (i) the former shareholders of the
Company will own, collectively, approximately 34% of the shares of common stock
of ATTL, in the form of shares of ATTL Class A common stock ("Class A Common
Stock") or ATTL Series A convertible preferred stock, as the case may be, (ii)
Promon will own, directly or indirectly, approximately 6% of the shares of
common stock of ATTL, in the form of Class A Common Stock, (iii) the former
shareholders of Kevin will own, collectively, approximately 1% of the shares of
common stock of ATTL, in the form of Class A Common Stock, a portion of which
will be held in escrow pursuant to an escrow agreement, and (iv) Parent will
own, directly or indirectly, approximately 58% of the shares of common stock of
ATTL, in the form of ATTL Class B common stock (in each case rounded to nearest
integer).
F. Parent, ATTL, Merger Sub and the Company desire to amend Schedule B to
the form of Regional Vehicle Agreement attached as Exhibit E to the Merger
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the respective meanings ascribed to them in the Merger
Agreement.
2. Representation and Warranty of Parent. Paragraph (d) of Section
3.2 of the Merger Agreement is hereby deleted and replaced in its entirety
by the following:
"(d) Capitalization. (i) As of February 13, 2000, the issued and
outstanding capital stock of ATTL consisted of 40,000 shares of common
stock, par value $.01 per share, all of which were issued and
outstanding, 36,000 of which were owned, directly or indirectly, by
Parent, and 4,000 of which were owned, directly or indirectly, by
Promon. As of the Closing
<PAGE> 394
Date, the aggregate number of issued and outstanding shares of capital
stock of ATTL shall be not more than the sum of (i) the product of (x)
such number of shares of Preferred Stock issued or accrued as
paid-in-kind dividends from November 1, 1999 to the Closing Date, and
(y) 2.077, plus (ii) either 82,026,893, if the closing shall have
occurred under the Keytech Acquisition Agreements, or 80,848,204, if
such closing shall not have occurred. All issued and outstanding shares
of capital stock of ATTL and of Merger Sub are duly authorized, validly
issued, fully paid, non-assessable and free of pre-emptive rights. As of
the Closing, except for (A) approximately 10% of the outstanding common
stock of ATTL owned by Promon (assuming Promon's participation in all
contributions to the capital of ATTL in proportion to its percentage
interest as of the date hereof), and (B) if the closing under the
Keytech Acquisition Agreements shall have occurred, 1,178,689 shares of
common stock of ATTL owned by the former shareholders of Keytech and
their respective permitted transferees (including shares held in
escrow), as provided in the Keytech Acquisition Agreements, in each case
in the form of Class A Common Stock, (I) all issued and outstanding
shares of common stock of ATTL are owned, directly or indirectly, by
Parent, in the form of ATTL Class B common stock, (II) all issued and
outstanding shares of capital stock of Merger Sub are owned directly by
ATTL, and (III) all issued and outstanding shares of capital stock or
quotas, as the case may be, of each member of the Jamtis Group (and
Keytech, if the closing shall have occurred under the Keytech
Acquisition Agreements) are owned directly or indirectly by ATTL, in
each case free and clear of Encumbrances (other than any Encumbrances
created by Promon or the former shareholders of Keytech as to the shares
of Class A Common Stock owned by them). None of ATTL, Merger Sub,
Keytech or any member of the Jamtis Group has any outstanding bonds,
debentures, notes or other similar obligations, instruments or
securities entitling the holders thereof to vote (or which are
convertible into or exercisable for securities having the right to vote)
with the shareholders of ATTL, Merger Sub, Keytech or such member on any
matter. As of November 1, 1999 and as of the Closing Date, the amount
and ownership of the issued equity capital of each member of the Jamtis
Group are as set forth on Schedule 3.2(d) of the ATTL Disclosure Letter.
(ii) Except as described in the Merger Agreement, the Keytech
Acquisition Agreements or the ATTL Disclosure Letter, there are no other
shares of capital stock (or quotas, as the case may be) of ATTL, Merger
Sub, Keytech or any member of the Jamtis Group, no securities of ATTL,
Merger Sub, Keytech or any member of the Jamtis Group convertible or
exchangeable for shares of capital stock or voting securities (or
quotas, as the case may be) of ATTL, Merger Sub, Keytech or any member
of the Jamtis Group, and no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate ATTL, Merger Sub, Keytech or any member of
the Jamtis Group to issue, transfer or sell any shares of capital stock
of ATTL, Merger Sub, Keytech or any member of the Jamtis Group."
3. Access and Information; Pre-Closing Review. The Company acknowledges
that it has been afforded an adequate opportunity to investigate the properties,
assets, liabilities, personnel and records of Keytech. Prior to the closing
under the Keytech Acquisition Agreements, Parent will use its reasonable best
efforts to assist the Company in obtaining any further information as to Keytech
that the Company may reasonably request. From and after the date of the closing
under the Keytech Acquisition Agreements, Parent shall, and shall cause its
Subsidiaries to, (i) give the Company and its authorized representatives full
access during normal business hours to all books, records, personnel, research
and other consultants, offices and other facilities and properties of Keytech
and Keytech's accountants (and shall use its reasonable best efforts to give the
Company and such representatives access to such accountants' work papers), (ii)
permit the Company to make such copies and
<PAGE> 395
inspections thereof as the Company may reasonably request and (iii) furnish the
Company with such financial and operating data and other information with
respect to the business and properties of Keytech as the Company may from time
to time reasonably request.
4. Consent. The Company hereby gives its consent to ATTL to execute and
deliver the Keytech Acquisition Agreements and to consummate the transactions
contemplated thereby.
5. Regional Vehicle Agreement. Schedule B to the form of Regional Vehicle
Agreement attached as Exhibit E to the Merger Agreement is hereby amended and
restated as set forth in Exhibit A hereto.
6. No Other Amendment or Modification. The Merger Agreement shall remain
in full force and effect except as expressly amended or modified hereby.
7. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. Captions. Captions and headings to paragraphs and sections of this
Amendment are included for convenience of reference only and shall not
constitute a part of this Amendment or in any way affect the meaning of any term
or provision of this Amendment.
9. Effectiveness. This Amendment shall be effective only upon execution
and delivery by each of the parties hereto.
[rest of page intentionally left blank; signature page follows]
<PAGE> 396
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
AT&T Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T Latin America Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: Vice President
Frantis, Inc.
By: /s/ GARY SWENSON
--------------------------------------
Name: Gary Swenson
Title: President
FirstCom Corporation
By: /s/ PATRICIO E. NORTHLAND
--------------------------------------
Name: Patricio E. Northland
Title: Chairman, President and CEO
<PAGE> 397
EXHIBIT A
SCHEDULE B
TO REGIONAL VEHICLE AGREEMENT
RV NON-EXCLUSIVE SERVICES
AT&T Card Services
AT&T Direct(R) services
E-commerce
Web-hosting
Fixed wireless for connectivity
Voice over Internet Protocol
Managed Network Services
Video conferencing services
<PAGE> 398
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Third Amendment to Agreement and Plan of Merger ("Amendment") is
entered into as of May 10, 2000 by and among AT&T Corp. ("Parent"), a New York
corporation, AT&T Latin America Corp. ("RV"), a Delaware corporation (formerly
named Kiri Inc.), Frantis, Inc. ("Merger Sub"), a Delaware corporation, and
FirstCom Corporation (the "Company"), a Texas Corporation.
RECITALS
A. Parent, RV, Merger Sub and the Company (the "Parties") have entered into
an Agreement and Plan of Merger, dated as of November 1, 1999 (as amended, the
"Merger Agreement"). Capitalized terms used herein without definition have the
meaning given them in the Merger Agreement.
B. The Parties amended the Merger Agreement on February 1, 2000 to extend
the date on which either of them may terminate the Merger Agreement from April
30, 2000 to May 31, 2000.
C. The Parties desire to extend further again the date on which Parent or
the Company may terminate the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without definition
shall have the respective meanings ascribed to them in the Merger
Agreement.
2. EXTENSION OF DATE. The date of May 31, 2000 appearing in clause
(i) of Section 6.1(b) of the Merger Agreement is hereby amended to read
"June 30, 2000."
3. NO OTHER AMENDMENT OR MODIFICATION. The Merger Agreement shall
remain in full force and effect except as expressly amended or modified
hereby.
4. COUNTERPARTS. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
5. EFFECTIVENESS. This Amendment shall be effective only upon
execution and delivery by each of the parties hereto.
[INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
<PAGE> 399
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
AT&T Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T Latin America Corp.
By: /s/ JOHN A. HAIGH
--------------------------------------
Name: John A. Haigh
Title: President
Frantis, Inc.
By: /s/ GARY SWENSON
--------------------------------------
Name: Gary Swenson
Title: Secretary
FirstCom Corporation
By: /s/ PATRICIO E. NORTHLAND
--------------------------------------
Name: Patricio E. Northland
Title: President and Chief Executive
Officer
<PAGE> 400
FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Fourth Amendment to Agreement and Plan of Merger ("Amendment") is
entered into as of June 15, 2000 by and among AT&T Corp. ("Parent"), a New York
corporation, AT&T Latin America Corp. ("RV"), a Delaware corporation (formerly
named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware corporation, and
FirstCom Corporation (the "Company"), a Texas Corporation.
RECITALS
A. Parent, RV, Merger Sub and the Company (the "Parties") have entered
into an Agreement and Plan of Merger, dated as of November 1, 1999 (as amended,
the "Merger Agreement"). Capitalized terms used herein without definition have
the meaning given them in the Merger Agreement.
B. The Parties amended the Merger Agreement on May 10, 2000 to extend the
date on which Parent or the Company may terminate the Merger Agreement from May
31, 2000 to June 30, 2000.
C. The Parties desire to extend further again the date on which Parent or
the Company may terminate the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition shall
have the respective meanings ascribed to them in the Merger Agreement.
2. Extension of Date. The date of June 30, 2000 appearing in clause (i)
of Section 6.1(b) of the Merger Agreement is hereby amended to read "July 31,
2000."
3. No Other Amendment or Modification. The Merger Agreement shall remain
in full force and effect except as expressly amended or modified hereby.
4. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of such
counterparts, taken together shall be deemed to constitute one and the same
instrument.
5. Effectiveness. This Amendment shall be effective only upon execution
and delivery by each of the parties hereto.
[INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
<PAGE> 401
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
AT&T CORP.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T LATIN AMERICA CORP.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: President
FRANTIS, INC.
By: /s/ GARY SWENSON
------------------------------------
Name: Gary Swenson
Title: Secretary
FIRSTCOM CORPORATION.
By: /s/ PATRICIO E. NORTHLAND
------------------------------------
Name: Patricio E. Northland
Title: President and Chief
Executive Officer
<PAGE> 402
FIFTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Fifth Amendment to Agreement and Plan of Merger ("Amendment") is
entered into as of July 25, 2000 by and among AT&T Corp. ("Parent"), a New York
corporation, AT&T Latin America Corp. ("RV"), a Delaware corporation (formerly
named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware corporation, and
FirstCom Corporation (the "Company"), a Texas Corporation.
RECITALS
A. Parent, RV, Merger Sub and the Company (the "Parties") have entered into
an Agreement and Plan of Merger, dated as of November 1, 1999 (as amended on
February 1, 2000, February 23, 2000, May 10, 2000 and June 15, 2000, the "Merger
Agreement").
B. The Parties amended the Merger Agreement on June 15, 2000 to extend the
date on which Parent or the Company may terminate the Merger Agreement from June
30, 2000 to July 31, 2000.
C. The Parties desire to extend further again the date on which Parent or
the Company may terminate the Merger Agreement.
D. The Parties also desire to amend the Merger Agreement in order to
accommodate a change in par value of the RV Common Stock and the issuance of a
series of a non-voting, non-participating, and non-convertible RV Preferred
Stock.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the respective meanings ascribed to them in the Merger
Agreement.
2. Extension Date. The date of July 31, 2000 appearing in clause (i)
of Section 6.1(b) of the Merger Agreement is hereby amended to read "August
31, 2000."
3. Amendment of Section 2.1(a). The words "share of Class A common
stock, par value $0.01 per share, of RV" in Paragraph (a) of Section 2.1 of
the Merger Agreement are hereby deleted and replaced in their entirety with
"share of Class A common stock, par value $0.0001 per share, of RV."
4. Amendment to Section 3.2. Paragraph (d)(i) of Section 3.2 of the
Merger Agreement is hereby amended by the addition of new sentence at the
end of such paragraph the reads:
Notwithstanding the foregoing, as of the Closing, the capital stock of
RV may also include shares of non-voting, non-convertible and
non-participating RV Preferred Stock issued by RV to Parent or a
wholly-owned subsidiary of Parent in an aggregate amount not to exceed
$190 million, substantially on the terms attached as Exhibit H.
4. Amendment to Exhibits. Annex A attached hereto shall be inserted
after Exhibit G of the Merger Agreement as a new Exhibit H.
5. Consent. Pursuant to Section 4.13(c)(ii) of the Merger Agreement,
FirstCom hereby consents to the issuance by RV of shares of non-voting,
non-convertible and non-participating RV Preferred Stock to Parent or a
wholly-owned subsidiary of Parent in an aggregate amount not to exceed $190
million, substantially on the terms attached as Annex A hereto.
<PAGE> 403
6. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. Effectiveness. This Amendment shall be effective only upon
execution and delivery by each of the parties hereto.
[INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
2
<PAGE> 404
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
AT&T CORP.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T LATIN AMERICA CORP.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: President
FRANTIS, INC.
By: /s/ JOHN A. HAIGH
------------------------------------
Name: John A. Haigh
Title: President
FIRSTCOM CORPORATION.
By: /s/ PATRICIO E. NORTHLAND
------------------------------------
Name: Patricio E. Northland
Title: Chairman, CEO & President
3
<PAGE> 405
ANNEX A
<PAGE> 406
FORM OF CERTIFICATE OF DESIGNATION OF
SHARES OF 15% SERIES B PREFERRED
STOCK OF AT&T LATIN AMERICA CORP.
AT&T LATIN AMERICA CORP.
---------------------
CERTIFICATE OF DESIGNATION
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
---------------------
15% SERIES B CUMULATIVE PREFERRED STOCK
---------------------
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated as the 15% Series B Cumulative Preferred Stock (the "SERIES B
PREFERRED STOCK"), and the authorized number of shares constituting such series
shall be 100,000, par value $0.001 per share.
2. RANK. The Series B Preferred Stock shall, with respect to dividend
rights and rights on liquidation of the Corporation, rank (A) senior to all
classes of Common Stock and to each other class or series of shares of the
Corporation hereafter created, the terms of which do not expressly provide that
it ranks senior to, or on a parity with, the Series B Preferred Stock as to
dividends and distributions upon the liquidation of the Corporation
(collectively with the Common Stock, referred to for purposes of this
Certificate as the "JUNIOR STOCK"); (B) on a parity with each class of shares or
series of preferred shares issued by the Corporation after the date hereof, the
terms of which specifically provide that such class or series will rank on a
parity with the Series B Preferred Stock as to dividends and distributions upon
the liquidation of the Corporation (collectively referred to for purposes of
this Certificate as "PARITY STOCK"), PROVIDED that any such Parity Stock not
approved by the Holders in accordance with Section 5(b) hereof shall be Junior
Stock and not Parity Stock; and (C) junior to the Series A Preferred Stock, par
value $0.001, of the Corporation (the "SERIES A PREFERRED STOCK") and to each
class or series of shares of the Corporation hereafter created that has been
approved by the Holders in accordance with Section 5(b) hereof and the terms of
which expressly provide that such class or series will rank senior to the Series
B Preferred Stock as to dividends and distributions upon liquidation, winding-up
or dissolution of the Corporation (collectively referred to as "SENIOR STOCK"),
PROVIDED that any such Senior Stock that was not approved by the Holders in
accordance with Section 5(b) shall be Junior Stock and not Senior Stock.
3. DIVIDENDS.
(a) Beginning on the Original Issue Date, the Holders of the outstanding
shares of Series B Preferred Stock shall be entitled to receive, payable when
and as declared by the Board of Directors of the Corporation out of assets
legally available therefor, distributions in the form of cash dividends on each
share of Series B Preferred Stock at an annual rate of fifteen percent (15%) of
the sum of (i) [$ ] (the "SERIES B PURCHASE PRICE") and (ii) all accumulated and
unpaid dividends accrued thereon pursuant to this Section 3 from the date of
issuance thereof (the "SERIES B DIVIDENDS"; the sum of the Series B Purchase
Price and Series B Dividends is referred to herein as the "SERIES B PREFERENCE
AMOUNT"). All dividends shall (i) be cumulative, whether or not earned or
declared and whether or not there are profits, surplus or other funds legally
available for the payment of dividends, (ii) continue to accrue on a daily basis
from the Original Issue Date until paid out of assets legally available therefor
and (iii) be payable semi-annually in arrears on each Dividend Payment Date,
commencing on the first Dividend Payment Date after the Original Issue
<PAGE> 407
Date. Each dividend shall be payable to the Holders of record as they appear on
the stock books of the Corporation on the Dividend Record Date immediately
preceding the related Dividend Payment Date or, if dividends are payable on a
date other than a Dividend Payment Date pursuant to the terms hereof, ten
Business Days prior to such date.
(b) So long as any shares of Series B Preferred Stock are outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend on
account of, or purchase, redeem, retire or otherwise acquire for value, or set
apart for payment money for a sinking or other similar fund for the purchase,
redemption, retirement or other acquisition for value of, any Junior Stock or
Parity Stock or any warrants, rights, calls or options exercisable for or
convertible into Junior Stock or Parity Stock, or make any distribution or
dividend in respect thereof, either directly or indirectly, whether in cash,
obligations or shares of the Corporation or other property.
4. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon a liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, (each, a
"LIQUIDATION"), each Holder shall be entitled, after provision for the payment
of the Corporation's debts, any liquidation preference on Senior Stock and any
other non-contingent liabilities to be paid in cash in full, before any
distribution is made on any Junior Stock but in parity with any distribution to
Parity Stock, an amount in cash equal to the Series B Preference Amount plus an
amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding-up (the
"LIQUIDATION AMOUNT") for each Series B Preferred Share held by such Holder. If,
upon a Liquidation, the net assets of the Corporation distributable among the
Holders and the holders of any Parity Stock shall be insufficient to permit the
payment of the Liquidation Amount and the liquidation preference for such Parity
Stock in full, then the entire net assets of the Corporation remaining after the
provision for the payment of the Corporation's debts, any liquidation preference
on Senior Stock and any other non-contingent liabilities shall be distributed
among the Holders and the holders of any Parity Stock, respectively, ratably in
proportion to the full preferential amounts to which they would otherwise be
entitled on account of their Series B Preferred Stock or Parity Stock, as the
case may be.
5. VOTING.
(a) Except as otherwise required under law or as set forth in this Section
5 below, the Holders shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of the Corporation.
(b) So long as any shares of Series B Preferred Stock shall be outstanding,
the approval of Holders of at least a majority of the shares of Series B
Preferred Stock at the time outstanding, voting as a separate class, shall be
required for (i) the authorization or issuance of any shares of Senior Stock not
authorized or issued as of the Original Issue Date, (ii) the authorization or
issuance of any additional shares of Series B Preferred Stock, (iii) the
authorization or issuance of any shares of Parity Stock, (iv) the
reclassification of any shares of the Corporation into shares of Preferred Stock
that are not Junior Stock, (v) the authorization of any security of the
Corporation exchangeable for, convertible into, or evidencing the right to
purchase any Senior Stock, Parity Stock or Series B Preferred Stock, (vi) any
amendment, alteration or revocation of the Certificate of Incorporation
(including this Certificate of Designation) or the Bylaws of the Corporation
that causes a modification in the preferences, privileges, rights or powers of
the Series B Preferred Stock and (vii) any amendment or modification of the
preferences, privileges, rights or powers of the Class A Preferred Stock that
would have an adverse effect on the Holders. Any increase in the aggregate
principal amount of any Indebtedness or other security convertible into any
class or series of shares shall be deemed an authorization or issuance of such
class or series of shares.
2
<PAGE> 408
(c) So long as any shares of Series B Preferred Stock shall be outstanding,
without the affirmative approval of Holders of at least a majority of the
outstanding shares of Series B Preferred Stock voting as a separate class, the
Corporation shall not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to,
another Person, engage in any other similar transaction or adopt a plan of
liquidation unless: (i) either (A) the Corporation is the surviving or
continuing Person or (B) the Person (if other than the Corporation) formed by
such consolidation or into which the Corporation is merged or the Person that
acquires by conveyance, transfer or lease the properties and assets of the
Corporation substantially as an entirety or in the case of a plan of
liquidation, the Person to which assets of the Corporation have been
transferred, shall be a corporation, limited liability company, partnership or
trust organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) if the Corporation is not the
surviving Person, the Series B Preferred Stock shall be converted into or
exchanged for and shall become shares of such successor, transferee or resulting
Person, having in respect of such successor, transferee or resulting Person the
same powers, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereon, that the
Series B Preferred Stock had immediately prior to such transaction; (iii)
immediately after giving effect to such transactions, no Triggering Event shall
have occurred or be continuing; and (iv) such surviving Person shall have
delivered to the Holders prior to the consummation of the proposed transaction
an officers' certificate and an opinion of counsel, each reasonably satisfactory
in form and substance to Holders of a at least a majority of the outstanding
Series B Preferred Stock, each stating that such consolidation, merger or
transfer complies with the terms hereof and that all conditions precedent herein
relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Corporation, the capital stock of which constitutes all or substantially all of
the properties and assets of the Corporation shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Corporation.
(d) If and whenever at any time or from time to time, (i) cash dividends on
the Series B Preferred Stock are in arrears and unpaid for three or more
semi-annual Dividend Periods (whether or not consecutive), (ii) the Corporation
fails to discharge any redemption obligation with respect to the Series B
Preferred Stock, (iii) the Corporation fails to make an Offer to Purchase
following a Change of Control in accordance with Section 8 hereof or fails to
purchase shares of Series B Preferred Stock from Holders who validly tender
their shares pursuant to an Offer to Purchase or (iv) the Corporation breaches
or violates one of the provisions set forth in Section 9 hereof and such breach
or violation continues for a period of 30 days or more; (each such event, a
"TRIGGERING EVENT"), then occurrence of such Triggering Event shall mark the
beginning of a period (herein called a "DEFAULT PERIOD") which shall extend
until:
(A) any accumulated dividends that are in arrears on the Series B
Preferred Stock are declared and paid in full cash; and
(B) the failure, breach or default giving rise to any such Triggering
Event is cured or waived by the Holders of at least a majority of the
shares of Series B Preferred Stock then outstanding and entitled to vote
thereon.
During the continuance of each and every Default Period, the Holders shall
have the right (in addition to any other rights they may have), voting
separately as a class, to elect two members of the Board of Directors. The right
of the Holders to elect members of the Board of Directors during a Default
Period may be exercised initially either at a special meeting of stockholders
called as
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provided below or at the Corporation's next annual meeting of stockholders, and
thereafter at each subsequent annual meeting of stockholders, until such Default
Period has ended, at which time such right shall terminate, except as herein or
by law expressly provided, subject to the revesting of such rights to such
holders if a subsequent Default Period should occur. In case of any vacancy
occurring among the directors elected by the Holders, such vacancy may be filled
only by the affirmative vote of the Holders of at least a majority of the shares
of Series B Preferred Stock. At elections for such directors, each Holder shall
be entitled to one vote for each share.
At any time when such special voting rights shall have vested in the
Holders as provided in this Section 5(d), an authorized officer of the
Corporation shall, upon the written request of the Holders of record of at least
10% of the aggregate par value of the shares of Series B Preferred Stock,
addressed to the Secretary of the Corporation, call a special meeting of the
Holders for the purpose of electing such additional directors. Such meeting
shall be held at the earliest practicable date at the principal office of the
Corporation or such other place as is agreed by the Corporation and Holders of a
least a majority of the outstanding shares of Series B Preferred Stock. If such
meeting shall not be called by a proper officer of the Corporation within 15
days after receipt of written request upon the Secretary of the Corporation (or
any Assistant Secretary if the Secretary is absent) sent by first class mail,
postage prepaid, or by overnight air courier, or within 15 days after mailing
the same within the United States of America by registered mail addressed to the
Secretary of the Corporation at its principal office, then Holders of record of
at least 10% of the aggregate par value of the shares of Series B Preferred
Stock at the time outstanding may designate in writing one of the Holders to
call such meeting at the expense of the Corporation, and such meeting may be
called by such Person so designated upon the notice required for annual meetings
of stockholders and shall be held at such principal office. Any Holder so
designated shall have access to the stock books of the Corporation relating to
the Holders of Series B Preferred Stock for the purpose of causing meetings of
stockholders to be called pursuant to these provisions.
At any meeting held for the purpose of electing directors at which the
Holders shall have the special right, voting together as one class to elect
directors as provided in this Section 5(d), the presence, in person or by proxy,
of the Holders of at least a majority of the shares of Series B Preferred Stock
at the time outstanding shall be required to constitute a quorum of such class
for the election of directors pursuant to this Section 5(d), and the affirmative
vote of the Holders of at least a majority of the shares of Series B Preferred
Stock present in person or by proxy at such meeting shall constitute the act of
such Series B Preferred Stock. At any such meeting or adjournment thereof, in
the absence of a quorum, Holders of at least a majority of the Series B
Preferred Stock present in person or by proxy shall have the power to adjourn
the meeting for the election of the directors that they are entitled to elect
from time to time, without notice other than announcement at the meeting, until
such a quorum shall be present.
Immediately upon the commencement of any Default Period, the Corporation
will give written notice thereof to each Holder of then outstanding shares of
Series B Preferred Stock, at the address of each such Holder as it appears on
the books of the Corporation.
6. REDEMPTION AT CORPORATION'S OPTION.
(a) The Corporation shall have the right (the "REDEMPTION RIGHT"), in its
sole discretion, to redeem any outstanding shares of Series B Preferred Stock at
any time after the fourth annual anniversary of the Original Issue Date. The
redemption price (the "CORPORATION REDEMPTION PRICE") of each share of Series B
Preferred Stock so redeemed shall be equal to the Series B Preference Amount
plus an amount equal to a prorated dividend for the period from the date after
the last Dividend Payment Date to the Corporate Redemption Date.
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(b) The Corporation may elect to exercise the Redemption Right by written
notice (a "CORPORATION NOTICE OF REDEMPTION") to each registered Holder
specifying the time and place of such redemption and the number of shares of
Series B Preferred Stock held by such Holder to be redeemed. Such Corporation
Notice of Redemption shall be mailed by certified mail, return receipt
requested, at least 10, and not more than 30 days prior to the date specified
for redemption (the "CORPORATION REDEMPTION DATE"), to each registered Holder at
such Holder's last address as it appears on the Corporation's books. At the
closing of any redemption pursuant to this Section 6, the Corporation shall pay
to each of the Holders called for redemption, against the Corporation's receipt
from such Holder of the certificate or certificates representing the shares of
such Series B Preferred Stock then held by such Holder, an amount equal to the
Corporation Redemption Price for each such share, by wire transfer of
immediately available funds.
(c) In the case of any redemption pursuant to this Section 6, unless the
Corporation fails to pay in full the Corporation Redemption Price, dividends on
the shares called for redemption shall cease to accumulate on the applicable
Corporation Redemption Date, and all rights of the Holders subject to such
redemption by reason of their ownership of such shares shall cease on such
Corporation Redemption Date, except the right to receive the Corporation
Redemption Price on surrender to the Corporation of the certificates
representing such shares. After the applicable Corporation Redemption Date, the
shares shall not be deemed to be outstanding and shall not be transferable on
the books of the Corporation, except to the Corporation.
(d) Any shares of Series B Preferred Stock redeemed by the Corporation
pursuant to this Section 6 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
7. REDEMPTION AT HOLDER'S OPTION.
(a) Each Holder shall have the right (the "PUT RIGHT"), in its sole
discretion, to require the Corporation to redeem all or any portion of its
outstanding shares of Series B Preferred Stock at any time after the fourth
annual anniversary of the Original Issue Date. The redemption price (the "HOLDER
REDEMPTION PRICE") of each share of Series B Preferred Stock so redeemed shall
be equal to the Series B Preference Amount plus an amount equal to a prorated
dividend for the period from the date after the last Dividend Payment Date to
the Holder Redemption Date.
(b) A Holder may elect to exercise its Put Right pursuant to Section 7(a)
by mailing written notice (a "HOLDER REDEMPTION NOTICE") to the Corporation by
certified mail, return receipt requested. The Holder Redemption Notice shall
specify:
(i) the name of the Holder delivering such Holder Redemption Notice;
(ii) that such Holder is exercising its Put Right to require the
Corporation to redeem shares of Series B Preferred Stock held by such
holder; and
(iii) the number of shares of Series B Preferred Stock to be subject
to such redemption.
(c) The Corporation shall, within thirty days of receipt of such Holder
Redemption Notice, deliver to each Holder exercising its Put Right, a notice
(the "CORPORATION NOTICE") specifying the date set for such redemption, which
date shall be no more than thirty days after the Corporation Notice (the "HOLDER
REDEMPTION DATE"). At the closing of any redemption pursuant to this Section 7,
the Corporation shall pay to each of the Holders exercising its Put Right,
against the Corporation's receipt from such Holder of the certificate or
certificates representing the shares of such Series B Preferred Stock set forth
in the Holder Redemption Notice, an amount equal to the Holder Redemption Price
for each such share, by wire transfer of immediately available funds.
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<PAGE> 411
(d) Notwithstanding anything contained in this Section 7 to the contrary,
the Corporation shall not be obligated to redeem shares of Series B Preferred
Stock that are the subject of a Holder Redemption Notice if such redemption
would result in a breach of, or would cause a default or event of default under,
the Certificate of Designation of the Series A Preferred Stock, provided that if
such breach, event of default or default would not result from the redemption of
any number of shares of Series B Preferred Stock which is less than the total
number of shares the Corporation is obligated to redeem on the Holder Redemption
Date, the Corporation shall purchase on the Holder Redemption Date the maximum
number of shares of Series B Preferred Stock it may so purchase, allocated among
the holders which have elected to have their shares so repurchased ratably
according to the number of shares so tendered; provided, further, however, the
Corporation shall use its reasonable efforts to cure such default or violation
in a timely manner and remove any associated restrictions or limitations which
are applicable to the rights of the Holders contained in this Section 7.
(e) In the case of any redemption pursuant to this Section 7, unless the
Corporation defaults in the payment in full of the Holder Redemption Price,
dividends on the shares called for redemption shall cease to accumulate on the
applicable Holder Redemption Date, and all rights of the Holders subject to such
redemption by reason of their ownership of such shares shall cease on such
redemption date, except the right to receive the Holder Redemption Price on
surrender to the Corporation of the certificates representing such shares. After
the applicable Holder Redemption Date, the shares shall not be deemed to be
outstanding and shall not be transferable on the books of the Corporation,
except to the Corporation.
(f) Any shares of Series B Preferred Stock redeemed by the Corporation
pursuant to this Section 7 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
8. CHANGE OF CONTROL.
(a) OFFER TO PURCHASE. Within ten days following a Change of Control, the
Corporation shall notify Holders of the Change of Control and shall make an
offer (the "OFFER TO PURCHASE") to each such Holder to purchase for cash such
Holder's shares of Series B Preferred Stock, or such portion thereof as may be
determined by such Holder, at a price equal to 101% of sum of the Series B
Preference Amount plus an amount equal to a prorated dividend for the period
from the date after the last Dividend Payment Date to the closing date for Offer
to Purchase (the "CHANGE OF CONTROL PRICE").
(b) On the twentieth Business Day following the date of the Offer to
Purchase or such other date agreed by the Corporation and Holders holding at
least a majority of the outstanding shares of Series B Preferred Stock, the
Corporation shall (A) accept for payment such shares of Series B Preferred Stock
that are validly tendered pursuant to the Offer to Purchase, and (B) pay to the
Holders of shares so accepted an amount in cash per share equal to the Change of
Control Price by wire transfer of immediately available funds. Unless the
Corporation defaults in the payment for the Series B Preferred Stock tendered
pursuant to the Offer to Purchase, dividends will cease to accrue with respect
to the Series B Preferred Stock so tendered and all rights of Holders of such
tendered shares will terminate, except for the right to receive payment
therefor. Any shares of Series B Preferred Stock which shall have been redeemed
pursuant to this Section 8 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
9. OTHER PROVISIONS.
(a) ISSUANCES OF CAPITAL STOCK OF SUBSIDIARIES. The Corporation shall not
permit any Subsidiary directly or indirectly to issue, sell, assign, pledge or
otherwise encumber or dispose of any shares of its Capital Stock (except to the
Corporation or another Subsidiary).
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(b) LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Corporation shall not, and shall not cause or permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or permit
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary of the Corporation to (i) pay dividends or make any
other distributions on its Capital Stock or any other interest or participation
in, or measured by, such Subsidiary's profits; or (ii) make loans or advances or
pay any Indebtedness or other obligation owed to the Corporation or to any
Subsidiaries of the Corporation (any such restriction or encumbrance a "PAYMENT
RESTRICTION"), except for such Payment Restrictions existing under or by reason
of:
(A) this Certificate of Designation;
(B) any outstanding Indebtedness as in effect on the Original Issue
Date;
(C) the Global Card Holdings Inc. Credit Facility Agreement;
(D) Acquired Indebtedness permitted by the terms of this Certificate
of Designation, provided that such Indebtedness is not incurred as a result
or in contemplation of the Asset Acquisition or acquisition of a Person
resulting in such Indebtedness becoming Acquired Indebtedness; or
(E) applicable law or regulations.
10. DEFINITIONS. As used in this Certificate of Designation, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
(i) "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person and (b) existing at the
time such Person becomes a Subsidiary of any other Person.
(ii) "AFFILIATE" of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person. "CONTROL" (including the terms
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
(iii) "ASSET ACQUISITION" means (a) a transaction in which a Person becomes
a Subsidiary of the Corporation or is merged with or into the Corporation or any
Subsidiary of the Corporation or (b) the acquisition by the Corporation or a
Subsidiary of the Corporation of assets of any Person which constitute all or
substantially all of the assets of such Person or any division or line of
business of such Person.
(iv) "BUSINESS DAY" means any day other than a Saturday, Sunday or day on
which banking institutions in the New York, New York are authorized or obligated
by law or executive order to close.
(v) "CAPITAL STOCK" means, with respect to any Person, any ownership
interest in the voting or nonvoting capital stock or similar equity interest of
such Person, whether held or controlled directly or indirectly through the
ownership or control of capital stock or similar equity interest in one more
affiliates.
(vi) "CHANGE OF CONTROL" means the occurrence, on or prior to the fourth
annual anniversary of the Original Issue Date, of any of the following events:
(A) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as
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<PAGE> 413
amended (the "EXCHANGE ACT")), other than AT&T Corp., AT&T Global Card Holdings
Inc., any of their Affiliates or a Concert Party, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the Voting Stock of the Corporation; (B) the Corporation
consolidates with, or mergers with or into, another Person, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into the Corporation, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Corporation is converted into or exchanged for
cash, securities, or other property, other than any such transaction where (I)
the outstanding Voting Stock of the Corporation is converted into or exchanged
for Voting Stock of the surviving or transferee Person or its parent
corporation, and (II) the shareholders of the Corporation immediately prior to
such transaction, together with their Affiliates or a Concert Party, own more
than 50% of the Voting Stock of the surviving person; or (C) any voluntary
liquidation, dissolution or winding up of the Corporation, other than in a
circumstance described in the preceding clause (b).
(vii) "COMMON STOCK" means the Class A Common Stock of the Corporation (the
"CLASS A COMMON STOCK") and the Class B Common Stock of the Corporation (the
"CLASS B COMMON STOCK").
(viii) "CONCERT PARTY" means any Person controlled (as such term is defined
in the definition of Affiliate), indirectly or directly, by AT&T Corp. and
British Telecommunications plc. in connection with their Concert joint venture
(ix) "DIVIDEND PAYMENT DATE" means [June 15 and December 15] of each year;
PROVIDED that if any such day is not a Business Day, the relevant Dividend
Payment Date shall be the first Business Day preceding such day.
(x) "DIVIDEND RECORD DATE" means [June 1 and December 1] of each year.
(xi) "DIVIDEND PERIOD" means a period commencing on the next succeeding
date after the Dividend Payment Date and ending on the next Dividend Payment
Date.
(xii) "GLOBAL CARD HOLDINGS INC. CREDIT FACILITY AGREEMENT" means the
Credit Facility Agreement, dated [ ], 2000, among the Corporation, Global
Card Holdings Inc. and certain subsidiaries of the Corporation, as the same may
be amended from time to time.
(xiii) "HOLDER" means a holder of outstanding Series B Preferred Stock as
reflected in the stock books of the Corporation.
(xiv) "INDEBTEDNESS" of any Person at any date, means all indebtedness for
borrowed money or for the deferred purchase price of property or services (other
than trade liabilities incurred in the ordinary course of business and payable
in accordance with customary practices), obligations under capital leases
appearing or required to appear on the balance sheet of such Person and any
other indebtedness of such Person which is evidenced by a note, bond, debenture
or similar instrument.
(xv) "ORIGINAL ISSUE DATE" means the date on which a share of Series B
Preferred Stock was first issued.
(xvi) "PERSON" means any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust,
governmental authority or other entity.
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(xvii) "SUBSIDIARY" means each Person in which a Person owns or controls,
directly or indirectly, capital stock or other equity interests representing
more than 50% of the outstanding voting stock or other equity interests.
(xviii) "VENDOR FINANCING FACILITY" means any credit facilities of the
Corporation or any of its Subsidiaries to finance the purchase or use of
equipment, software and/or services provided by the vendors thereof, provided
such facility is not secured by any assets other than the assets acquired from
such vendor or vendors by Borrower or its Subsidiaries in connection with such
facility as permitted by this Agreement.
(xix) "VOTING STOCK" means at any time with respect to any Person shares of
any class of capital stock of such Person which are then entitled to vote
generally in the election of directors.
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ANNEX B
<PAGE> 416
[CIBC WORLD MARKETS LOGO] CIBC World Markets Corp.
425 Lexington Avenue
New York, NY 10017
Tel: 212-856-4000
November 1, 1999
The Board of Directors
FirstCom Corporation
220 Alhambra Circle, Suite 910
Coral Gables, Florida 33134
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness from a
financial point of view to the holders of the common stock of FirstCom
Corporation ("FirstCom") of the FirstCom Equity Ownership (defined below) in
Kiri Inc. ("RV") as provided for in the Agreement and Plan of Merger, dated as
of November 1, 1999 (the "Merger Agreement"), among AT&T Corp. ("AT&T"), RV,
Frantis, Inc., a wholly owned subsidiary of RV ("Merger Sub"), and FirstCom. The
Merger Agreement provides for, among other things, the merger of FirstCom with
and into Merger Sub (the "Merger") pursuant to which the shareholders of
FirstCom collectively will own, on a fully diluted basis, approximately 34.0%
(the "FirstCom Equity Ownership") of the common stock, par value $0.01 per
share, of RV ("RV Common Stock"). Representatives of FirstCom have advised us
that JAMTIS, Inc., an indirect wholly owned subsidiary of AT&T ("JAMTIS"), has
entered into certain agreements to acquire 100% of the outstanding equity
interest in NetStream Telecom Ltda. ("NetStream") and that AT&T intends to cause
JAMTIS to merge with a subsidiary of RV such that NetStream will become an
indirect wholly owned subsidiary of RV (the "NetStream Acquisition").
Representatives of FirstCom also have advised us that, in connection with the
Merger, AT&T and RV will enter into certain agreements relating to, among other
things, the licensing of service marks and the scope of future business
relationships between RV and AT&T and certain affiliates and joint ventures of
AT&T.
In arriving at our Opinion, we:
(a) reviewed the Merger Agreement and certain related documents;
(b) reviewed audited financial statements of FirstCom for the fiscal years ended
December 31, 1997 and December 31, 1998;
(c) reviewed unaudited financial statements of FirstCom for the six months ended
June 30, 1999;
(d) reviewed financial projections prepared by the managements of FirstCom and
AT&T, including estimates as to certain potential operating synergies and
cost savings;
(e) reviewed the historical market prices and trading volume for the common
stock, par value $0.001 per share, of FirstCom (the "FirstCom Common
Stock");
(f) held discussions with the senior managements of FirstCom, NetStream and AT&T
with respect to the businesses and prospects for future growth of FirstCom,
NetStream and RV;
<PAGE> 417
The Board of Directors CIBC World Markets Corp.
FirstCom Corporation
November 1, 1999
Page 2
(g) performed a discounted cash flow analysis of FirstCom, NetStream and RV
using certain assumptions of future performance provided to and discussed
with us by the managements of FirstCom and AT&T;
(h) reviewed and analyzed certain publicly available financial data for certain
companies we deemed comparable to FirstCom, NetStream and RV;
(i) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Merger;
(j) reviewed public information concerning FirstCom;
(k) at the request of FirstCom, approached and held discussions with selected
third parties to solicit indications of interest in the possible acquisition
of FirstCom; and
(l) performed such other analyses and reviewed such other information as we
deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by FirstCom,
NetStream, AT&T and their respective employees, representatives and affiliates.
With respect to forecasts of future financial condition and operating results of
FirstCom, NetStream and RV provided to or discussed with us, including estimates
as to certain potential operating synergies and cost savings (including the
timing, amount and achievability thereof) anticipated by the managements of
FirstCom and AT&T, we assumed, at the direction of the managements of FirstCom
and AT&T, without independent verification or investigation, that such forecasts
were reasonably prepared on bases reflecting the best available information,
estimates and judgments of the managements of FirstCom and AT&T. We also
assumed, at the direction of the management of FirstCom, that the Merger will
qualify as a tax-free reorganization for federal income tax purposes. In
addition, we have assumed, at the direction of the management of FirstCom, that
the Merger and the NetStream Acquisition will be effected in all material
respects in accordance with their respective terms and, to the extent relevant
to our analysis, have evaluated RV pro forma for the Merger and the NetStream
Acquisition. We have neither made nor obtained any independent evaluations or
appraisals of the assets or the liabilities of FirstCom, NetStream, RV or
affiliated entities. We have evaluated the FirstCom Equity Ownership on an
aggregate basis and are not expressing any opinion as to the proportionate
equity ownership of the holders of FirstCom Common Stock and FirstCom preferred
shares in RV. We are not expressing any opinion as to the underlying valuation,
future performance or long-term viability of FirstCom, NetStream or RV, or the
prices at which the FirstCom Common Stock or the RV Common Stock will trade
subsequent to announcement or consummation of the Merger. Our opinion is
necessarily based on the information available to us and general economic,
financial and stock market conditions and circumstances as they exist and can be
evaluated by us on the date hereof. It should be understood that, although
subsequent developments may affect this Opinion, we do not have any obligation
to update, revise or reaffirm the Opinion.
<PAGE> 418
The Board of Directors CIBC World Markets Corp.
FirstCom Corporation
November 1, 1999
Page 3
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to FirstCom in connection with the Merger and
to the Board of Directors of FirstCom in rendering this Opinion and will receive
a fee for our services, a significant portion of which is contingent upon
consummation of the Merger. We also will receive a fee upon the delivery of this
Opinion. We have in the past provided financial services to FirstCom and AT&T
unrelated to the proposed Merger, for which services we have received
compensation. CIBC World Markets also is currently providing a $10 million
credit facility to a subsidiary of FirstCom. In the ordinary course of business,
CIBC World Markets and its affiliates may actively trade securities of FirstCom
and AT&T for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, and such other factors as we deemed
relevant, it is our opinion that, as of the date hereof, the FirstCom Equity
Ownership in RV is fair to the holders of FirstCom Common Stock from a financial
point of view. This Opinion is for the use of the Board of Directors of FirstCom
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any matters relating to the Merger.
Very truly yours,
/s/ CIBC WORLD MARKETS CORP.
--------------------------------------
CIBC WORLD MARKETS CORP.
