<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERAMERICAS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
TEXAS 87-0464860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 377-6790
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DOUGLAS G. GEIB II
CHIEF FINANCIAL OFFICER
INTERAMERICAS COMMUNICATIONS CORPORATION
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 377-6790
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of Communications to:
ANDREW HULSH, ESQ.
BAKER & MCKENZIE
701 BRICKELL AVENUE
MIAMI, FL 33131
(305) 789-8900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the only securities being registered in this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or a continuous basis pursuant to Rule 415, under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(o)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................... 18,473,603 $2.1875 $40,466,287 $11,937.55
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457(c).
(2) Calculated in accordance with Rule 457(g).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITY AND EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED DECEMBER 10, 1997
PROSPECTUS
[INTERAMERICAS COMMUNICATIONS LOGO]
COMMON STOCK
$.001 PAR VALUE
This Prospectus relates to 18,473,603 shares (the "Shares") of Common
Stock, par value $.001 per share ("Common Stock"), of InterAmericas
Communications Corporation, a Texas corporation ("ICCA" and, together with its
subsidiaries, the "Company"), being offered from time to time by stockholders of
ICCA ("the Selling Stockholders"), including (i) Shares issued in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act
and Regulation D promulgated thereunder and (ii) Shares issuable upon the
exercise of outstanding warrants and options to purchase shares of Common Stock.
The names of the Selling Stockholders, their respective holdings and the
duration of their respective warrants or options, as the case may be, are set
forth under "Selling Stockholders." The Shares may be sold or distributed by the
Selling Stockholders or by donees, transferees or pledges of, or the successors
in interest to, the Selling Stockholders from time to time in transactions for
their own account, in negotiated transactions, or a combination of such methods
of sale, at fixed prices which may change, at market prices prevailing at the
time of sale, at prices relating to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling Shares to or through broker/dealers, and such broker/dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom such
broker/dealers may act as agent and to whom they sell as principal or both
(which compensation as to a particular broker/dealer might be less than or in
excess of customary commissions). Except for the exercise price of the Selling
Stockholders' warrants and options, none of the proceeds from the sale of Shares
by the Selling Stockholders pursuant to this Prospectus will be received by
ICCA.
---------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THIS OFFERING AND AN INVESTMENT IN THE
COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1997
<PAGE> 3
The Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "ICCA." On December 8, 1997, the last sale price for the Common Stock
as reported by Nasdaq was $2 1/16 per share.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and prior to the termination of this Offering
shall be deemed to be incorporated by reference into this Prospectus and to be
made a part hereof from the date of filing of such document. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY UNDERWRITER,
AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY RESALE MADE
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES LAWS. ALL STATEMENTS REGARDING ICCA'S AND ITS SUBSIDIARIES'
EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THERE CAN BE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
THE INFORMATION UNDER "RISK FACTORS," "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL SUCH
FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
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<PAGE> 5
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
THE INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN FURNISHED BY THE
COMPANY AND OBTAINED FROM INTERNAL COMPANY SURVEYS, INDUSTRY PUBLICATIONS AND
CURRENTLY AVAILABLE INFORMATION BELIEVED BY THE COMPANY TO BE RELIABLE. THERE
CAN BE NO ASSURANCE AS TO THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION.
THIS PROSPECTUS CONTAINS SUMMARIES, BELIEVED TO BE ACCURATE, OF CERTAIN TERMS OF
CERTAIN DOCUMENTS BUT REFERENCE IS MADE TO THE ACTUAL DOCUMENTS, COPIES OF WHICH
WILL BE MADE AVAILABLE UPON REQUEST, FOR THE COMPLETE INFORMATION CONTAINED
THEREIN. ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
2
<PAGE> 6
EXCHANGE RATE DATA
This Prospectus contains translations of certain Peruvian Nuevo Sol and
Chilean Peso amounts into U.S. dollars at specified rates solely for the
convenience of the reader. These translations should not be construed as
representations that the Peruvian Nuevo Sol and Chilean Peso amounts actually
represent such U.S. dollar amounts or could be converted into U.S. dollars at
the rate indicated, or at all.
PERU
The following table sets forth, for the periods ending on the date
indicated, the high, low, average and period-end free-market exchange rate. The
Federal Reserve Bank of New York does not report a noon buying rate for Peruvian
Nuevo Sol.
<TABLE>
<CAPTION>
PERIOD-
PERIOD- HIGH LOW AVERAGE(1) END
- ------- ---- ---- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1994................................ 2.27 2.04 2.19 2.18
Year ended December 31, 1995................................ 2.35 2.17 2.25 2.30
Year ended December 31, 1996................................ 2.60 2.30 2.45 2.60
Nine months ended September 30, 1997........................ 2.68 2.61 2.66 2.65
</TABLE>
- ---------------
Source: Extel Pricing Database.
(1) Average daily exchange rate.
CHILE
The following table sets forth, for the periods ending on the date
indicated, the high, low, average and period-end free-market exchange rate. The
Federal Reserve Bank of New York does not report a noon buying rate of Chilean
Pesos.
<TABLE>
<CAPTION>
PERIOD-
PERIOD HIGH LOW AVERAGE(1) END
- ------ ------ ------ ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1994............................... 433.67 398.25 419.83 400.21
Year ended December 31, 1995............................... 418.76 367.94 396.60 406.91
Year ended December 31, 1996............................... 424.87 402.68 412.16 424.87
Nine months ended September 30, 1997....................... 427.94 412.38 417.19 414.90
</TABLE>
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Source: Extel Pricing Database and Chilean Central Bank.
(1) Average daily exchange rate.
Unless otherwise indicated, industry and demographic data used throughout
this Prospectus have been obtained from the following industry publications and
have not been independently verified by the Company: Bank of America World
Information Services (March 1997); Telecom Markets in South America, Pyramid
Research, Inc. (October 1996) (the "Pyramid Research Report"); Subsecretaria de
Telecomunicaciones of the Republic of Chile (1997); National Bureau of
Statistics of the Republic of Peru (1997); Telefonica del Peru, S.A. 1996 Annual
Report and Press Release in connection with the presentation of 2nd Quarter 1997
financial results dated July 31, 1997.
3
<PAGE> 7
AVAILABLE INFORMATION
ICCA has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Shares of Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to ICCA and the shares of Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements, notes and schedules filed as a part thereof. In
addition, ICCA is subject to the informational and reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. The Registration Statement, the exhibits
and schedules thereto, reports and other information filed with or furnished to
the Commission by ICCA may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 6061-2511. Copies of such materials may be obtained,
at prescribed rates, by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and such material may
be accessed through the web site maintained by the Commission at
http://www.sec.gov.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information, including risk factors and financial statements and notes thereto,
located elsewhere in this Prospectus. Certain of the information contained in
this summary and elsewhere in this Prospectus including information with respect
to the Company's plans and strategy for its business, acquisitions and related
financings, are forward-looking statements. Such forward-looking statements are
subject to material risks, uncertainties and contingencies, many of which are
beyond the control of the Company. For a discussion of important factors that
could cause actual results to differ materially from these forward-looking
statements, see "Risk Factors." As used herein, the term "Latin America" means
Central America, South America and Mexico. Except as otherwise indicated, all
dollar amounts are expressed in United States dollars and references to
"dollars" and "$" are to United States dollars. See "Glossary of Defined Terms,"
for definitions of certain technical and industry terms used herein.
THE COMPANY
The Company is a new provider of high bandwidth integrated
telecommunications services to high volume users in Santiago, Chile and Lima,
Peru, including business customers and other telecommunications carriers. The
Company believes that the size, expected growth and increasing deregulation of
the telecommunications industry in Latin America offers the Company considerable
opportunities to broaden its existing service offerings and to expand its
recently commenced operations into additional key Latin American business
centers.
Prior to November 1996, the Company operated as a development stage company
whose activities primarily consisted of the acquisition of licenses, concessions
and rights-of-way in certain key Latin American markets. Beginning in November
1996, with the hiring of Patricio Northland as the Company's President and Chief
Executive Officer, the Company has focused on the development and operation of
high capacity fiber optic networks in Lima, Peru and Santiago, Chile. Mr.
Northland has over 16 years of experience as an international telecommunications
executive and entrepreneur. Mr. Northland was previously President and founder
of AmericaTel Corporation, a Miami-based international telecommunications
carrier focused on traffic originating and terminating in Latin America, which
he successfully grew and in which he subsequently sold his interest in 1996 to
Entel, Chile's major long distance carrier.
In May 1996, the Company acquired an operating company in Peru which holds
one of only two local concessions that compete with Telefonica del Peru S.A.
("Telefonica") to provide local private line voice and data services. The
Company intends to expand its existing service offerings to provide local public
switched telephony upon the planned 1999 liberalization of Peru's
telecommunications markets. The Company also intends to apply for a concession
to provide public switched long distance services as regulation permits. The
Company currently offers high speed data transmission services on a private line
basis, including area network interconnection, remote terminal access, dedicated
channels for access to the Internet and voice services on a private line basis.
The Company's services are provided through its 60 kilometer digital fiber optic
network in Lima, Peru, which the Company intends to expand to 90 kilometers by
the end of 1997 and to approximately 230 kilometers by the end of 1998. When
completed, the Company's fiber optic network will extend throughout the major
commercial and industrial districts of Lima and the port city of Callao
(combined population of 7.5 million). The Company believes that its planned
fiber optic network expansion and early implementation of private line and
value-added services prior to the scheduled expiration of Telefonica's exclusive
concession for public switched local and long distance services in July 1999
will enable the Company to develop a strong customer base and network presence.
In Chile, the Company currently holds a concession to provide voice and
data transmission services and value-added services on a private line basis and,
upon consummation of the Iusatel Acquisition, will acquire an operating company
that provides public switched national and international long distance services.
The
5
<PAGE> 9
Company also maintains a concession to own and operate satellite earth stations
throughout Chile and plans to apply for a concession to provide local public
switched telephony services in Santiago. The Company currently provides similar
services to those offered in Peru, as well as (i) private line remote analog
digital telephone access and digital links for PBX to PBX connections, (ii)
local and wide area network design and engineering and (iii) systems
installation, integration and support services. The Company's services are
provided through its 120 kilometer digital fiber optic network which currently
extends through most of Santiago's downtown business district and the outlying
industrial park and airport corridors. With the consummation of the Iusatel
Acquisition, completion of last mile connections to its existing network and
approval of a local telephony concession, the Company believes that it will be
able to substantially broaden its product and service offerings and
significantly increase its revenues in Chile.
Local and long distance telecommunications revenues in Peru were
approximately $885.5 million in 1996 and are estimated by Pyramid Research, Inc.
("Pyramid") to increase to approximately $1.9 billion in the year 2000,
representing a compound annual growth rate of 21%. Local and long distance
telecommunications revenues in Chile were approximately $1.1 billion in 1996 and
are estimated by Pyramid to increase to approximately $2.2 billion in the year
2000, representing a compound annual growth rate of 16%.
Upon completion of its anticipated upgrades, all of the Company's existing
and planned fiber optic networks will employ SDH transmission technology with
centralized network monitoring control and maintenance. The Company believes its
networks allow it to provide its customers with uniform, reliable, high quality
services which are competitive with or exceed those services provided by former
PTTs and other carriers in the markets in which it operates.
While the Company only recently is commenced its current operations, the
Company's customers already include, among others, Xerox de Chile S.A.,
Autorentas del Pacifico (Hertz) Ltda. and Nike de Chile S.A. in Chile and Sony
Music Entertainment Peru S.A., Banco Interbank del Peru S.A. ("Interbank") and
one ISP in Peru. Upon completion of its networks the Company will be able to
market aggressively its service offerings to additional business customers and
other telecommunications carriers. The Company also believes that dedicated
access to ISPs will represent a significant source of new customer relationships
in both Chile and Peru because of the anticipated rapid increase in the number
of high speed Internet users throughout Latin America.
BUSINESS STRATEGY
The Company's goal is to become a leading provider of high bandwidth
telecommunications services to businesses and other high volume users and
carriers operating in key Latin American business centers. The Company follows a
regional business strategy in Latin America as set forth below. The Company has
modified this strategy to adapt to the specific economic and regulatory
environments of each market in which the Company operates and intends to operate
in the future. See "Business -- Business and Services -- Chile -- Country
Strategy," and " -- Peru -- Country Strategy."
Focus on Key Markets in Latin America
The Company believes that the size and growth potential of key Latin
American business centers coupled with the ongoing liberalization of the
telecommunications markets throughout the region offer the Company
considerable growth opportunities. The Company intends to build upon its
existing operations and expertise and to leverage its existing customer
base by expanding the geographic reach and density of its existing networks
as well as by entering additional key Latin American business centers that
have (i) a significant level of unsatisfied demand for high quality,
state-of-the art telecommunications services, (ii) a favorable regulatory
environment and (iii) significant projected economic growth.
6
<PAGE> 10
Enter Markets Early
The Company seeks to enter markets in Latin America where it can
construct or acquire fiber optic networks and offer telecommunications
services in advance of full market liberalization. The Company has already
implemented this strategy in Lima, where it is one of the first companies
to have established a telecommunications system prior to the scheduled
liberalization of Peru's telecommunications markets in July 1999, at which
time the exclusivity provisions of Telefonica's concession will expire and
the local and long distance markets are scheduled to be opened to
competition by new entrants. The Company believes that this early entry
into the Lima market will enable the Company to establish strong business
relationships with its targeted customers prior to onset of widespread
competition.
Provide a Broad Range of High Quality Telecommunications Services
The Company intends to follow the strategy implemented by CLECs in the
United States of installing advanced equipment into their existing fiber
optic networks that enable interconnections with existing public networks
and the provision of switched telephone services. As regulation permits,
the Company will seek to secure a growing portion of its existing and
targeted customers' telecommunications business by adding local, long
distance, enhanced voice and data services to the private line services it
currently offers. The Company believes its customers require maximum
reliability, high quality service, broad geographic coverage, strong
customer service and the opportune introduction of innovative services
delivered in a timely and cost-effective manner. The Company believes that
these needs are often left unmet by the former PTT in markets where the
Company currently operates.
Target Business Customers and Telecommunications Carriers
The Company's strategy is to target business customers and
telecommunications carriers in key Latin American business centers. These
customers are typically located in major metropolitan areas, require high
reliability, high volume data transmission and voice capabilities and, in
the case of telecommunications carriers, very large capacity to
interconnect POPs. In addition, many of the Company's existing and targeted
customers have operations in more than one key Latin American business
center in which the Company currently operates or may operate in the
future. The Company believes that by leveraging its customer base it will
achieve operating synergies through the reduction of advertising and other
related costs.
Growth Through Acquisitions and New Licenses
The Company expects to opportunistically enter additional key Latin
American business centers in part by acquiring controlling interests in
existing companies that have licenses, concessions and rights-of-way to
install and operate fiber optic networks or by applying for such licenses
and concessions and negotiating such rights-of-way directly. The Company
may also acquire other telecommunications service providers in existing and
targeted markets that enable the Company to expand or enhance its current
operations. The Company believes that many emerging local and long distance
carriers, cellular providers and recently privatized PTTs are likely to
seek alliances with local access providers with fiber optic systems, such
as the Company, to compete more effectively in the growing
telecommunications markets.
Growth Through Strategic Alliances
The Company intends to establish strategic alliances with the
following entities for the following purposes: (i) to engage major
international carriers to facilitate the termination or completion of
dedicated international calls to or from the countries where carriers'
customers operate and (ii) to enter into joint bids with local turnkey
integrators and equipment vendors for the sale of value-added services,
such as video-conferencing, Internet, frame relay, ATM networks, PBX and
private telephone networks.
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<PAGE> 11
Unify Marketing Efforts
The Company intends to conduct its business under a single brand name
in the markets in which it operates to develop name recognition for its
services. The Company believes that the use of a recognized brand name will
facilitate customer referrals and achieve economies of scale through a
unified marketing campaign.
THE IUSATEL ACQUISITION
To further the Company's objective of expanding its presence and service
offerings in key Latin American business centers, the Company has entered into
an agreement (the "Iusatel Agreement") to acquire (the "Iusatel Acquisition")
Iusatel Chile, S.A. ("Iusatel"), located in Santiago, Chile.
Iusatel currently provides domestic and international long distance
services in Chile through its own gateway switch and satellite earth station, as
well as through interconnections with other Chilean long distance carriers. The
Company believes that the acquisition of Iusatel will enable the Company to: (i)
provide long distance services to its existing corporate customers; (ii) bundle
a variety of service offerings, including long distance and data services, to
attract additional customers; and (iii) access the approximately $178.2 million
Chilean international long distance market. By implementing such bundling
strategy and by expanding Iusatel's marketing and advertising activities, the
Company believes that it will be able to increase Iusatel's market share from
its current level.
The Iusatel Agreement provides for the purchase by the Company of 99.9% of
the issued and outstanding capital stock of Iusatel for $5.9 million in cash
(the "Iusatel Purchase Price"). The Iusatel Purchase Price may be reduced,
dollar-for-dollar, to the extent that the net worth of Iusatel as of December
31, 1997 is less than $500,000, and may be increased by up to a maximum of
$850,000 based upon Iusatel's operating results for the 12 months ending
December 31, 1998. The Iusatel Agreement is subject to a number of conditions,
many of which, including governmental consent, are beyond the Company's control.
There can be no assurance that the Iusatel Acquisition will be consummated on
the terms described herein or at all. See "Risk Factors -- Risks Related to the
Iusatel Acquisition."
SENIOR NOTE OFFERING
On October 27, 1997, the Company consummated an offering ("the Senior Note
Offering") of units ("Units") consisting (i) $150.0 million aggregate principal
amount of 14% Senior Notes due October 27, 2007 and (ii) 5,250,000 warrants
("Warrants," or "Unit Warrants") to purchase an aggregate of 5,250,000 shares of
Common Stock, at an exercise price of $4.40 per share. The Senior Note Offering
resulted in net proceeds to the Company of approximately $142.5 million. The
Units were originally issued and sold by ICCA in a transaction which was exempt
from the registration requirements of the Securities Act. Concurrent with the
filing of the Registration Statement of which this Prospectus forms a part, the
Company has filed a registration statement on S-4 (the "Exchange Offer
Registration Statement") to register 14% Senior Notes due October 27, 2007 ("New
Notes"), which are being offered (the "Exchange Offer") in exchange for the
Senior Notes. The form and terms of the New Notes are the same as the form and
terms of the Senior Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the New Notes will have been registered under the
Securities Act, and hence the New Notes will not bear legends restricting the
transfer thereof. The Senior Notes and the New Notes are sometimes referred to
herein collectively as the "Senior Notes." See "Description of Senior Notes."
---------------------
The Company was incorporated in Nevada in April 1989 and reincorporated in
Texas in July 1994. The Company's principal executive offices are located at
1221 Brickell Avenue, Miami, Florida 33131, and its telephone number at such
offices is (305) 377-6790.
8
<PAGE> 12
NO CASH PROCEEDS TO THE COMPANY FROM THE SALE OF THE SHARES
This Offering is intended to satisfy certain obligations of the Company to
the Selling Stockholders. Except for the exercise price of the Selling
Stockholders' warrants and options, the Company will not receive any proceeds
from the sale of the Shares offered hereby. The Company has agreed to pay
substantially all of the expenses incident to the registration, offering and
sale of the Shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents.
RISK FACTORS
An investment in the Common Stock involves a high degree of risk.
Prospective investors should consider all of the information contained in this
Prospectus before purchasing any of the Shares of Common Stock offered hereby.
In particular, prospective investors should consider the factors set forth
herein under "Risk Factors."
9
<PAGE> 13
PRESENTATION OF FINANCIAL INFORMATION
INTERAMERICAS COMMUNICATIONS CORPORATION
The consolidated financial statements of ICCA and its subsidiaries have
been prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP"). As a result, the operations of ICCA and its
consolidated subsidiaries are stated in U.S. dollars.
The financial statements of subsidiaries outside the United States are
prepared using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rate of exchange at the
balance sheet date. The resultant translation adjustments are included in equity
as cumulative translation adjustments, a separate component of stockholders'
equity. Income and expense items are translated at average monthly rates of
exchange. Gains and losses from foreign currency transactions of these
subsidiaries are included in the statement of operations.
IUSATEL
The financial statements of Iusatel (such statements, together with the
notes thereto, being referred to herein as the "Iusatel Financial Statements")
have been prepared in accordance with generally accepted accounting principles
in Chile ("Chilean GAAP"). Chilean GAAP varies in certain significant respects
from U.S. GAAP. Note 28 to the Iusatel Financial Statements contained elsewhere
in this Prospectus provides a description of the principal differences between
Chilean GAAP and U.S. GAAP as they relate to Iusatel.
Chilean GAAP requires that the financial statements be restated to reflect
the full effects of loss in the purchasing power of the Chilean Peso on the
operations of Iusatel. See Notes 2 and 4 to the Iusatel Financial Statements
contained elsewhere in this Prospectus. For comparative purposes, the Iusatel
Financial Statements and the amounts disclosed in the related notes for the year
ended December 31, 1995 have been restated in terms of Chilean Pesos based on
December 31, 1996 purchasing power. In accordance with Chilean regulations and
accounting practices, the restatement was calculated based on the official
Consumer Price Index of the National Institute of Statistics of Chile, which was
6.6% for the year ended November 30, 1996. The interim September 30, 1996 and
1997 financial statements have also been restated for general price-level
changes, but are expressed in constant Chilean Pesos of September 30, 1997. The
effect of not updating the December 31, 1995 and 1996 financial statements to
September 30, 1997 constant Pesos is not significant because the change in the
inflation index applicable for the restatement of financial statements for the
nine month period ended September 30, 1997 was only 3.9%. Additionally, if the
updating by the 3.9% increase had been made, it would have been applied to all
amounts and disclosures shown in the December 31, 1995 and 1996 financial
statements and accordingly, there would be no changes in the relationships among
the amounts and disclosures in those financial statements. Balances in U.S.
dollars included in the Iusatel balance sheet for the years ended December 31,
1995 and 1996 and for the nine months ended September 30, 1997 have been
translated at the "Observed Exchange Rate" as determined by the Central Bank of
Chile using the exchange rates of Ch$406.91, Ch$424.87, and Ch$414.47, per US
$1, respectively.
References herein to "U.S. dollars" or "U.S. $" are to the lawful currency
of the United States. References herein to Chilean "Pesos" or "Ch$" are to the
lawful currency of Chile. Amounts may be expressed in thousands of constant
Chilean Pesos ("ThCh$") or thousands of US dollars ("ThUS$"). With respect to
Iusatel, this Prospectus contains translations of certain Chilean Pesos amounts
into U.S. dollars at specified rates solely for the convenience of the reader.
These translations should not be construed as representations that the peso
amounts actually represent such U.S. dollar amounts or could be converted into
U.S. dollar amounts at the rate indicated. Unless otherwise indicated, such U.S.
dollar amounts have been translated from Chilean Pesos at the exchange rate at
September 30, 1997 of Ch$414.47 per US $1, as reported by Banco de Chile (the
"Chilean Central Bank"). See "Exchange Rate Data."
10
<PAGE> 14
SUMMARY CONDENSED CONSOLIDATED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary condensed consolidated historical
and pro forma combined financial data of the Company. The summary condensed
consolidated historical statement of operations data for the years ended
December 31, 1994, 1995 and 1996 were derived from the consolidated financial
statements of the Company which were audited by Price Waterhouse LLP,
independent certified accountants, and which are included elsewhere in this
Prospectus. The summary condensed consolidated historical statement of
operations data for the nine months ended September 30, 1996 and 1997 and
balance sheet data as of September 30, 1997 were derived from the unaudited
consolidated financial statements of the Company, which are included elsewhere
in this Prospectus and which, in the opinion of management of the Company,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of such unaudited interim
periods. The statement of operations data for the nine months ended September
30, 1997 are not necessarily indicative of results of operations that may be
expected for future periods or for the year ended December 31, 1997.
The summary condensed unaudited pro forma combined balance sheet of ICCA as
of September 30, 1997 gives effect to the Iusatel Acquisition and the Initial
Offering as if they had each occurred at that date and the related summary
condensed unaudited pro forma combined statements of operations for the year
ended December 31, 1996 and the nine-month period ended September 30, 1997 give
effect to the Iusatel Acquisition and the Initial Offering as if they had each
occurred at the beginning of the relevant period. The Iusatel Acquisition is
accounted for under the purchase method of accounting.
The information contained in this table should be read in conjunction with
"Prospectus Summary -- The Iusatel Acquisition," "Unaudited Pro Forma Condensed
Combined Financial Information," "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements including the notes thereto appearing
elsewhere in this Prospectus.
11
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996(1) 1996 1996(1) 1997 1997
------- ------- ------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT NET LOSS PER COMMON SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................... $ 34 $ 224 $ 652 $ 8,474 $ 477 $ 853 $ 7,206
Operating expenses.............. (2,207) (2,722) (5,009) (16,644) (3,290) (9,251) (17,658)
------- ------- ------- -------- -------- ------- --------
Loss from operations............ (2,173) (2,498) (4,357) (8,170) (2,813) (8,398) (10,452)
Other income (expense).......... (45) (56) (23) (467) 25 48 (102)
Interest expense................ (313) (319) (246) (22,993) (96) (1,543) (18,023)
------- ------- ------- -------- -------- ------- --------
Net loss................. $(2,531) $(2,873) $(4,626) $(31,630) $ (2,884) $(9,893) $(28,577)
======= ======= ======= ======== ======== ======= ========
Net loss per common share......... $ (1.30) $ (0.31) $ (0.31) $ (2.14) $ (.20) $ (.61) $ (1.77)
Weighted average shares
outstanding................... 1,952 9,407 14,796 14,796 14,346 16,170 16,170
OTHER FINANCIAL DATA:
EBITDA(2)....................... $(2,097) $(2,102) $(3,651) (6,495) $ (2,295) $(7,740) (9,114)
Depreciation and amortization... 76 396 706 1,675 518 658 1,338
Capital expenditures............ 1,849 720 1,453 1,835 334 1,855 1,956
Ratio of earnings to fixed
charges(3).................... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, excluding restricted cash(4)... $ 299 $ 12,695
Restricted bank deposits and escrows(4)................... 164 120,150
Total assets.............................................. 13,721 172,343
Current portion of long-term debt and lease obligations,
net of original issue discounts......................... 2,845 300
Long-term debt and lease obligations...................... 463 132,560
Total stockholders equity................................. 7,147 31,896
</TABLE>
- ---------------
(1) Historical financial data includes the operations of Resetel and HSA (each
as defined herein) from their respective dates of acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) "EBITDA" represents income (loss) from operations before interest,
depreciation and amortization. EBITDA is presented because it is commonly
used in the telecommunications industry to measure operating performance,
asset value and financial leverage. However, EBITDA should not be considered
as an alternative to net income as a measure of operating results, cash
flows or as a measure of liquidity in accordance with generally accepted
accounting principles. Also, EBITDA as defined herein may not be comparable
to similarly entitled measures reported by other companies.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss prior to income taxes and fixed charges. Fixed charges consist of
interest expense and amortization of debt issuance costs.
(4) Restricted bank deposits represent cash held by banks that require such
deposits to be maintained in support of loans made to certain of ICCA's
subsidiaries. Restricted escrows represent proceeds from the Senior Note
Offering that will be disbursed in accordance with the terms of the
Indenture relating to the Senior Notes (the "Indenture"). See "Description
of Senior Notes -- Proceeds Pledge and Escrow Agreement."
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<PAGE> 16
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors, as well as the other information contained
in this Prospectus, before purchasing the Common Stock offered hereby.
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "projects," and words of similar import constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general national and international economic and
business conditions, as well as conditions in the regions in which the Company
operates; demographic change; existing government regulations and changes in, or
the failure to comply with, government regulations; competition; the loss of any
significant customers; changes in business strategy or development plans;
technological developments; the ability to attract and retain qualified
personnel; the significant indebtedness of the Company; the availability and
terms of capital to fund the expansion of the Company's business; and other
factors referenced in this Prospectus. Certain of these factors are discussed in
more detail elsewhere in this Prospectus including, without limitation, under
the captions "Prospectus Summary;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligations to
update any such factors or publicly announce the result of any revisions to any
of the forward-looking statements contained herein to reflect future events or
developments.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged and has substantial debt service
requirements. As of September 30, 1997, on a pro forma basis after giving effect
to the Senior Note Offering, the application of the proceeds therefrom and the
consummation of the Iusatel Acquisition, the Company would have had
approximately $150.0 million of total long-term Indebtedness and the Company
would have had stockholders' equity of $33.5 million. In addition, in each year
since its inception, the Company's earnings have been inadequate to cover its
fixed charges by a substantial amount. The Company's earnings were inadequate to
cover its fixed charges by $4.6 million and $9.9 million, respectively, for the
year ended December 31, 1996 and the nine months ended September 30, 1997. On a
pro forma basis after giving effect to the Senior Note Offering, the application
of the proceeds therefrom and the consummation of the Iusatel Acquisition, for
the year ended December 31, 1996 and the nine months ended September 30, 1997
the Company's earnings would have been inadequate to cover its fixed charges by
$31.6 million and $28.6 million, respectively. The Company's annual interest
obligations under the Senior Notes substantially exceeds the Company's sales for
the year ended December 31, 1996.
The ability of ICCA to make scheduled payments with respect to its
indebtedness, including the Senior Notes, will depend upon, among other things,
(i) its ability to implement its business plan, to expand its operations and to
successfully develop its customer base in its target markets, (ii) the ability
of ICCA's subsidiaries to remit cash to ICCA in a timely manner and (iii) the
future operating performance of ICCA and its subsidiaries. Each of these factors
is, to a large extent, subject to economic, financial, competitive, regulatory
and other factors, many of which are beyond the Company's control. The Company
expects that it will continue to generate cash losses for the foreseeable
future. No assurance can be given that the Company will be successful in
developing and maintaining a level of cash flow from operations sufficient to
permit it to pay the principal of, and interest on, its indebtedness, including
the Senior Notes. If the Company is unable to generate sufficient cash flow from
operations to service its indebtedness, including the Senior Notes, it may
13
<PAGE> 17
have to modify its growth plans, restructure or refinance its indebtedness or
seek additional capital. There can be no assurance that (i) any of these
strategies could be effected on satisfactory terms, if at all, in light of the
Company's high leverage or (ii) any such strategy would yield sufficient
proceeds to service the Company's indebtedness, including the Senior Notes. See
"-- Historical and Anticipated Operating Losses," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
HOLDING COMPANY STRUCTURE; INABILITY TO ACCESS CASH FLOW
Substantially all of ICCA's assets are held by its subsidiaries and all of
ICCA's operating revenues are derived from the operations of such subsidiaries.
Future acquisitions may be made through present or future subsidiaries of ICCA.
Accordingly, ICCA's ability to pay the principal of, and interest on, its
outstanding indebtedness is dependent upon the earnings of its subsidiaries and
the distribution of sufficient funds from its subsidiaries. ICCA's subsidiaries
will have no obligation, contingent or otherwise, to make any funds available to
ICCA for payment of the principal of, and interest on, its outstanding
indebtedness. In addition, the ability of ICCA's subsidiaries to make such funds
available to ICCA may be restricted by the terms of such subsidiaries' current
and future indebtedness, the availability of such funds and the applicable laws
of the jurisdictions under which such subsidiaries are organized. Furthermore,
ICCA's subsidiaries will be permitted under the terms of the Indenture to incur
certain additional indebtedness that may severely restrict or prohibit the
making of distributions, the payment of dividends or the making of loans by such
subsidiaries to ICCA. The failure of ICCA's subsidiaries to pay dividends or
otherwise make funds available to ICCA could have a material adverse effect upon
ICCA's ability to satisfy its debt service requirements.
HISTORICAL AND ANTICIPATED OPERATING LOSSES
The Company has never generated positive cash flow from consolidated
operations and, since its inception, has incurred significant net operating
losses and negative cash flow. As of September 30, 1997, the Company had an
accumulated deficit of $20.0 million. Since inception through September 30,
1997, the Company's operations have resulted in losses before interest, other
income (loss), taxes, depreciation and amortization ("EBITDA") of $15.6 million.
On a pro forma basis, after giving effect to the Initial Offering, the
application of the proceeds therefrom and the consummation of the Iusatel
Acquisition, the Company would have had EBITDA of ($6.5) million and ($9.1)
million for the year ended December 31, 1996 and for the nine-month period ended
September 30, 1997, respectively. For the year ended December 31, 1996 and the
nine months ended September 30, 1997, the Company incurred a net loss of $4.6
million and $9.9 million, respectively, and generated negative cash flow from
operations of $3.9 million and $3.4 million, respectively. The Company expects
to continue to incur significant operating losses and negative cash flow from
operations for at least the next several years in connection with establishing
its local networks and implementing its business plan. There can be no assurance
that the Company's networks or any of its other services will ever provide a
revenue base adequate to achieve or sustain profitability or to generate
positive cash flow.
SIGNIFICANT FUTURE CAPITAL REQUIREMENTS
Expansion of the Company's existing networks and services and the
development of new networks and services will require significant capital
expenditures. The Company expects to use the net proceeds of the Senior Note
Offering to meet its capital expenditure requirements and to consummate the
Iusatel Acquisition. Although the Company believes that the proceeds of the
Senior Note Offering are sufficient to fund its current plans, actual capital
expenditures may vary significantly from the Company's estimates depending on a
number of factors, many of which are beyond the Company's control, including the
ability of the Company to complete the Iusatel Acquisition, the pace and extent
of network upgrade and expansion, the magnitude of potential acquisitions,
investments or the impact of strategic alliances, and levels of incremental
sales and
14
<PAGE> 18
regulatory actions, which, individually or collectively, could cause material
changes in the Company's capital expenditure requirements.
The Company may need additional capital to (i) finance its anticipated
growth, (ii) fund working capital needs and future debt service obligations,
(iii) take advantage of unanticipated opportunities, including more rapid
international expansion, acquisitions of customer bases or businesses or
investments in, or strategic alliances with, companies that are complementary to
the Company's current operations, (iv) develop or expand into new services or
(v) otherwise respond to unanticipated competitive pressures. The Company
currently expects to obtain such additional capital, if necessary, through
internally generated cash flow and from offerings of additional debt or equity
securities. There can be no assurance, however, that the Company will be
successful in producing sufficient internally generated cash flow or raising
sufficient capital on terms acceptable to the Company, if at all. Moreover, the
amount of, and the terms and conditions of the instruments relating to, the
Company's current outstanding indebtedness may adversely affect the Company's
ability to raise additional capital. Failure to internally generate or raise
sufficient funds may require the Company to delay, abandon or reduce the scope
of any potential future expansion, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
LIMITED OPERATING HISTORY; ENTRANCE INTO NEWLY OPENING MARKETS
The Company acquired its principal operations in Santiago, Chile in July
1994 and in Lima, Peru in May 1996, and has limited experience in operating its
business. The Company has not commenced operations in any other country.
Prospective investors therefore have limited historical financial and operating
information about the Company upon which to base an evaluation of the Company's
performance and an investment in the Common Stock.
The Company's viability, profitability and growth depend upon the
successful implementation of its business plan. A significant portion of the
Company's business plan includes the acquisition or formation of new local
operators in markets where it currently does not have operations and, in many of
its existing and future markets, offering services that have historically been
provided only by PTTs. Accordingly, the Company may face delays and problems
inherent in establishing a new business in an evolving industry, including,
among other things, hiring experienced and qualified personnel. Other risks
associated with the Company's business plan include: (i) securing necessary
licenses and adhering to regulatory requirements relating thereto; (ii)
obtaining any required zoning variances or other governmental or local
regulatory approvals; and (iii) other risks typically associated with any
business venture, such as unanticipated cost increases and the ability to
effectively implement its business strategy. There can be no assurance that the
implementation of the Company's business plan will be successful. The failure to
successfully implement its business plan would have a material adverse effect on
the Company.
RISK ASSOCIATED WITH IMPLEMENTATION OF GROWTH STRATEGY
The Company has a limited operating history and rapid growth by the Company
could place a strain on its management, operating and financial resources. In
addition, while the Company is currently a provider of telecommunications
services in Peru and Chile, the Company will, on an ongoing basis, explore
opportunities to provide additional telecommunications services in Latin
America. The Company's ability to manage growth and expansion effectively will
require continued implementation of, and improvements to, its operating and
financial systems and will require the Company to expand, train and manage its
employee base. Furthermore, the ability of the Company to expand its operations
will, among other things, depend upon its ability to identify acquisitions in
the future, or, if identified, to arrive at price and terms which are attractive
to the Company and may also depend on consents from third parties, including
regulatory authorities. Although the Company believes that it has made adequate
allowances for the costs and risks associated with future growth and expansion,
there can be no assurance that the Company's systems, procedures or controls or
financial
15
<PAGE> 19
resources will be adequate to support the Company's operations, that management
will be able to keep pace with such growth and/or expansion, and that the
Company will be able to successfully consummate future acquisitions on terms
acceptable to the Company, or at all. If the Company is unable to manage growth
and/or expansion effectively, the Company's business, operating results and
financial condition and its ability to generate sufficient cash flow to service
its indebtedness will be materially and adversely affected.
RISKS RELATED TO THE IUSATEL ACQUISITION
Consummation of the Iusatel Acquisition is subject to a number of
regulatory and closing conditions, certain of which are beyond the Company's
control. The consummation of the transactions contemplated under the Iusatel
Agreement are subject to a number of conditions including, without limitation:
(i) obtaining waivers of preferential rights from certain current stockholders
of Iusatel; (ii) acquiring shares from certain stockholders of Iusatel; and
(iii) registering Iusatel's shares held by its stockholders with the
Superintendencia de Valores y Seguros of the Republic of Chile. Accordingly,
there can be no assurance as to when the Iusatel Acquisition will be consummated
or that it will be consummated on the terms described herein or at all.
RISKS RELATED TO POTENTIAL FUTURE ACQUISITIONS
The Company intends in the future to pursue acquisitions of complementary
services, technologies or businesses, although the Company has no present
understandings, commitments or agreements with respect to any such acquisitions
except as described in this Prospectus. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and an increase in amortization expenses related
to goodwill and other intangible assets, which could have a material adverse
effect upon the Company's business, financial condition and results of
operations. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns.
UNCERTAINTY OF MARKET ACCEPTANCE; POTENTIAL LACK OF SUBSCRIBER DEMAND
The Company's success is subject to a number of business, economic,
regulatory and competitive factors, many of which are beyond the Company's
control, including the extent to which prospective subscribers will use the
Company's services. The Company's ability to service its indebtedness, including
the Senior Notes, is subject to the successful implementation of its growth
strategy which, in turn, is premised, among other things, on the Company's
expectation that demand for its current services will increase significantly in
its existing markets and that there will be strong demand for services
introduced by the Company in the future. The Company has only recently begun
providing telecommunications services in Peru. Subscriber demand for the
Company's services in the markets in which it currently operates and in those in
which it expects to operate is uncertain. See "-- Competition" and "-- Rapid
Industry and Technological Change." Failure to gain market acceptance for, or
subscriber demand of, current or planned services would have a material adverse
effect on the Company. In addition, the Company has incurred and will continue
to incur significant operating expenses and has made, and will continue to make,
significant capital investments. Accordingly, any material miscalculation by the
Company with respect to its strategy or business plan is likely to have a
material adverse effect on the Company. See "-- Significant Future Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CONSTRUCTION RISKS
The operating companies in which the Company invests may require
substantial construction of new, or additions to existing, network systems.
Construction activity may require the Company to obtain qualified
subcontractors, the availability of which varies significantly from country to
country. Construction projects are
16
<PAGE> 20
subject to overruns and delays not within the control of the Company or its
subcontractors, such as those caused by government entities, financing delays
and catastrophic occurrences. Delays also can arise from design changes and
material or equipment shortages or delays in delivery. Services to buildings can
be delayed if the operating companies or their subcontractors have difficulty in
obtaining easements from private parties. Failure to complete construction on a
timely basis could jeopardize a system's subscriber contracts, franchises and
licenses or the Company's ability to preempt its competition.
COMPETITION
The international telecommunications industry is highly competitive. The
Company's success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including global alliances
among some of the world's largest telecommunications carriers, PTTs, wireless
telephone companies and microwave carriers. Other existing and potential
competitors include cable television companies, railway companies, electric
companies and other utilities with rights-of-way and large end-users which have
private networks. The intensity of such competition has recently increased and
the Company believes that such competition will continue to intensify as the
number of new market entrants increases. Many of the Company's existing and
potential competitors have substantially greater financial, marketing and other
resources than the Company. If the Company's competitors devote significant
additional resources to the provision of telecommunications services to the
Company's target customer base, such action would have a material adverse effect
on the Company's business, financial condition and/or results of operations.
There can be no assurance that the Company will be able to compete successfully
against such existing and potential competitors.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on the type and quality of services
offered. The Company has no control over the prices set by its competitors, and
some of the Company's competitors may be able to use their financial resources
to cause severe price competition. Any such price competition would have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, intensified competition in certain of the
Company's markets may cause the Company to reduce its prices, which may reduce
the Company's revenue and margins. See "Business -- Business and
Services -- Chile -- Competition" and "-- Peru -- Competition."
RAPID INDUSTRY AND TECHNOLOGICAL CHANGE
The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. In addition, the
telecommunications industry is in a period of rapid technological evolution. The
Company is unable to predict which of the many possible future product and
service offerings will be important to establish and maintain a competitive
position in or what expenditures will be required to develop and provide such
products and services. The Company's future financial performance will depend,
in part, upon its ability to anticipate and adapt to rapid regulatory and
technological changes occurring in the telecommunications industry and upon its
ability to offer, on a timely basis, services that meet evolving industry
standards. There can be no assurance that the Company will be able to adapt to
such technological changes or offer such services on a timely basis or establish
or maintain a competitive position. There can be no assurance that one or more
of these factors will not vary unpredictably, which could have a material
adverse effect on the Company. In addition, there can be no assurance, even if
these factors turn out as anticipated, that the Company will be able to
implement its strategy or that its strategy will be successful in this rapidly
evolving market.
17
<PAGE> 21
DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY RISKS
The Company's success in marketing its services to business and government
users requires that the Company provide adequate reliability, capacity and
security via its network infrastructure. The Company's networks are subject to
physical damage, power loss, capacity limitations, software defects, breaches of
security (by computer virus, break-ins or otherwise) and other factors, certain
of which may cause interruptions in service or reduced capacity for customers.
Interruptions in service, capacity limitations or security breaches could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATORY RESTRICTIONS; DEPENDENCE ON RIGHTS-OF-WAY AND OTHER THIRD
PARTY AGREEMENTS
National and local laws and regulations differ significantly among the
countries in which the Company currently operates and plans to operate. The
interpretation and enforcement of such laws and regulations vary and could limit
the Company's ability to provide certain telecommunications services.
Furthermore, there can be no assurance that changes in current or future laws or
regulations or future judicial intervention would not have a material adverse
effect on the Company. In addition, the Company's strategy is based in large
part upon the expected deregulation of the telecommunications markets in various
countries throughout Latin America. There can be no assurance that any such
countries will proceed with the expected deregulation on schedule, or at all, or
that the trend towards deregulation will not be stopped or reversed. There may
be significant resistance to the implementation of such legislation from PTTs,
regulators, trade unions and other sources. These and other potential obstacles
to deregulation would have a material adverse effect on the Company's operations
and growth. See "Business -- Regulation."
The Company also must obtain easements, rights-of-way, franchises and
licenses (collectively, "local approvals") from various private parties, actual
and potential competitors and local governments in order to construct and
maintain its fiber optic networks. The Company does not yet have all of the
approvals required to implement its network business plan in prospective new
markets, and there can be no assurance that the Company will be able to obtain
and maintain approvals on acceptable terms or that other service providers will
not obtain similar approvals that will allow them to compete against the Company
or enter a market before the Company. Some of the agreements for approvals
obtained by the Company may be short-term or revocable at will, and there can be
no assurance that the Company will have continued access to approvals after
their expiration. If any of these agreements were terminated or could not be
renewed and the Company was forced to remove its fiber optic cable or abandon
its network in place, such termination or non-renewal would have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
The Company relies on other companies to supply certain key components of
its network infrastructure, including telecommunications services and networking
equipment, which, in the quality demanded by the Company, are available only
from sole or limited sources. The Company is also dependent upon incumbent local
exchange companies to provide telecommunications services to the Company and its
customers. The Company has from time to time experienced delays in receiving
telecommunications services, and there can be no assurance that the Company will
be able to obtain such services on the scale and within the time frames required
by the Company at an affordable cost, or at all. Any failure to obtain such
services or additional capacity on a timely basis at an affordable cost, or at
all, would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also is dependent on its
suppliers' ability to provide necessary products and components that comply with
various Internet and telecommunications standards and interoperate with products
and components from other vendors and function as intended when installed as
part of the network infrastructure. Any failure of the Company's sole or limited
source suppliers to provide products or components that comply with Internet
standards, interoperate
18
<PAGE> 22
with other products or components used by the Company in its network
infrastructure or by its customers or fulfill their intended function as a part
of the network infrastructure would have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is managed by a small number of key executive officers and
operating personnel, including Patricio E. Northland, the Company's Chief
Executive Officer, and Douglas G. Geib II, the Company's Chief Financial
Officer, the loss of certain of whom could have a material adverse effect on the
Company and the ability of the Company to fulfill its financial obligations,
including, without limitation, those under the Senior Notes. The Company
believes that its future success will depend in large part on its continued
ability to attract and retain skilled and qualified personnel with experience in
the telecommunications industry. Such employees are in great demand and are
often subject to competing offers of employment. The Company has not obtained
disability or life insurance policies covering its key executive officers.
COUNTRY RISKS
General. The Company has invested significant resources in Latin America
and intends to continue to make such investments in Latin America in the future.
Accordingly, the Company may be subject to economic, political or social
instability or other developments not typical of investments made in the United
States. Such events could adversely affect the financial condition and results
of operations of the Company, the ability of the Company to repay the Senior
Notes and the market value and liquidity of the Common Stock. During the past
several years, countries in Latin America in which the Company operates or plans
to operate have been characterized by varying degrees of inflation, uneven
growth rates and political uncertainty. The Company currently does not have
political risk insurance in the countries in which it conducts business. While
the Company carefully considers these risks when evaluating investment
opportunities and seeks to mitigate these and other risks by diversifying its
operations in a number of Latin American countries, there is no assurance that
the Company will not be materially adversely affected as a result of such risks.
Currency Risks and Exchange Controls. Although ICCA's subsidiaries have
attempted, and will continue to attempt, to match costs and revenues and
borrowings and repayments in terms of their respective local currencies, payment
for a majority of purchased equipment has been, and may continue to be, required
to be made in currencies, including US dollars, other than local currencies. In
addition, the value of ICCA's investment in a subsidiary is partially a function
of the currency exchange rate between the US dollar and the applicable local
currency. In general, the Company does not execute hedge transactions to reduce
its exposure to foreign currency exchange rate risks. Accordingly, the Company
may experience economic loss and a negative impact on earnings with respect to
its holdings solely as a result of foreign currency exchange rate fluctuations,
which include foreign currency devaluations against the dollar. The countries in
which ICCA's subsidiaries now conduct business generally do not restrict the
removal or conversion of local or foreign currency; however, there can be no
assurance that this situation will continue. See Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Inflation and
Exchange Rates" and "Business -- Regulation -- Peru -- Foreign Investment and
Exchange Controls" and "-- Chile -- Foreign Investment and Exchange Controls."
Dependence on Local Economies; Inflation. The Company's operations depend
upon the economies of the markets in which it operates. These markets include
countries with economies in various stages of development or structural reform,
some of which are subject to rapid fluctuations in terms of consumer prices,
employment levels, gross domestic product and interest and foreign exchange
rates. The Company may be subject to such fluctuations in the local economies in
which it operates. To the extent such fluctuations have an effect on the ability
of subscribers to pay for the Company's service, the growth of the Company's
services in such markets could be impacted negatively. Many of the countries in
which the Company operates, or expects
19
<PAGE> 23
to operate, do not have established credit bureaus, thereby making it more
difficult for the Company to ascertain the creditworthiness of potential
subscribers. Accordingly, the Company may experience a higher level of bad debt
expense than otherwise would be the case.
Certain of the Company's targeted markets are in countries in which the
rate of inflation is significantly higher than that of the United States. The
Company intends to price its products and services in US dollars to mitigate any
effects of inflation; however, there can be no assurance that any significant
increase in the rate of inflation in such countries could be offset, in whole or
in part, by corresponding price increases by the Company, even over the
long-term. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Inflation and Exchange Rates."
Import Duties on Equipment. The Company's operations are highly dependent
upon the successful and cost-efficient importation of infrastructure equipment
from the United States. In the Latin American markets where the Company operates
or plans to operate infrastructure equipment is subject to significant import
duties and other taxes. Any significant increase in import duties in the future
could have a material adverse effect on the Company's results of operations.
Tax Risks Associated with Foreign Operations. Distributions of earnings
and other payments, including interest, received from ICCA's subsidiaries and
affiliates may be subject to withholding taxes imposed by the jurisdictions in
which such entities are formed or operating, which will reduce the amount of
after-tax cash ICCA can receive from such entities. In general, a United States
corporation may claim a foreign tax credit against its federal income tax
expense for such foreign withholding taxes and for foreign income taxes paid
directly by foreign corporate entities in which it owns 10% or more of the
voting stock. The ability to claim such foreign tax credits and to utilize net
foreign losses is, however, subject to numerous limitations, and the Company may
incur incremental tax costs as a result of these limitations or because the
Company is not in a tax-paying position in the United States.
ICCA may also be required to include in its income for United States
federal income tax purposes its proportionate share of certain earnings of those
foreign corporate subsidiaries that are classified as "controlled foreign
corporations" without regard to whether distributions have been actually
received from such subsidiaries. See "Business -- Taxation -- Peru" and
"-- Chile."
Enforcement of Agreements. A number of the agreements ICCA enters into
with its non-United States subsidiaries, dealers, subscribers and agents are
governed by the laws of, and are subject to dispute resolution in the courts of,
or through arbitration proceedings in, the country or region in which the
operation is located. The Company cannot accurately predict whether such forum
will provide it with an effective and efficient means of resolving disputes that
may arise in the future. Even if the Company is able to obtain a satisfactory
decision through arbitration or a court proceeding, it could have difficulty
enforcing any award or judgment on a timely basis. The Company's ability to
obtain or enforce relief in the United States is uncertain.
Foreign Corrupt Practices Act. As a United States corporation, ICCA is
subject to the regulations imposed by the Foreign Corrupt Practices Act (the
"FCPA"), which generally prohibits United States companies and their
intermediaries from making improper payments to foreign officials for the
purpose of obtaining or keeping business. Any determination that the Company has
violated the FCPA would have a material adverse effect on the Company.
Changes in Country Policy; Change in Regulatory Agencies and Political
Structures. The Company has obtained and is seeking to acquire licenses in
countries throughout Latin America and, accordingly, is subject to government
regulation in each market. Much of the Company's planned growth is predicated
upon the liberalization of telecommunications markets. The Company has
confronted, and is likely to continue to confront, changes in government policy
or circumstances that can affect the Company's business and results of
20
<PAGE> 24
operations. There can be no assurance that such events in the future will not
have a material adverse effect on the Company's results of operations.
The governments of the countries in Latin America vary widely with respect
to structure, constitution and stability. While Latin American governments have
historically exercised extensive influence over their economies, the role of
government has declined as countries have liberalized their political structures
and economies. However, there can be no assurance that future developments in
the government administration of local economies would not materially and
adversely impair the Company's business and financial condition, or the value of
the Common Stock.
Labor Issues. In most Latin American countries labor unions are considered
to be strong and influential. Accordingly, while none of the Company's
operations are currently unionized, no assurance can be given that the Company
will not encounter strikes or other types of conflicts with labor unions or the
Company's personnel in the Company's markets or that such labor disputes will
not have an adverse effect on the Company. In addition, in response to pressure
by labor unions, many Latin American governments in which the Company targets
operations have, at times, actively regulated cross-border transactions,
including placing limitations on imported goods. Such regulations may result in
delays and increased costs for the Company.
TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
The Company has engaged in a large number of transactions with its
shareholders, directors, officers and other related parties. There can be no
assurance that the terms of these transactions were the same as those that would
have resulted from transactions among unrelated parties. The Indenture will
restrict the Company's ability to engage in transactions with related parties
after consummation of the Offering. See "Certain Relationships and Related Party
Transactions," "Description of Senior Notes -- Certain Covenants -- Affiliate
Transactions" and the Report of Independent Certified Public Accountants
contained in the consolidated financial statements of the Company contained
elsewhere in this Prospectus.
LACK OF DIVIDENDS
ICCA does not anticipate paying dividends on the Common Stock for the
foreseeable future, and the ability of ICCA to make dividend payments on the
Common Stock is restricted by certain covenants in the Indenture. See "Price
Range of Common Stock and Dividend Policy" and "Description of Senior Notes --
Certain Covenants -- Restricted Payments."
SHARES ELIGIBLE FOR FUTURE SALE
As of December 2, 1997, ICCA had outstanding 18,984,300 shares of Common
Stock. All of such shares may be sold upon consummation of this Offering subject
to restrictions set forth in Rule 144 ("Rule 144") promulgated under the
Securities Act, and to a lock-up agreement described below.
During October 1997, the Company issued 851,162 shares of Common Stock in
connection with the conversion of $1.45 million aggregate principal amount of
its 8% Convertible Debentures, plus related accrued interest and issued 250,620
shares of Common Stock in connection with the conversion of $500,000 aggregate
principal amount of its 7% Convertible Debentures, plus, related accrued
interest.
All of the executive officers and directors and certain shareholders of
ICCA were deemed to beneficially own 8,822,083 shares of Common Stock (including
options to purchase 3,543,333 shares) as of the Closing Date of the Senior Note
Offering, have agreed not to sell, otherwise dispose of or pledge any shares of
Common Stock or securities convertible into or exercisable or exchangeable for
such Common Stock for a period of 180 days from the commencement of the Senior
Note Offering without the prior written consent of UBS Securities LLC (the
"Initial Purchaser").
21
<PAGE> 25
Sales of substantial amounts of Common Stock in the public market under
Rule 144, pursuant to the exercise of registration rights or otherwise, and even
the potential for such sales, may have a material adverse effect on the
prevailing market price of the Common Stock and the Warrants included in the
Units and could impair the Company's ability to raise capital through the sale
of its equity securities.
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK
ICCA's Articles of Incorporation authorizes the issuance of 10,000,000
shares of preferred stock, par value $.001 per share ("Preferred Stock"), on
terms which may be fixed by the Board of Directors of ICCA without further
shareholder approval. The terms of any series of Preferred Stock, which may
include priority claims to assets and dividends and special voting rights, could
adversely affect the rights of holders of the Common Stock. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions, financing and other corporate transactions, could have the effect
of preventing or making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, capital stock of ICCA, which may
adversely affect the market price of the Common Stock. The Indenture limits the
ability of the Company to issue Preferred Stock. See "Description of Senior
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
22
<PAGE> 26
CONVERTIBLE DEBENTURES
On February 3, 1997, ICCA issued $1.5 million aggregate principal amount of
7% Convertible Debentures (the "7% Convertible Debentures") due February 3, 2000
and warrants to purchase an aggregate of 100,000 shares of Common Stock. On May
6, 1997, ICCA issued $2.0 million aggregate principal amount of 8% Convertible
Debentures (the "8% Convertible Debentures") due April 30, 1998 and warrants to
purchase an aggregate of 20,000 shares of Common Stock. Original issue discounts
of $167,000 and $31,000 related to the 7% Convertible Debentures and the 8%
Convertible Debentures, respectively, resulted from proceeds allocated to the
related warrants. The 7% Convertible Debentures and the 8% Convertible
Debentures are collectively referred to as the "Convertible Debentures." The net
proceeds of the Convertible Debentures were used to pay for (i) capital
expenditures related to the Company's fiber optic networks, (ii) operating
expenses of ICCA's wholly owned subsidiaries and (iii) corporate expenses
primarily related to salaries, professional fees, travel, rent, and similar
items.
At the option of the Company, the Convertible Debentures may be redeemed at
predetermined premiums, at any time or from time to time, upon not less than ten
nor more than twenty days prior written notice. The prepayment price for the 7%
Convertible Debentures and 8% Convertible Debentures shall equal 117% and 130%,
respectively, of the principal amount to be prepaid plus accrued interest. In
addition, the Convertible Debentures are convertible based on predetermined
formulas, at the option of the holders, into Common Stock at any time prior to
maturity at a conversion price that will be less than the closing bid price as
reported by the Nasdaq SmallCap Market at time of conversion. The Company may be
required to pay certain penalties if it fails to convert the Convertible
Debentures, in a timely manner, pursuant to written notices received from the
holders.
In connection with the Convertible Debentures, the Company is required to
file with the Commission this registration statement covering a sufficient
number of shares of Common Stock into which the Convertible Debentures may be
converted (the "Registered Shares"). Pursuant to the terms of the Convertible
Debentures, the Company was required to pay the holders certain penalties until
such time as the Company either filed this registration statement or redeems the
Convertible Debentures. On July 3, 1997 the holders of the 7% Convertible
Debentures filed suit against the Company and certain of its officers for
failure to file a registration statement to register the shares of Common Stock
issuable upon the conversion of the 7% Convertible Debentures and warrants to
purchase 100,000 shares of Common Stock. See "Business -- Legal Proceedings."
During October 1997, the Company issued 851,162 shares of Common Stock in
connection with the conversion of $1.45 million aggregate principal amount of
its 8% Convertible Debentures, plus related accrued interest and issued 250,620
shares of Common Stock in connection with the conversion of $500,000 aggregate
principal amount of its 7% Convertible Debentures, plus, related accrued
interest.
The Company intends to redeem all outstanding Convertible Debentures prior
to December 31, 1997. Approximately $1.0 million and $550,000 in aggregate
principal amount of the 7% Convertible Debentures and 8% Convertible Debentures,
respectively, were outstanding at such time and that the Company will be
required to pay an aggregate $2.9 million to extinguish its liabilities related
to the Convertible Debentures, including outstanding principal, related accrued
interest, redemption premiums, and penalties related to non-registration and
non-conversion. The payment of this amount would result in an extraordinary loss
on debt extinguishment of approximately $1.2 million. The actual payment, and
therefore the magnitude of the Company's loss on debt extinguishment, could be
lower or higher than the aforementioned amounts. See "Unaudited Pro Forma
Condensed Combined Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
23
<PAGE> 27
USE OF PROCEEDS
This Offering is intended to satisfy certain obligations of the Company to
register the Shares under the Securities Act to holders of Shares and warrants
and options to purchase Shares. The Company will not receive any proceeds from
the sale of the Shares offered hereby and has agreed to pay the expenses of the
Offering.
24
<PAGE> 28
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of September 30, 1997 on (i) an actual basis and (ii) on a pro
forma basis giving effect to the Offering, the application of the proceeds
therefrom and the consummation of the Iusatel Acquisition, as if they occurred
at that date.
The information contained in this table should be read in conjunction with
"Prospectus Summary -- The Iusatel Acquisition," "Unaudited Pro Forma Condensed
Combined Financial Information," "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements including the notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT NOTES)
<S> <C> <C>
Cash, restricted bank deposits and escrows:
Cash and cash equivalents................................. $ 299 $ 12,695
Restricted bank deposits and escrows...................... 164 120,150(1)
-------- --------
Total cash, restricted bank deposits and
escrows.......................................... $ 463 $132,845
======== ========
Short-term debt:
Bank lines of credit and Bridge Notes..................... $ 1,407 $ --
8% Convertible Debentures, net of unamortized original
issue discount......................................... 532 --
7% Convertible Debentures, net of unamortized original
issue discount......................................... 861 --
Iusatel notes payable..................................... -- 687
Lease obligations......................................... 45 300
-------- --------
Total short-term debt............................. $ 2,845 $ 987
======== ========
Long-term debt:
Senior Notes, net of original issue discount.............. $ -- $131,625(2)
Capital lease obligations................................. 463 513
-------- --------
Total long-term debt.............................. $ 463 $132,138
======== ========
Stockholders' equity:
Preferred Stock, $.001 par value, authorized 10,000,000
shares, none issued.................................... -- --
Common Stock, $.001 par value, authorized 50,000,000
shares, 16,152,518 shares issued and outstanding
(actual); and 19,084,300 shares issued and outstanding
(pro forma)............................................ $ 19 $ 19
Additional paid in capital................................ 27,026 26,945
Outstanding warrants...................................... 298 26,548(2)
Accumulated deficit....................................... (20,044) (21,464)
Cumulative translation adjustments........................ (152) (152)
-------- --------
Total stockholders' equity........................ $ 7,147 $ 31,896
======== ========
Total Capitalization.............................. $ 10,455 $164,034
======== ========
</TABLE>
(1) Represents a portion of the net proceeds from the issuance of the Senior
Notes (i) $57.3 million of which were used to purchase a portfolio of
Pledged Securities that was pledged and escrowed for payment of interest on
the Senior Notes through 2000 and (ii) $62.0 million of which was pledged
and escrowed as security for all obligations of ICCA under the Senior Notes
and the application of such funds by ICCA for payment (as the following
terms are defined herein) of (a) Permitted Expenditures, (b) in the event of
a Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith. See "Description of Senior
Notes -- Proceeds Pledge and Escrow Agreement."
(2) Includes $18,375,000 of the proceeds of the Senior Note Offering which were
attributed to the Unit Warrants based on their estimated fair value. Such
amount has been recorded as additional original issue discount ("OID") with
respect to the Senior Notes and will be amortized over the life of the
Senior Notes, using the effective interest method. Outstanding warrants
include such OID and $7,875,000 attributable to the value of warrants issued
to UBS Securities LLC, the Initial Purchaser in the Senior Note Offering.
25
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information consists
of the Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30,
1997 and the Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997
(collectively the "Pro Forma Statements"). The Unaudited Pro Forma Condensed
Combined Balance Sheet as of September 30, 1997 gives effect to the Senior Note
Offering, the use of the proceeds therefrom and the consummation of the Iusatel
Acquisition, as if they each had occurred at that date and the related Unaudited
Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 gives effect to
the Senior Note Offering, the application of proceeds therefrom and the
consummation of the Iusatel Acquisition as if they each had occurred at the
beginning of the relevant period. The Iusatel Acquisition is accounted for under
the purchase method of accounting.
The September 30, 1997 historical balance sheet information for ICCA and
Iusatel has been derived from the unaudited September 30, 1997 balance sheets of
ICCA and Iusatel, respectively, included in this Prospectus. The information for
the nine months ended September 30, 1997 have been derived from ICCA's and
Iusatel's unaudited statement of operations for the nine months ended September
30, 1997 included elsewhere herein. The pro forma adjustments relating to the
purchase by ICCA of Iusatel represent the Company's preliminary determinations
of these adjustments and are based upon available information and certain
assumptions the Company considers reasonable under the circumstances. Final
amounts could differ from those set forth herein. The unaudited historical
financial information of ICCA referred to above, in the opinion of management of
ICCA, include all adjustments consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of ICCA for the unaudited
interim periods.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the Company's consolidated financial statements and Iusatel's
Financial Statements, including the notes thereto, appearing elsewhere in this
Prospectus. The Pro Forma Statements do not purport to represent what the
Company's results of operations or financial position would actually have been
if the aforementioned transactions or events had occurred on the dates specified
or to project the Company's results of operations or financial position for any
future periods or at any future date. The pro forma adjustments are based upon
available information and certain adjustments that the Company believes are
reasonable. In the opinion of the Company, all adjustments have been made that
are necessary to present fairly the Pro Forma Statements.
26
<PAGE> 30
INTERAMERICAS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
ICCA IUSATEL(1) ADJUSTMENTS(2) ICCA
------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 299 211 $ 12,185(a) $ 12,695
Restricted bank deposits and escrows.................. 164 -- 83,686(b) 83,850
Accounts receivable, net.............................. 76 1,518 -- 1,594
Notes and other receivables........................... 80 145 -- 225
Due from related parties.............................. 27 -- -- 27
Prepaid expenses and other............................ 496 437 -- 933
------- ------ -------- --------
Total current assets........................... 1,142 2,311 95,871 99,324
Restricted escrows...................................... -- -- 36,300(c) 36,300
Property and equipment, net............................. 5,956 3,000 -- 8,956
Intangibles, net........................................ 4,826 17 5,977(d) 10,820
Deferred financing costs and other...................... 1,797 -- 15,146(e) 16,943
------- ------ -------- --------
Total assets................................... $13,721 $5,328 $153,294 $172,343
======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank lines of credit and Bridge Notes................. $ 1,407 -- $ (1,407)(f) $ --
8% Convertible Debentures, net of original issue
discount............................................ 532 -- (532)(g) --
7% Convertible Debentures, net of original issue
discount............................................ 861 -- (861)(i) --
Accounts payable and accrued expenses................. 2,982 1,454 -- 4,436
Notes payable......................................... -- 687 -- 687
Due to related parties................................ 47 1,389 -- 1,436
Lease obligations, current............................ 45 255 -- 300
Other current liabilities............................. 85 1,016 (73)(h) 1,028
------- ------ -------- --------
Total current liabilities........................... 5,959 4,801 (2,873) 7,887
Senior Notes, net of original issue discount............ -- -- 131,625(j) 131,625
Lease obligations, long-term............................ 463 50 -- 513
Other................................................... 152 270 -- 422
------- ------ -------- --------
Total liabilities................................... 6,574 5,121 128,752 140,447
------- ------ -------- --------
Stockholders' equity.................................... 7,147 207 24,542(k) 31,896
------- ------ -------- --------
Total liabilities and stockholders' equity..... $13,721 5,328 $153,294 $172,343
======= ====== ======== ========
</TABLE>
27
<PAGE> 31
INTERAMERICAS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------- -------------------------------------------------
HISTORICAL HISTORICAL
-------------------- PRO FORMA PRO FORMA -------------------- PRO FORMA PRO FORMA
ICCA IUSATEL(2) ADJUSTMENTS(3) ICCA ICCA IUSATEL(2) ADJUSTMENTS(3) ICCA
------- ---------- -------------- --------- ------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... $ 652 $ 7,822 $ -- $ 8,474 853 $ 6,353 $ -- $ 7,206
Operating expenses:
Cost of sales........... 958 5,598 -- 6,556 942 3,995 -- 4,937
Selling, general and
administrative........ 3,345 5,068 -- 8,413 7,651 3,732 -- 11,383
Depreciation and
amortization.......... 706 519 450(a) 1,675 658 342 338(a) 1,338
------- ------- -------- -------- ------- ------- -------- --------
Total operating
expenses........ 5,009 11,185 450 16,644 9,251 8,069 338 17,658
------- ------- -------- -------- ------- ------- -------- --------
Loss from operations...... (4,357) (3,363) (450) (8,170) (8,398) (1,716) (338) (10,452)
Other income (expense).... (23) (444) -- (467) 48 (150) -- (102)
Interest expense.......... (246) (1,361) (21,386)(b) (22,993) (1,543) (200) (16,280)(b) (18,023)
------- ------- -------- -------- ------- ------- -------- --------
Net loss.................. $(4,626) $(5,168) $(21,836) $(31,630) (9,893) (2,066) $(16,618) $(28,577)
======= ======= ======== ======== ======= ======= ======== ========
Net loss per common
share................... $ (0.31) $ (2.14) (.61) $ (1.77)
======= ======== ======= ========
Weighted average common
shares outstanding
(000's)................. 14,796 14,796 16,170 16,170
======= ======== ======= ========
</TABLE>
28
<PAGE> 32
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
(1) Represents condensed financial information derived from the Iusatel
Financial Statements included elsewhere in this Prospectus. The Iusatel
Financial Statements have been prepared in accordance with Chilean GAAP. For
comparative purposes, the amounts disclosed for the year ended December 31, 1995
have been restated in terms of Chilean Pesos of December 31, 1996 purchasing
power while the unaudited interim September 30, 1997 amounts are expressed in
constant Chilean Pesos of September 30, 1997. Such financial statements also
include, for the convenience of the reader, translation of amounts from Chilean
Pesos into U.S. dollars at the exchange rate on September 30, 1997 of
Ch$414.47 = US$1.
The information below for Iusatel reconciles the Chilean GAAP convenience
translation balances to US GAAP. The adjustment column reflects (a) the
principal differences between Chilean GAAP and US GAAP included in Note 28 to
the Iusatel Financial Statements; and (b) the impact of remeasuring
(translating) amounts in accordance with the criteria set forth in Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation," using the
current rate method of translation, as the Chilean Peso is considered to be the
functional currency and the books and records are maintained in that currency as
follows:
- Assets and liabilities are translated using the current exchange rate at
the balance sheet date.
- Paid-in capital is translated at historical exchange rates.
- Accumulated losses are translated at the weighted average of the
historical rates in effect when the income was earned.
- All revenues and expenses are translated using the exchange rate of the
transaction date.
- Adjustments from translation of the financial statements are reported in
a separate component of equity.
- Exchange gains and losses from translations and balances that are
receivable or payable in a currency other than the functional currency
are included in income.
<TABLE>
<CAPTION>
IUSATEL'S BALANCE SHEET AT SEPTEMBER 30, 1997
-----------------------------------------------
CHILEAN GAAP US GAAP US GAAP
THUS$ ADJUSTMENTS THUS$
--------------- -------------- ----------
<S> <C> <C> <C>
Current assets............................. $2,312 $ -- $2,311
Fixed assets............................... 3,607 (607) 3,000
Other assets............................... 18 (1) 17
------ ----- ------
$5,936 $(608) $5,328
====== ===== ======
Current liabilities........................ $4,801 $ -- $4,801
Long-term liabilities...................... 320 -- 320
Shareholders' equity....................... 815 (608) 207
------ ----- ------
$5,936 $(608) $5,328
====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
IUSATEL'S STATEMENT OF OPERATIONS FOR THE
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------ ------------------------------------
CHILEAN GAAP US GAAP US GAAP CHILEAN GAAP US GAAP US GAAP
THUS$ ADJUSTMENTS THUS$ THUS$ ADJUSTMENTS THUS$
------------ ----------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales.................... $ 8,150 $ (328) $ 7,822 $ 6,420 $(67) $ 6,353
Operating expenses:
Cost of sales.......... 4,846 752 5,598 4,644 (649) 3,995
Selling, general and
administrative....... 5,256 (188) 5,068 3,774 (42) 3,732
Depreciation and
amortization......... 539 (20) 519 346 (4) 342
------- ------- ------- ------- ---- -------
10,641 544 11,185 8,764 (695) 8,069
------- ------- ------- ------- ---- -------
Loss from operations..... (2,491) (872) (3,363) (2,344) 628 (1,716)
Other income (expense)... 276 (720) (444) (415) 265 (150)
Interest expense......... (1,417) 56 (1,361) (204) 4 (200)
------- ------- ------- ------- ---- -------
Net loss............... $(3,632) $(1,536) $(5,168) $(2,963) $897 $(2,066)
======= ======= ======= ======= ==== =======
</TABLE>
29
<PAGE> 33
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
(2) Represents pro forma adjustments to reflect the Offering, the application of
proceeds therefrom and the consummation of the Iusatel Acquisition as
follows:
(a) Cash and cash equivalents:
<TABLE>
<S> <C> <C>
Proceeds from Senior Notes................................ $ 150,000
Cash used to pay estimated transaction fees and expenses
of the Senior Note Offering............................. (7,500)
Cash used to pay short-term bank lines of credit and
Bridge Notes, net of
restricted bank deposits................................ (1,365)
Cash used to pay Convertible Debentures*.................. (2,900)
Cash used for Iusatel Acquisition**....................... (5,900)
Cash transferred to short-term restricted escrows:**
Collateral Account...................................... $(62,850)
Pledge Account.......................................... (21,000) (83,850)
--------
Cash transferred to long-term restricted escrows:**
Pledge Account (interest due after one year on Senior
Notes)................................................ (36,300)
---------
$ 12,185
=========
</TABLE>
(b) Restricted bank deposits and escrows:
<TABLE>
<S> <C> <C>
Proceeds from the Senior Note Offering.................... $ 83,850
Restricted bank deposits used to pay bank lines of
credit.................................................. (164)
---------
83,686
=========
</TABLE>
(c) Restricted escrows (long-term):
<TABLE>
<S> <C> <C>
Pledge Account (for interest payments due beyond one year
on Senior Notes)........................................ $ 36,300
=========
</TABLE>
(d) Intangible assets, net:
<TABLE>
<S> <C> <C>
Intangible assets acquired in the Iusatel Acquisition..... $ 5,977
=========
</TABLE>
(e) Deferred financing costs and other:
<TABLE>
<S> <C> <C>
Estimated transaction fees and expenses related to Senior
Notes................................................... $ 7,500
Value of warrants issued to UBS Securities................ 7,875
Write-off unamortized deferred financing costs related to
Convertible Debentures and Bridge Notes................. (229)
---------
$ 15,146
=========
</TABLE>
(f) Bank lines of credit and Bridge Notes:
<TABLE>
<S> <C> <C>
Payment of short-term bank lines of credit................ $ (557)
Payment of Bridge Notes................................... (950)
Unamortized value of the Bridge Notes warrants............ 100
---------
$ (1,407)
=========
</TABLE>
(g) 8% Convertible Debentures:
<TABLE>
<S> <C> <C>
Payment of original principal amount...................... $ (550)
Unamortized value of warrants............................. 18
---------
$ (532)
=========
</TABLE>
(h) Other current liabilities:
<TABLE>
<S> <C> <C>
Payment of accrued interest on Convertible Debentures..... $ (73)
=========
</TABLE>
30
<PAGE> 34
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
(i) 7% Convertible Debentures:
<TABLE>
<S> <C> <C>
Payment of original principal amount.................... $ (1,000)
Unamortized value of warrants........................... 139
---------
$ (861)
=========
</TABLE>
(j) Senior Notes:
<TABLE>
<S> <C> <C>
Issuance of Senior Notes.................................. $ 150,000
Proceeds of the Senior Note Offering attributable to the
Warrants based on their estimated fair value***......... (18,375)
---------
$ 131,625
=========
</TABLE>
(k) Stockholders equity:
<TABLE>
<S> <C> <C>
Value attributable to 5,250,000 Warrants.................. $ 18,375
Value attributable to 2,250,000 warrants issued to UBS
Securities.............................................. 7,875
Eliminate historical equity of Iusatel.................... (207)
Extraordinary loss on early extinguishment of debt........ (1,420)
Reduction in additional paid in capital to eliminate value
of beneficial conversion feature on Convertible
Debentures.............................................. (365)
Value of 100,000 vested shares of Common Stock expected to
be issued to a director upon consummation of the Iusatel
Acquisition............................................. 284
---------
$ 24,542
=========
</TABLE>
* Cash used to pay Convertible Debentures reflects the Company's current
estimate of the amount required to redeem the 7% Convertible Debentures and
the 8% Convertible Debentures. This amount includes the original principal,
accrued interest, redemption premiums, penalties for not filing a
registration statement to register the shares of Common Stock issuable upon
conversion of the Convertible Debentures and penalties for not converting
the 8% Convertible Debentures pursuant to certain conversion notices. See
"Business -- Legal Proceedings" and the "Convertible Debentures."
** Deposits to the Collateral Account includes an additional $850,000 that may
be used to pay for contingent payments, if any, related to the Iusatel
Acquisition. See "The Iusatel Acquisition" and "Description of Senior
Notes -- Proceeds Pledge and Escrow Agreement."
*** Represents the proceeds of the Senior Note Offering attributable to the
Warrants based on their estimated fair value. Such amount will be recorded
as additional original issue discount ("OID") with respect to the Senior
Notes and will be amortized over the life of the Senior Notes, using the
effective interest method.
31
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF U.S. DOLLARS)
(3) Represents pro forma adjustments to reflect the Senior Note Offering, the
application of proceeds therefrom and the consummation of the Iusatel
Acquisition on the condensed consolidated statements of operations for the
year ended December 31, 1996 and for the nine months ended September 30,
1997. The 1996 historical operating results for Resetel and HSA prior to the
acquisition by the Company in 1996 have not been included in the pro forma
tables for the year ended December 31, 1996 since such amounts are not
significant.
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(a) Depreciation and amortization:
Represents the amortization of intangible assets
acquired in the Iusatel Acquisition over a 10
year period...................................... $ 450 $ 338
======== ========
(b) Interest Expense
Interest expense on $150.0 million of Senior Notes
at an interest rate of 14.0% per annum........... $(21,000) $(15,750)
Represents current amortization expense related to
deferred financing costs and the original issue
discount attributable to warrants using the
effective interest method over a 10 year
period........................................... (1,386) (1,040)
Elimination of historical interest expense of
Iusatel for debt that will not be assumed by the
Company pursuant to the Iusatel Acquisition*..... 1,000 --
Elimination of previously recorded interest costs
associated with the issuance of the Convertible
Debentures during 1997 including actual interest
expense, beneficial conversion option, and
amortization of original issue discount
attributable to warrants and deferred financing
costs, net of capitalized interest............... -- 510
-------- --------
$(21,386) $(16,280)
======== ========
</TABLE>
32
<PAGE> 36
SELECTED HISTORICAL FINANCIAL DATA
ICCA
The selected historical financial data presented below as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 have been
derived from the consolidated financial statements of the Company which were
audited by Price Waterhouse LLP, independent certified public accountants, and
which are included elsewhere in this Prospectus. The selected historical
financial data presented below as of September 30, 1997 and for the nine months
ended September 30, 1996 and 1997 have been derived from the unaudited
consolidated financial statements of the Company which are included elsewhere in
this Prospectus and which, in the opinion of the management of the Company,
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the financial position and the results of operations for
such unaudited interim periods. The statement of operations data for the nine
months ended September 30, 1997 are not necessarily indicative of results that
are expected for subsequent periods or for a full year. The selected historical
financial data set forth below are qualified in their entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
including the notes thereto, and other financial information included elsewhere
in this Prospectus.
The Consolidated Financial Statements of the Company have been prepared in
accordance with U.S. GAAP. The financial statements of subsidiaries outside the
United States are prepared using the local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the rate of
exchange at the balance sheet date. The resultant translation adjustments are
included as a separate component of stockholders' equity. Income and expense
items are translated at average monthly rates of exchange. Gains and losses from
foreign currency transactions of these subsidiaries are included in the
statement of operations.
IUSATEL
The selected historical financial data presented below as of December 31,
1995 and 1996 and for each of the two years in the period ended December 31,
1996 have been derived from the financial statements of Iusatel which were
audited by Langton Clarke Y Cia. Ltda.\ Coopers & Lybrand, independent
accountants, and which are included elsewhere in this Prospectus. The selected
historical financial data presented below as of September 30, 1997 and for the
nine months ended September 30, 1996 and 1997 have been derived from the
unaudited financial statements of Iusatel, which are included elsewhere in this
Prospectus. The statement of operations data for the nine months ended September
30, 1997 are not necessarily indicative of results that are expected for
subsequent periods or for a full year. The selected historical financial data
set forth below are qualified in their entirety by, and should be read in
conjunction with, the Iusatel Financial Statements, including the notes thereto
and other financial information included elsewhere in this Prospectus.
The Iusatel Financial Statements have been prepared in accordance with
Chilean GAAP. Chilean GAAP varies in certain significant respects from U.S.
GAAP. Note 28 to the 1996 Iusatel Financial Statements provide a description of
the principal differences between Chilean GAAP and U.S. GAAP.
Chilean GAAP requires that the financial statements be restated to reflect
the full effects of loss in the purchasing power of the Chilean Peso on the
operations of Iusatel. See Notes 2 and 4 to the Iusatel Financial Statements
contained elsewhere in this Prospectus. For comparative purposes, the Iusatel
Financial Statements and the amounts disclosed in the related notes for the year
ended December 31, 1995 have been restated in terms of Chilean Pesos based on
December 31, 1996 purchasing power. In accordance with Chilean regulations and
accounting practices, the restatement was calculated based on the Official
Consumer Price Index of the National Institute of Statistics, which was 6.6% for
the year ended November 30, 1996. The interim September 30, 1996 and 1997
financial statements have also been restated for general price-level changes,
but are expressed in constant Chilean Pesos of September 30, 1997. The effect of
not updating the December 31, 1995 and 1996 financial statements to September
30, 1997 constant pesos is not significant because the change in the inflation
index applicable for the restatement of financial statements for the nine month
period ended September 30, 1997 was only 3.9%. Additionally, if the updating by
the 3.9% increase had been made, it would have been applied to all amounts and
disclosures shown in the December 31, 1995 and 1996 financial statements and
accordingly, there would be no changes in the relationships among the amounts
and disclosures in those financial statements.
Balances in U.S. dollars included in the Iusatel balance sheets have been
translated into Chilean Pesos at the "Observed Exchange Rate" determined by the
Central Bank of Chile in effect at each period end using an
33
<PAGE> 37
SELECTED HISTORICAL FINANCIAL DATA, CONTINUED
average exchange rate of Ch$ per US$ as of December 31, 1995 and 1996, and as of
September 30, 1997 of Ch$406.91, Ch$424.87, and Ch$414.47, respectively.
Reference herein to "U.S. dollars" or "U.S. $" are to the lawful currency
of the United States. References herein to "pesos" or "P" are to the lawful
currency of Chile. Amounts may be expressed in thousands of constant Chilean
Pesos ("ThCh$") or thousands of US dollars ("ThUS$"). With respect to Iusatel,
the United States dollar amounts disclosed in the accompanying financial
statements as of December 31, 1996 and September 30, 1997 are presented solely
for the convenience of the reader at the September 30, 1997 exchange rate of
Ch$414.47 per U.S.$1. These translations should not be construed as
representations that the Chilean Peso amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollar amounts at the rate
indicated.
INTERAMERICAS COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS,
EXCEPT NET LOSS PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
Historical Operating Data(1):
Sales.......................................... $ 34 $ 224 $ 652 $ 477 $ 853
Operating expenses............................. (2,207) (2,722) (5,009) (3,290) (9,251)
------- ------- ------- ------- -------
Loss from operations........................... (2,173) (2,498) (4,357) (2,813) (8,398)
Other income (expense)......................... (45) (56) (23) 25 48
Interest expense............................... (313) (319) (246) (96) (1,543)
------- ------- ------- ------- -------
Net loss............................... $(2,531) $(2,873) $(4,626) $(2,884) $(9,893)
======= ======= ======= ======= =======
Ratio of earnings to fixed charges(2).......... -- -- -- -- --
Net loss per common share...................... $ (1.30) $ (0.31) $ (0.31) $ (0.20) $ (.61)
Weighted average shares outstanding............ 1,952 9,407 14,796 14,346 16,170
Cash Flows:
Cash used in operating activities.............. $ (489) $(2,150) $(3,934) $(3,471) $(3,435)
Cash used in investing activities.............. (2,049) (1,170) (2,968) (1,834) (1,855)
Cash provided by financing activities.......... 2,649 3,263 7,570 7,697 4,940
Other Financial Data:
EBITDA(3)...................................... $(2,097) $(2,102) $(3,651) $(2,295) $(7,740)
Depreciation and amortization.................. 76 396 706 518 658
Capital expenditures........................... 1,849 720 1,453 334 1,855
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 57 $ 723 $ 299
Restricted bank deposits(4)............................... -- -- 164
Total assets.............................................. 4,347 10,354 13,721
Current debt:
8% Convertible Debentures, net of original issue
discount............................................. -- -- 532
7% Convertible Debentures, net of original issue
discount............................................. -- -- 861
Bank line of credit and Bridge Notes................... -- -- 1,407
Notes payable.......................................... 1,647 -- --
Lease obligations, current............................. 11 114 45
Long-term liabilities:
Lease obligations...................................... 210 248 463
Stockholders' equity................................... 670 8,280 7,147
</TABLE>
34
<PAGE> 38
SELECTED HISTORICAL FINANCIAL DATA, CONTINUED
IUSATEL CHILE, S.A.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ -----------------------------------
1995 1996 1996 1996 1997 1997
----------- ----------- -------- ----------- ----------- -------
(THCH$) (THUS$) (THCH$) (THCH$) (THUS$)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical Operating Data:
Revenues......................... $ 1,134,550 $ 3,377,825 $ 8,150 $ 2,588,309 $ 2,661,035 $ 6,420
Expenses......................... (3,464,352) (4,410,341) (10,641) (3,202,881) (3,632,752) (8,764)
----------- ----------- -------- ----------- ----------- -------
Operating loss................... (2,329,802) (1,032,516) (2,491) (614,572) (971,717) (2,344)
Other income (expense)........... (7,745) (103,780) (250) (40,959) (219,662) (530)
Interest expense................. (483,033) (587,189) (1,417) (434,935) (84,220) (203)
Price-level restatement.......... 240,350 217,977 526 169,902 45,661 110
----------- ----------- -------- ----------- ----------- -------
Net loss.................. $(2,580,230) $(1,505,508) $ (3,632) $ (920,564) $(1,227,894) $(2,963)
=========== =========== ======== =========== =========== =======
Ratio of earnings to fixed
charges(3)..................... -- -- -- -- -- --
Historical Cash Flows:
Cash used in operating
activities..................... $(1,565,535) $(1,665,108) $ (4,017) (1,172,831) (91,972) (222)
Cash used in investing
activities..................... (380,459) (159,169) (384) (628,780) (41,777) (101)
Cash provided by financing
activities..................... 1,895,552 1,773,834 4,280 1,786,258 197,222 476
Other Financial Data:
EBITDA(2)........................ $(2,167,600) $ (809,237) $ (1,952) $ (789,235) (1,115,446) (2,691)
Depreciation and amortization.... 162,202 223,279 539 169,229 146,287 346
Capital expenditures............. 549,955 159,169 384 628,780 41,777 101
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------ --------------------
1995 1996 1996 1997 1997
----------- ----------- -------- ---------- -------
(THCH$) (THCH$) (THUS$) (THCH$) (THUS$)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 72,075 $ 23,758 $ 57 $ 87,945 $ 211
Total assets.................................. 2,491,757 3,342,962 8,066 2,460,228 5,936
Current debt:
Short-term bank liabilities................. 3,385,197 3,353,913 8,092 12,000 29
Lease obligations, current.................. 108,308 114,386 276 105,860 255
Notes payable............................... 156,182 280,143 676 284,611 687
Long-term liabilities:
Lease obligations........................... 165,972 91,306 220 20,689 50
Notes payable............................... 1,212 245,961 593 94,301 228
Payable to related companies................ 660,193 2,328,098 5,617 -- --
Stockholders equity........................... (2,705,421) (4,210,929) (10,160) 337,764 815
</TABLE>
- ---------------
(1) Historical financial data includes the operations of Resetel and HSA from
their respective dates of acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss prior to income taxes and fixed charges. Fixed charges consist of
interest expense and amortization of debt issuance costs.
(3) "EBITDA" represents income (loss) form operations before interest,
depreciation and amortization. EBITDA is presented because it is commonly
used in the telecommunications industry to measure operating performance,
asset value and financial leverage. However, EBITDA should not be considered
as an alternative to net income, as a measure of operating results, cash
flows or as a measure of liquidity in accordance with generally accepted
accounting principles. Also, EBITDA as defined herein may not be comparable
to similarly entitled measures reported by other companies.
(4) Restricted bank deposits represent cash held by banks that require such
deposits to be maintained in support of loans made to certain of ICCA's
subsidiaries.
35
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
General
The Company is a new provider of high bandwidth integrated
telecommunication services to high volume users through state of the art fiber
optic networks located in Santiago, Chile and Lima, Peru. The Company began
development of its networks in Chile and Peru in 1994 and 1996, respectively. As
of June 30, 1997, the Company had (i) constructed a 120 kilometer fiber optic
network which extends through most of Santiago's downtown business district and
the outlying industrial and airport corridor and (ii) completed construction of
60 kilometers of its fiber optic network in Lima. The Lima network, when
completed, is expected to be approximately 230 kilometers in length and will
extend throughout the major commercial and industrial districts of Lima, and the
port city of Callao.
The Company has historically operated as a Latin American
telecommunications development stage company which has developed its operations
in Latin America through the acquisition of holding and operating companies that
own licenses, concessions or rights-of-way in what the Company believes to be
attractive markets. The following table sets forth the name, principal market
and date of acquisition of each entity acquired by the Company.
<TABLE>
<CAPTION>
NAME MARKET DATE OF ACQUISITION
- ---- ------ -------------------
<S> <C> <C>
Hewster Servicios Intermedios, S.A. ("HSI")................. Santiago July 15, 1994
VISAT, S.A. ("VISAT")....................................... Santiago September 23, 1994
Red de Servicios Empresariales de Telecomunicaciones, S.A.
("Resetel")............................................... Lima May 7, 1996
Hewster, S.A. ("HSA")....................................... Santiago July 31, 1996
Iusatel Chile S.A. ("Iusatel").............................. Santiago pending
</TABLE>
HSI is a Chilean corporation engaged in the development of a fiber optic
network in Santiago, Chile. VISAT is a Chilean corporation that holds a
government concession to provide intermediate telecommunications services,
including the installation and operation of a network of 12 satellite earth
stations and a switch throughout Chile, which allows the Company to transmit
either "C" or "KU" bands for satellite communications and broad band
distribution. Resetel is a Peruvian corporation that holds a concession to build
and operate a fiber-optic telecommunications network in Lima and Callao, Peru.
HSA is a Chilean corporation that provides various network installation and
systems integration services. HSI and HSA were combined to operate under the
name of Hewster Chile, S.A. ("Hewster Chile") Currently, Hewster Chile, Visat,
and Resetel are substantially wholly-owned subsidiaries of ICCA. Iusatel is a
Chilean corporation which currently provides domestic and international long
distance services in Chile through its own gateway switch and satellite earth
station, as well as through interconnections with other Chilean long distance
carriers.
Due to lack of capital, the Company has been unable to complete its fiber
optic networks and last mile connections in order to provide meaningful revenue
generation. Thus, to date, the majority of the Company's revenues have been
generated through systems integration and consulting fees provided by the
Company's Hewster Chile operations. With the proceeds of the Senior Note
Offering, the Company anticipates that it has the capital necessary to complete
and leverage its networks to provide significant, sustainable network-based
telecommunications revenues, although no assurance can be given in this regard.
Due to the changing scope of its operations, the Company believes that its
historical operating results and statistics may not be indicative nor
representative of future results and statistics.
36
<PAGE> 40
Sales
Today, the Company derives its sales primarily from services provided by
Hewster Chile which provides voice and data communications services on a private
line basis, and supplies its customers with local and wide-area network design,
engineering, systems integration and support services. The Company expects sales
to increase significantly over the next few years due to the continued expansion
of its operations.
Costs of Sales
Cost of sales include both the cost of services provided and the cost of
equipment sold. Today, cost of sales relate principally to the Company's
operations in Chile. Such costs of services include payments under lease
agreements to install and operate the Company's fiber optic network in the
Santiago subway system. The lease agreement requires payments based on monthly
invoicing of the Company, subject to minimum amounts. The Company anticipates
that the cost of sales will increase with the expansion of its operations.
However, as a percentage of sales, the Company anticipates that the cost of
sales will decrease over time as a result of economies of scale in its
operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of
compensation expense, professional fees, consulting services, travel costs,
office rent and other general corporate expenses. As ICCA's subsidiaries expand
their operations, complete construction of their fiber optic networks and add
new customers, the Company expects a larger portion of selling, general and
administrative expenses to be incurred at the subsidiary level. The Company
expects selling, general and administrative expenses to increase over time as it
continues to expand its operations. However, selling, general, and
administrative expenses as a percentage of sales is expected to decrease over
time with the expansion of the Company's operations, although during the next
several years such costs could represent a higher percentage of sales compared
to historical amounts, as the Company funds the infrastructure necessary to
enhance sales in the future.
Selling general and administrative expenses for the nine month period ended
September 30, 1997 include non-cash compensation and consulting expense of
$4,640,000 related to the value of shares of Common Stock and stock options
issued to certain officers and former directors of the Company.
Depreciation and Amortization
The Company depreciates its property and equipment over their estimated
useful lives, which approximate twenty years for its fiber optic networks.
Intangible assets acquired in the acquisition of HSI, HSA and Visat are being
amortized over ten years. The concession purchased in the acquisition of Resetel
is being amortized over its estimated useful life of twenty years. The Company
believes that depreciation and amortization will continue to increase with the
expansion of its operations.
Interest Expense
The Company currently incurs interest expense on capital leases and also
incurs interest and related expenses attributable to the Company's Convertible
Debentures that were issued during the nine months ended September 30, 1997.
Interest expense has been reduced for amounts capitalized related to the
Company's construction of its fiber optic networks.
Interest costs reported with respect to the Company's Convertible
Debentures include interest expense related to the stated coupon rate of
interest, the value attributable to the ability of the holders to convert the
debentures at a share price less than the closing bid price (as reported by the
Nasdaq SmallCap Market) at time of conversion ("beneficial conversion features")
and amortization of (i) deferred financing costs and
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(ii) original issue discounts related to detachable warrants. The value
attributable to the beneficial conversion features have been expensed at date of
issuance because the agreements could allow holders of the Convertible
Debentures to convert at that date. As a result, for the nine months ended
September 30, 1997 the Company incurred noncash interest cost of $810,000
related to the fair value of the beneficial conversion features.
Interest expense for the nine month period ended September 30, 1997 include
non-cash costs of $852,000 related to the value of 300,000 shares of Common
Stock issued to an individual for certain financial assistance provided to the
Company.
The Company expects interest expense to increase significantly in the
future due to the impact attributable to the Initial Offering.
Income Taxes
The Company is subject to federal, state and foreign income taxes but has
incurred no liability for such taxes due to net operating losses incurred. These
net operating losses could be used to offset future taxable income. The
Company's net deferred tax assets, which result primarily from the future
benefit of these net operating losses, are fully offset by a valuation allowance
for the same amount because of the uncertainty surrounding the future
realization of these net operating loss carryforwards. However, as the Company
expands its fiber optic networks in Chile and Peru, the Company expects to
generate taxable income. Certain tax benefits could expire prior to the time the
Company generates taxable income.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Sales. The Company's sales were $853,000 for the nine months ended
September 30, 1997 as compared to $477,000 for the nine months ended September
30, 1996. This increase of approximately $376,000, was attributable to the
acquisition of HSA on July 31, 1996.
Cost of Sales. The Company's cost of sales, relating principally to the
Company's operations in Chile, was $942,000 for the nine months ended September
30, 1997 as compared to $618,000 for the nine months ended September 30, 1996.
This increase of approximately $324,000, was attributable to services provided
by HSA.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses were $7,651,000 for the nine months ended
September 30, 1997 as compared to $2,154,000 for the nine months ended September
30, 1996. This increase of approximately $5,497,000, was primarily attributable
to non-cash compensation and consulting expense of $4,640,000 related to the
value of shares of Common Stock and stock options issued to certain officers and
former directors of the Company, an increase in corporate expenses related to
salaries, professional fees and travel attributable to the ongoing support of
the Company's subsidiary operations, as well as corporate development
opportunities, and expenses attributable to the Company's Resetel and Hewster
subsidiaries which were acquired by the Company in May and July 1996,
respectively.
Depreciation and Amortization. The Company's depreciation and amortization
expenses were $658,000 for the nine months ended September 30, 1997 as compared
to $518,000 for the nine months ended September 30, 1996. This increase of
$140,000 was primarily attributable to an increase in amortization expense
related to the intangible assets purchased in the acquisitions of Resetel and
Hewster.
Interest Expense. The Company's interest expense was $1,543,000 for the
nine months ended September 30, 1997 as compared to $96,000 for the nine months
ended September 30, 1996. This increase of approximately $1,447,000 was due to
additional financing costs related to the issuance of Convertible Debentures in
February and May 1997 and the non-cash charge of $852,000 related to the value
of 300,000
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shares of Common Stock issued to an individual for certain financial assistance
provided to the Company. Of the total interest cost incurred by the Company for
the nine month period ended September 30, 1997, $600,000 of such costs were
capitalized in connection with the Company's construction of its fiber optic
network in Lima, Peru.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Sales. The Company's sales were $652,000 for the year ended December 31,
1996 as compared to $224,000 for the year ended December 31, 1995. This increase
of approximately $428,000, was attributable to additional services provided by
the Company through its HSA subsidiary, which was acquired in July 1996.
Cost of Sales. The Company's cost of sales was $958,000 for the year ended
December 31, 1996 as compared to $408,000 for the year ended December 31, 1995.
This increase of approximately $550,000, was attributable to added costs
associated with the increase in sales discussed above.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses were $3,345,000 for the year ended December
31, 1996 as compared to $1,918,000 for the year ended December 31, 1995. This
increase of approximately $1,427,000, was primarily attributable to an increase
in corporate expenses related to salaries, professional fees, consulting fees
and travel attributable to the ongoing support of the Company's subsidiary
operations as well as corporate development opportunities, and expenses
attributable to the Company's Resetel and HSA subsidiaries which were acquired
by the Company in May 1996 and July 1996, respectively.
Depreciation and Amortization. The Company's depreciation and amortization
expenses were $706,000 for the year ended December 31, 1996 as compared to
$396,000 for the year ended December 31, 1995. This increase of $310,000 was
attributable to an increase in amortization expense related to the intangible
assets purchased in the acquisitions of Resetel and Hewster, as well as
additional depreciation expense related to commencement of operations of the
Company's fiber optic network in Chile.
Interest Expense. The Company's interest expense was $246,000 for the year
ended December 31, 1996 as compared to $319,000 for the year ended December 31,
1995. This decrease of approximately $73,000, was due to a reduction in the
Company's outstanding indebtedness during 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company commenced operations in Chile during July 1994. Therefore,
sales and costs of sales were minimal during 1994.
Sales. The Company's sales were $224,000 for the year ended December 31,
1995 as compared to $34,000 for the year ended December 31, 1994. This increase
of approximately $190,000, was attributable to a full year of operations during
1995.
Cost of Sales. The Company's cost of sales was $408,000 for the year ended
December 31, 1995 as compared to $163,000 for the year ended December 31, 1994.
This increase of approximately $245,000 was primarily attributable to costs
related to payments under the lease agreements to install and operate the fiber
optic network through Santiago's Metro subway system.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses were $1,918,000 for the year ended December
31, 1995 as compared to $1,968,000 for year ended December 31, 1994. This
decrease of approximately $50,000, was primarily attributable to a reduction in
legal and other professional fees relating to the 1994 incorporation of the
Company that were partially offset by an increase in salaries related to a full
year's operation of HSI.
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Depreciation and Amortization. The Company's depreciation and amortization
expenses were $396,000 for the year ended December 31, 1995 as compared to
$76,000 for the year ended December 31, 1994. This increase of $320,000 was
attributable to an increase in depreciation expense related to commencement of
operations in 1995 of the Company's fiber optic network in Chile.
Interest Expense. The Company's interest expense of $319,000 for the year
ended December 31, 1995 was comparable to $313,000 for the year ended December
31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has been primarily engaged in start-up
activities requiring substantial expenditures. Consequently, the Company has
reported losses from operations, before interest, of approximately $2.2 million,
$2.5 million and $4.4 million for the years ended December 31, 1994, 1995 and
1996, respectively, as well as a loss from operations, before interest, for the
six months ended June 30, 1997 of approximately $2.3 million. In addition, the
Company has reported cash used in investing activities of approximately $2.0
million, $1.2 million and $3.0 million for the years ended December 31, 1994,
1995 and 1996, respectively, as well as cash used in investing activities for
the nine months ended September 30, 1997 of approximately $1.9 million. Cash
used in investing activities related primarily to the purchase of property and
equipment and the acquisitions of Visat and HSA. Further development of the
Company's business and the expansion of its fiber optic networks, service
offerings and customer base will require significant additional expenditures,
and the Company expects that it will have significant operating losses and net
cash outflows from operating and investing activities in the foreseeable future.
Since inception, the Company has funded its cash needs through a
combination of private equity and debt placements.
On October 27, 1997, the Company completed the Senior Note Offering
pursuant to Rule 144A and Regulation S promulgated under the Securities Act of
150,000 Units, consisting of an aggregate of $150.0 million aggregate principal
amount of 14% Senior Notes due October 27, 2007 and 5,250,000 Unit Warrants to
purchase 5,250,000 shares of Common Stock of the the Company at an exercise
price of $4.40 per share. The Unit Warrants entitle the holders thereof to
acquire an aggregate of 5,250,000 shares of Common Stock, representing
approximately 15.2% of the Common Stock of the Company on a fully diluted basis
as of the date of the consummation of the Senior Note Offering (assuming full
vesting and exercise of all options and warrants outstanding at November 14,
1997), at an exercise price of $4.40 per share. In addition, UBS Securities LLC,
the Initial Purchaser of the Units in the Senior Note Offering, was granted
2,250,000 warrants to acquire 2,250,000 shares of Common Stock of the Company at
an exercise price of $4.40 per share.
The net proceeds to the Company from the Senior Note Offering were
approximately $142.5 million, after deducting the underwriting discount and
estimated offering expenses. In addition, approximately $57.3 million of the
proceeds were used to purchase a portfolio of securities that was deposited in
escrow for payment of interest on the Senior Notes through October 27, 2000 and,
under certain circumstances, as security for repayment of principal of the
Senior Notes. The Company expects to use the remaining proceeds from the Senior
Note Offering as follows (all amounts represent approximations): (i) $62.0
million to expand and operate the Company's fiber optic networks in Peru and
Chile; (ii) up to $7.2 million to consummate the Iusatel Acquisition; (iii) $2.9
million to redeem the Convertible Debentures; (iv) $1.5 million to pay existing
short-term liabilities of the Company, including outstanding bank debt and trade
payables; (v) $975,000 to pay indebtedness under the Bridge Notes (as defined
herein); and (vi) the remaining amounts for general corporate purposes. While
the Company currently expects to use the proceeds of the Senior Note Offering as
set forth above, there can be no assurance that the Company's actual
expenditures will equal the currently anticipated amounts.
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As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. Although the Company continues to
consider potential acquisitions from time to time, other than the pending
acquisition of Iusatel, no agreement in principle to acquire or effect any
acquisition has been reached. Furthermore, there can be no assurance that the
acquisition of Iusatel will be consummated upon the terms presently contemplated
or at all. New sources of capital such as credit facilities and other
borrowings, and additional debt and equity issuances, may be used to fund such
acquisitions and similar strategic investments.
The Company intends to redeem all outstanding Convertible Debentures prior
to December 31, 1997. The Company estimates that approximately $1.0 million and
$550,000 in aggregate principal amount of the 7% Convertible Debentures and 8%
Convertible Debentures, respectively, will be outstanding at such time and that
the Company will be required to pay an aggregate of $2.9 million to extinguish
its liabilities related to the Convertible Debentures, including outstanding
principal, related accrued interest, redemption premiums, and penalties related
to non-registration and non-conversion. The payment of this amount would result
in an extraordinary loss on debt extinguishment of approximately $1.2 million.
The actual payment, and therefore the magnitude of the Company's loss on debt
extinguishment, could be lower or higher than the aforementioned amounts. See
"Unaudited Pro Forma Condensed Combined Financial Information."
As of the Closing Date of the Senior Note Offering, the Company has become
highly leveraged and has substantial debt service requirements. As of September
30, 1997, on a pro forma basis after giving effect to the Senior Note Offering,
the application of the proceeds therefrom and the consummation of the Iusatel
Acquisition, the Company would have had approximately $150.0 million of total
long-term indebtedness. In addition, in each year since its inception the
Company had net losses from operations and therefore had insufficient earnings
to cover its fixed charges on a pro forma basis after giving effect to the
Senior Note Offering, the application of proceeds therefrom and the consummation
of the Iusatel Acquisition. The Company's annual interest obligations under the
Senior Notes substantially exceeds the Company's net income. See "Risk
Factors -- Substantial Leverage; Ability to Service Indebtedness."
The ability of ICCA to make scheduled payments with respect to its
indebtedness, including the Senior Notes, will depend upon, among other things,
(i) its ability to implement its business plan, and to expand its operations and
to successfully develop its customer base in its target markets, (ii) the
ability of ICCA's subsidiaries to remit cash to ICCA in a timely manner and
(iii) the future operating performance of ICCA and its subsidiaries. Each of
these factors is, to a large extent, subject to economic, financial,
competitive, regulatory and other factors, many of which are beyond the
Company's control. The Company expects that it will continue to generate cash
losses for the foreseeable future. No assurance can be given that the Company
will be successful in developing and maintaining a level of cash flow from
operations sufficient to permit it to pay the principal of, and the interest on,
its indebtedness, including the Senior Notes. If the Company is unable to
generate sufficient cash flow from operations to service its indebtedness,
including the Senior Notes, it may have to modify its growth plans, restructure
or refinance its indebtedness or seek additional capital. There can be no
assurance that (i) any of these strategies can be effected on satisfactory
terms, if at all, in light of the Company's high leverage or (ii) any such
strategy would yield sufficient proceeds to service the Company's indebtedness,
including the Senior Notes. Any failure by the Company to satisfy its
obligations with respect to the Senior Notes at maturity or prior thereto would
constitute a default under the Indenture and could cause a default under other
agreements governing current or future indebtedness of the Company.
Substantially all of ICCA's assets are held by its subsidiaries and
substantially all of ICCA's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of ICCA. Accordingly, ICCA's ability to pay the principal of, and
interest and Liquidated Damages, if any, when due, on the Senior Notes is
dependent upon the earnings of its subsidiaries and the distribution of
sufficient funds from its subsidiaries. ICCA's subsidiaries will have no
obligation, contingent or
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otherwise, to make funds available to ICCA for payment of the principal of, and
interest and Liquidated Damages on, if any, the Senior Notes. In addition, the
ability of ICCA's subsidiaries to make such funds available to ICCA may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, ICCA's subsidiaries
will be permitted under the terms of the Indenture to incur indebtedness that
may severely restrict or prohibit the making of distributions, the payment of
dividends or the making of loans by such subsidiaries to ICCA. The failure of
ICCA's subsidiaries to pay dividends or otherwise make funds available to ICCA
could have a material adverse effect upon ICCA's ability to satisfy its debt
service requirements including its ability to make payments on the Senior Notes.
See "Risk Factors -- Holding Company Structure; Inability To Access Cash Flow"
and "Description of Senior Notes -- Certain Covenants -- Dividends and Other
Payment Restrictions Affecting Subsidiaries."
The Company believes the net proceeds from the Senior Note Offering will be
sufficient to satisfy the Company's liquidity needs through the end of 1999;
however, there can be no assurance that the Company will have sufficient
resources to meet its subsequent liquidity requirements.
To accelerate its growth rate and to finance the launch or build-out of
additional markets, the Company will consider obtaining financing from various
sources, including vendor financing provided by equipment suppliers, project
financing from commercial banks and international agencies, bank lines of credit
and the sale of equity and debt securities. To the extent ICCA or any of its
subsidiaries issues debt, its leverage and debt service obligations will
increase. There can no assurance that the Company will be able to raise such
capital on satisfactory terms, if at all. In addition, the Indenture related to
the Senior Notes will limit the ability of ICCA and its subsidiaries to incur
additional indebtedness.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations may have substantial effects on the
Company's results of operations and financial condition. Generally, the effects
of inflation in many Latin American countries, including Chile and Peru, 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 the Company.
A substantial portion of the Company's purchases of capital equipment, and
interest on the Senior Notes, is payable in U.S. dollars. To date, the Company
has not hedged its currency risks with third parties and 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 the Company against the risk of
fluctuations in exchange rates. However, sales to customers of the Company will
be generally denominated in local currencies, and substantial or continued
devaluations in such currencies relative to the U.S. dollar could have a
negative effect on the ability of customers of the Company to absorb the costs
of devaluation. This could result in the Company's customers seeking to
renegotiate their contracts with the Company or, failing satisfactory
renegotiation, defaulting on such contracts.
In addition, from time to time, Latin American countries have experienced
shortages in foreign currency reserves and restrictions on the ability to
expatriate local earnings and convert 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 the Company operates, or restrictions on
the expatriation of earnings or capital from such countries, could have a
material adverse effect on the business, results of operations and financial
condition of the Company. See "Risk Factors -- Country Risks."
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NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, the Company had net operating loss carry forwards
("NOLs") of approximately $3.8 million for U.S. income tax purposes and
approximately $4.5 million for foreign income tax purposes. These carryforwards
are available to offset future taxable income, if any, and expire for U.S.
income tax purposes in the years 2007 through 2011 and do not expire for foreign
income tax purposes.
EFFECTS OF NEW ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
statement is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 supersedes APB Opinion No. 15 and replaces primary
and fully diluted EPS with basic and diluted EPS. Basic EPS is computed by
dividing net income available to common shareholders by the weighted average
common shares outstanding. Diluted EPS includes all dilutive potential common
shares. The Company does not expect the new standard to have a material impact
on its financial position or results of operations for 1997.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. This statement is effective for financial statements
issued for periods ending after December 15, 1997. SFAS 129 supersedes specific
disclosure requirements of APB Opinion No. 10 and No. 15 and FASB Statement No.
47 and consolidates them into this Statement. FAS 129 contains no change in
disclosure requirements for the Company as the Company was previously subject to
the requirements of the above superseded statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
This statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Management does not expect the new standard to have significant changes in
the disclosure requirements for the Company in 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, effective for financial statements for
periods beginning after December 15, 1997. This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement supersedes FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends FASB Statement No. 94,
Consolidation of All Majority-Owned Subsidiaries, to remove the special
disclosure requirements for previously unconsolidated subsidiaries. In the
initial year of application, comparative information for earlier years is to be
restated. This statement need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application. Management
does not expect the new standard to have a material impact on the disclosure
requirements for the Company in 1998.
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BUSINESS
OVERVIEW
The Company is a new provider of high bandwidth integrated
telecommunications services to high volume users in Santiago, Chile and Lima,
Peru, including business customers and other telecommunications carriers. The
Company believes that the size, expected growth and increasing deregulation of
the telecommunications industry in Latin America offers the Company considerable
opportunities to broaden its existing service offerings and to expand its
recently commenced operations into additional key Latin American business
centers.
Prior to November 1996, the Company operated as a development stage company
whose activities primarily consisted of the acquisition of licenses, concessions
and rights-of way in certain key Latin American markets. Beginning in November
1996, with the hiring of Patricio Northland as the Company's President and Chief
Executive Officer, the Company has focused on the development and operation of
high capacity fiber optic networks in Lima, Peru and Santiago, Chile. Mr.
Northland has over 16 years of experience as an international telecommunications
executive and entrepreneur. Mr. Northland was previously President and founder
of AmericaTel Corporation, a Miami-based international telecommunications
carrier focused on traffic originating and terminating in Latin America, which
he successfully grew and in which he subsequently sold his interest in 1996 to
Entel, Chile's major long distance carrier.
In May 1996, the Company acquired an operating company in Peru which holds
one of only two local concessions that compete with Telefonica to provide local
private line voice and data services. The Company intends to expand its existing
service offerings to provide local public switched telephony upon the planned
1999 liberalization of Peru's telecommunications markets. The Company also
intends to apply for a concession to provide public switched long distance
services as regulation permits. The Company currently offers high speed data
transmission services on a private line basis, including area network
interconnection, remote terminal access, dedicated channels for access to the
Internet and voice services on a private line basis. The Company's services are
provided through its 60 kilometer digital fiber optic network in Lima, Peru,
which the Company intends to expand to 90 kilometers by the end of 1997 and to
approximately 230 kilometers by the end of 1998. When completed, the Company's
fiber optic network will extend throughout the major commercial and industrial
districts of Lima and the port city of Callao (combined population of 7.5
million). The Company believes that its planned fiber optic network expansion
and early implementation of private line and value-added services prior to the
scheduled expiration of Telefonica's exclusive concession for public switched
local and long distance services in July 1999 will enable the Company to develop
a strong customer base and network presence.
In Chile, the Company currently holds a concession to provide voice and
data transmission services and value-added services on a private line basis and,
upon consummation of the Iusatel Acquisition, will acquire an operating company
that provides public switched national and international long distance services.
The Company also maintains a concession to own and operate satellite earth
stations throughout Chile and plans to apply for a concession to provide local
public switched telephony services in Santiago. The Company currently provides
similar services to those offered in Peru, as well as (i) private line remote
analog digital telephone access and digital links for PBX to PBX connections,
(ii) local and wide area network design and engineering and (iii) systems
installation, integration and support services. The Company's services are
provided through its 120 kilometer digital fiber optic network which currently
extends through most of Santiago's downtown business district and the outlying
industrial park and airport corridors. With the consummation of the Iusatel
Acquisition, completion of last mile connections to its existing network and
approval of a local telephony concession, the Company believes that it will be
able to substantially broaden its product and service offerings and
significantly increase its revenues in Chile.
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Local and long distance telecommunications revenues in Peru were
approximately $885.5 million in 1996 and are estimated by the Pyramid Research
Report to increase to approximately $1.9 billion in the year 2000, representing
a compound annual growth rate of 21%. Local and long distance telecommunications
revenues in Chile were approximately $1.1 billion in 1996 and are estimated by
the Pyramid to increase to approximately $2.2 billion in the year 2000,
representing a compound annual growth rate of 16%.
Upon completion of its anticipated upgrades, all of the Company's existing
and planned fiber optic networks will employ SDH transmission technology with
centralized network monitoring control and maintenance. The Company believes its
networks allow it to provide its customers with uniform, reliable, high quality
services which are competitive with or exceed those services provided by former
PTTs and other carriers in the markets in which it operates.
While the Company only recently commenced its current operations, the
Company's customers already include, among others, Xerox de Chile S.A.,
Autorentas del Pacifico (Hertz) Ltda, and Nike de Chile S.A. in Chile and Sony
Music Entertainment Peru S.A., Interbank and one ISP in Peru. Upon completion of
its networks, the Company will be able to market aggressively its service
offerings to additional business customers and other telecommunications
carriers. The Company also believes that dedicated access to ISPs will represent
a significant source of new customer relationships in both Chile and Peru
because of the anticipated rapid increase in the number of Internet high speed
users throughout Latin America.
BUSINESS STRATEGY
The Company's goal is to become a leading provider of high bandwidth
telecommunications services to business and other high volume users and carriers
operating in key Latin American business centers. The Company follows a regional
business strategy in Latin America as set forth below. The Company has modified
this strategy to adapt to the specific economic and regulatory environments of
each market in which the Company operates. See "-- Business and
Services -- Chile -- Country Strategy" and "-- Peru -- Country Strategy."
Focus on Key Markets in Latin America
The Company believes that the size and growth potential of key Latin
American business centers coupled with the ongoing liberalization of the
telecommunications markets throughout the region offer the Company considerable
growth opportunities. The Company intends to build upon its existing operations
and expertise and to leverage its existing customer base by expanding the
geographic reach and density of its existing networks as well as by entering
additional key Latin American business centers that have (i) a significant level
of unsatisfied demand for high quality, state-of-the art telecommunications
services, (ii) a favorable regulatory environment and (iii) significant
projected economic growth.
Enter Markets Early
The Company seeks to enter markets where it can construct or acquire fiber
optic networks and offer telecommunications services in advance of full market
liberalization. The Company has already implemented this strategy in Lima, where
it is one of the first companies to have established a telecommunications system
prior to the scheduled liberalization of Peru's telecommunications markets in
July 1999, at which time the exclusivity provisions of Telefonica's concession
will expire and the local and long distance markets are scheduled to be opened
to competition by new entrants. The Company believes that this early entry into
the Lima market will enable the Company to establish strong business
relationships with its targeted customers prior to onset of widespread
competition.
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Provide a Broad Range of High Quality Telecommunications Services
The Company intends to follow the strategy implemented by CLECs in the
United States of installing advanced equipment into their existing fiber optic
networks that enable interconnections with existing public networks and the
provision of switched telephone services. As regulation permits, the Company
will seek to secure a growing portion of its customers' existing and targeted
telecommunications business by adding local, long distance, enhanced voice and
data services to the private line services it currently offers. The Company
believes its customers require maximum reliability, high quality service, broad
geographic coverage, strong customer service and the opportune introduction of
innovative services delivered in a timely and cost-effective manner. The Company
believes that these needs are often left unmet by the former PTT in markets
where the Company currently operates.
Target Business Customers and Telecommunications Carriers
The Company's strategy is to target business customers and
telecommunications carriers in key Latin American business centers. These
customers are typically located in major metropolitan areas, require high
reliability, high volume data transmission and voice capabilities and, in the
case of telecommunications carriers, very large capacity to interconnect POPs.
In addition, many of the Company's existing and targeted customers have
operations in more than one key Latin American business center in which the
Company currently operates or may operate in the future. The Company believes
that by leveraging its customer base it will achieve operating synergies through
the reduction of advertising and other related costs.
Growth Through Acquisitions and New Licenses
The Company expects to opportunistically enter additional key Latin
American business centers in part by acquiring controlling interests in existing
companies that have licenses, concessions and rights-of-way to install and
operate fiber optic networks or by applying for such licenses and concessions
and negotiating for such rights-of-way directly. The Company may also acquire
other telecommunications service providers in existing and targeted markets that
enable the Company to expand or enhance its current operations. The Company
believes that many emerging local and long distance carriers, cellular providers
and recently privatized PTTs are likely to seek alliances with local access
providers with fiber optic systems, such as the Company, to compete more
effectively in the growing telecommunications markets.
Growth Through Strategic Alliances
The Company intends to establish strategic alliances with the following
entities for the following purposes: (i) to engage major international carriers
to facilitate the termination or completion of dedicated international calls to
or from the countries where carriers' customers operate and (ii) to enter into
joint bids with local turnkey integrators and equipment vendors for the sale of
value-added services, such as video-conferencing, Internet, frame relay, ATM
networks, PBX and private telephone networks.
Unify Marketing Efforts
The Company intends to conduct its business under a single brand name in
the markets in which it operates to develop name recognition for its services.
The Company believes that the use of a recognized brand name will facilitate
customer referrals and achieve economies of scale through a unified marketing
campaign.
SENIOR NOTE OFFERING
On October 27, 1997 the Company consummated the Senior Note Offering of
Units consisting of (i) $150.0 million aggregate principal amount of 14% Senior
Notes due October 27, 2007 and (ii) 5,250,000 Unit Warrants to purchase an
aggregate of 5,250,000 shares of Common Stock, at an exercise
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<PAGE> 50
price of $4.40 per share. The Senior Note Offering resulted in net proceeds to
the Company of approximately $142.5 million. The Units were originally issued
and sold by ICCA in a transaction which was exempt from the registration
requirements of the Securities Act. Concurrent with the filing of the
Registration Statement of which this Prospectus forms a part, the Company has
filed the Exchange Offer Registration Statement to register New Notes, which are
being offered in exchange for the Senior Notes. The form and terms of the New
Notes are the same as the form and terms of the Senior Notes for which they may
be exchanged pursuant to the Exchange Offer, except that the New Notes will have
been registered under the Securities Act, and hence the New Notes will not bear
legends restricting the transfer thereof. See "Description of Senior Notes."
INDUSTRY OVERVIEW
General
The continuing liberalization of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have significantly expanded the Company's opportunities in the converging
voice and data telecommunications markets. Rapid liberalization of the
telecommunications industry in Latin America is expected to expand opportunities
in the local telecommunications services market. Technological advances,
including growth of the Internet, the increased use of packet switching
technology for voice communications and the growth of multimedia applications,
are expected to result in growth in the high-speed data services market. The
Company believes that the current deregulation in many Latin American countries,
coupled with technological innovation, will lead to market developments similar
to those that occurred upon deregulation of long distance telecommunications
services in the United States and the United Kingdom, including an increase in
traffic volume and the continued introduction of new providers of
telecommunications services of varying sizes.
Telecommunications traffic of business customers and telecommunications
carriers has increased dramatically and these customers now insist upon the
quality and high capacity inherent in fiber optic transmission technology such
as the technology used by the Company. As customers require increased bandwidth
capabilities to handle complex voice, video and data telecommunications, the
Company believes that demand for transmission capacity will continue to
increase. Digital signals carried over optical fibers are superior in many
respects to analog signals carried over copper wires, an older technology which
many PTTs continue to use for parts of their networks, although many PTTs are
using fiber optic technology to expand their existing networks. In addition to
offering faster and more accurate transmission of voice and data communications,
digital fiber optic networks generally require less maintenance than comparable
copper wire networks, thereby decreasing operating costs. The capacity of fiber
optic cable is determined in part by the interface of electronic equipment with
the network, thereby allowing network capacity to be increased through a change
in electronics, rather than the fiber itself. Fiber optic cable also provides
enhanced transmission quality as signals are largely immune to electromagnetic
interference.
Latin American Markets
Many countries in Latin America, and most of the region's major
metropolitan markets, have economies that are growing faster than many other
areas of the world. The Company believes that this growth is attributable in
part to an increase in foreign investments, new trade agreements, such as the
NAFTA, Mercosur and the Andean Pact, and the privatization of many industries,
including the telecommunications industry. Many of Latin America's major
metropolitan centers are among the largest cities in the world, are centers of
trade and commerce for a wide region or for an entire country, and are home to a
high concentration of large domestic and multinational corporations that require
advanced telecommunications services. Following the economic recovery of many
Latin American countries in the early 1990's, multinational corporations
headquartered in North America, Europe and Asia began to invest in Latin America
by either establishing
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<PAGE> 51
new operations or expanding existing operations. In conducting their activities
in Latin America, these multinational corporations require state-of-the-art
telecommunications networks to handle the flow of information between their
headquarters and their branches throughout Latin America. The telecommunications
infrastructure in many of these markets is very limited or obsolete, resulting
in significant unmet demand for advanced telecommunications services including
reliable, high capacity data circuits, private line LANs and domestic and
international long distance connectivity. The telecommunications industry in
Latin America has experienced rapid growth in large part because most Latin
American governments are opening their telecommunications markets to
competition. By the year 2000, the telecommunications markets in most countries
in the region are expected to be deregulated.
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The following table sets forth certain historical and projected economic
data and selected information regarding the telecommunications markets in the
Latin American countries where the Company operates:
PERU
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999 2000
ECONOMIC DATA* ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Population (millions)......... 22.5 22.9 23.4 23.8 24.3 24.8 25.3 25.8
Real GDP (in constant 1990 US$
billions)................... 36.5 41.2 44.1 45.3 47.6 50.2 53.1 56.5
Inflation (%)................. 39.5 15.4 10.2 11.8 10.0 9.1 8.3 7.5
TELECOMMUNICATIONS DATA**
Main Lines in Service (in
thousands).................. 673.0 772.4 1,109.2 1,435.1 1,595.5 1,850.8 2,093.6 2,437.7
Penetration Rate (main lines
per 100 pop)................ 2.9 3.4 4.7 5.9 6.6 7.5 8.3 9.4
Service Revenues (US$
millions)................... 655.8 590.7 825.9 880.4 1,216.2 1,410.8 1,595.9 1,858.2
Local Services (US$
millions)................. 190.7 251.4 459.1 506.9 676.0 784.2 887.1 1,032.9
Toll Services (US$
millions)................. 235.2 123.2 130.9 143.1 192.8 223.6 253.0 294.5
International Services (US$
millions)................. 229.9 216.1 235.9 230.5 347.4 403.0 455.8 530.8
</TABLE>
CHILE
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999 2000
ECONOMIC DATA* ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Population (in millions)...... 13.8 14.0 14.3 14.5 14.7 15.0 15.2 15.4
Real GDP (constant 1990 US$
billions)................... 38.2 39.8 43.1 46.1 48.8 52.3 55.9 59.8
Inflation (%)................. 12.2 8.9 8.2 6.6 5.7 5.0 5.1 4.7
TELECOMMUNICATIONS DATA**
Main Lines in Service (in
millions)................... 1.5 1.6 1.8 2.2 2.6 3.0 3.5 3.9
Penetration Rate (main lines
per 100 pop)................ 11.0 11.6 13.0 14.9 17.8 20.3 22.9 25.4
Service Revenues (US$
millions)................... 714.10 765.10 1,016.0 1,186.7 1,443.1 1,668.4 1,911.7 2,157.1
Local Services (US$
millions)................. 479.0 560.6 627.8 733.3 891.7 1,030.9 1,181.3 1,332.9
Toll Services (US$
millions)................. 135.2 118.9 235.6 275.2 334.6 386.9 443.3 500.2
International Services (US$
millions)................. 99.9 85.6 152.6 178.2 216.8 250.6 287.1 324.0
</TABLE>
- ---------------
Sources: Bank of America World Information Services (March 1997) and Pyramid
Research Report (October 1996)
* Economic Data includes historical information for the years 1993-1996 and
projections for the years 1997-2000.
** Telecommunications Data includes historical information for the years
1993-1995 and projections for the years 1996-2000.
Competitive Local Market Access
Once the domain of PTTs, the local access market in both developed and
emerging countries is increasingly open to competition. Where permitted, local
markets may be entered via any combination of (i) construction of proprietary
wired network infrastructure, (ii) construction of wireless local loop, PCS or
cellular networks and (iii) resale of the existing local carrier's network.
Companies gaining local access through the use of a fiber optic rings using SDH
technology are uniquely positioned to provide services for large business
customers due to the high capacity of such systems.
In the United States and other developed countries, CAPs have been allowed
to enter markets in advance of complete deregulation through their provision of
special access services and private line services. Typically, CAPs begin
providing such services through their own fiber optic loop networks, which are
built over existing facilities and often exceed existing providers in terms of
bandwidth, reliability and enhanced service capability. Frequently, fixed
wireless technologies are used to cost effectively extend the network from the
fiber optic network to customer locations. Special access services provide high
capacity voice, data and video circuits to connect long distance carriers with
their respective customers. Private line services provide high capacity circuits
to transmit voice, data and video between two or more end-user locations locally
or internationally.
Long distance carriers have traditionally been the first customers for
CAPs. Local access in the markets in which the Company operates in some cases
comprises over forty percent of the cost of a long distance call. For this
reason, long distance carriers, as well as high volume corporate customers, have
great demand for the lower
49
<PAGE> 53
cost local access provided by CAPs. In addition, as any communications failure
can result in significant expenses and/or lost revenue to businesses, corporate
and carrier customers often utilize CAPs as a back-up to their primary carrier.
CAPs typically market their private line and special access services by offering
lower prices, higher network reliability and higher quality transmissions and
customer service. Corporate customers utilize such private lines to interconnect
their branch offices and computer networks, and even to connect their internal
PBX networks with the local PTT. Telecommunications carrier networks utilize
CAPs to interconnect their switching centers, to connect major customers to
their networks, and to connect their cellular, microwave and satellite
transmitters. With direct connection to customers, CAPs may also market higher
margin value-added services such as Internet access, database access and
Centrex. Depending on local regulation, the CAP may also provide dial tone for
any calls made to points outside of the local market. In most markets, corporate
customers will begin by transferring a small portion of their telecommunications
requirements to the CAP. As these customers experience the CAP's competitive
cost and superior service, they often transfer increasing amounts of their
business to the new operator.
As deregulation has permitted, most CAPs have attempted to expand their
services from the provision of private line and special access services to the
provision of CLEC switched or dial tone services that are provided through a
combination of the CAP's own network and through interconnection with the local
PTT network. This evolution has enabled CAPs to achieve increased gross margins
over time. Typically, private line services are provided on a flat fee, monthly
rental basis. Switched services, on the other hand, are billed on a volume or
minutes of use basis which generally generates substantially higher revenues and
margins. Through interconnection with the local PTT, new carriers are able to
offer services immediately to any customer on the PTT's network, thereby
significantly increasing the number of customers and markets that they serve
without physically expanding their own networks. The PTTs receive a volume-based
payment for the use of their network.
Although the Company has based its strategy in part on the experiences of
CAPs and CLECs in the United States and other developed countries, there can be
no assurance that the liberalizing Latin American markets will be characterized
by the same trends as were found in such other markets.
BUSINESS AND SERVICES
Peru
Country Overview. Peru is the fourth largest country in South America with
an estimated population of 23.9 million people. Lima, the capital of Peru and
the major economic center in Peru, has a population of approximately 6.8 million
people. According to the 1996 report issued by the Peruvian National Bureau of
Statistics, as of 1993, approximately 70.1% of Peru's population lived in
cities. In 1990, Alberto Fujimori, a political outsider, was elected President
and embarked on a series of economic and political measures to curtail inflation
and restore economic stability. From 1991 through 1996, GDP increased by an
average annual growth rate of 5.2%, although GDP increased by only 2.8% in 1996.
The lower GDP growth rate in 1996 has been largely attributed to the Peruvian
government's effort to reduce expenditures to avoid an overheated economy and to
reduce Peru's current account deficit. Inflation has been dramatically curtailed
as a result of President Fujimori's economic plan, falling from 7,649.7% in 1990
to 11.8% in 1996. GDP is expected to grow at a compound annual growth rate of
6.2% from 1997 to 2002.
Market Overview. The Company believes that 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 goals of the
privatization of Peru's former local and long distance PTT, Telefonica, in 1994
(the "Privatization") was to expand significantly the national
telecommunications network and improve service quality. The number of lines in
service has increased since the Privatization from approximately 772,000 to over
1.4 million at December 31, 1996. Notwithstanding the significant recent growth
in lines in service, Peru continues to have a relatively low penetration rate
with 5.9 lines in service per 100 inhabitants at
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<PAGE> 54
December 31, 1996. The Company believes that continued growth in demand for
telecommunication services in Peru will be influenced by the growth of the
Peruvian economy, foreign investment and international trade, the continued
expansion of the telecommunications network and the rebalancing of tariffs.
Based on 1996 operating results for Telefonica, the local and long distance
telecommunications markets in Peru are estimated to have accounted for
approximately $880.5 million in total revenues, of which approximately $506.9
million are local access and service revenues and approximately $373.6 million
are domestic and international long distance revenues. The Company believes that
Peru's telecommunications market offers an excellent environment for
telecommunications business growth. The Company believes that the Peruvian
economy is also a source of growing demand for telecommunication services with
growing domestic and multinational businesses attracting significant foreign
investment. The following chart presents certain historical and projected
information with respect to the telecommunications market in Peru for the
periods indicated:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA -- PERU*
-------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TELEPHONE
Minutes (in millions)
Local Services.......................... 3,600.0(1) 4,240.0(1) 4,954.0(1) 7,806.2(2) 4,193.4(3) n/a n/a n/a
Long Distance Domestic.................. 388.0(1) 394.0(1) 461.0(1) 577.0(2) 326.4(3) n/a n/a n/a
Long Distance International............. 179.2(1) 232.4(1) 262.1(1) 294.5(2) 164.6(3) n/a n/a n/a
MAIN LINES IN SERVICE (IN THOUSANDS)...... 673.0(2) 772.4(2) 1,109.2(2) 1,435.1(2) 1,595.5(1) 1,850.8(1) 2,093.6(1) 2,437.7(1)
PENETRATION RATE
(main lines per 100 pop)................ 2.9(4) 3.4(4) 4.7(4) 5.9(2) 6.6(1) 7.5(1) 8.3(1) 9.4(1)
SERVICE REVENUES
Local Services (US$ millions)........... 190.7(1) 251.4(4) 459.1(4) 506.9(3) 676.0(1) 784.2(1) 887.1(1) 1,032.9(1)
Toll Services (US$ millions)............ 235.2(1) 123.2(4) 130.9(4) 143.15(3) 192.8(1) 223.6(1) 253.0(1) 294.5(1)
International Services (US$ millions)... 229.9(1) 216.1(4) 235.9(4) 230.5(3) 347.4(1) 403.0(1) 455.8(1) 530.8(1)
DATA
X-25/Frame Relay Ports (in thousands)..... 0.5(1) 0.7(1) 0.9(1) 1.2(1) 1.5(1) 14.0(1) 29.9(1) 46.6(1)
ISP Host Penetration
(main lines per 100 pop)................ 0.000(5) 0.001(5) 0.003(5) 0.021(5) 0.084(5) 0.208(5) 0.361(5) 0.515(5)
</TABLE>
- ---------------
(1) Source: Pyramid Research Report.
(2) Source: Telefonica del Peru, S.A. 1996 Annual Report.
(3) Source: Telefonica del Peru S.A., 2nd Quarter Report: July 31, 1997.
Translations from 6/30/97 Peruvian Nuevo Sol into US$ at the 6/30/97
exchange rate of 0.377 US$/Peruvian Nuevo Sol.
(4) Source: Telefonica del Peru 1995 Annual Report. Translations from 12/31/95
Peruvian Nuevo Sol into US$ at the 12/29/95 exchange rate of 0.4341
US$/Peruvian Nuevo Sol.
(5) Source: Calculations based on Pyramid Research Report estimates of ISP
hosts and of population for Peru.
(*) Includes historical information for the years 1993-1995 and projections for
the years 1996-2000.
Operating Company Overview. The Company conducts its business in Peru
through its wholly-owned subsidiary, Resetel, which was acquired by the Company
in May 1996. Resetel offers multinational, national and local businesses a broad
array of high quality data, video and voice communications services, including
LAN interconnection, remote terminal access and dedicated channels for access to
the Internet, on a private line basis through a digital fiber optic network in
metropolitan Lima, Peru. The Company has installed and in operation 60
kilometers of its fiber optic network, and plans to expand its network to 90
kilometers by the end of 1997 and to approximately 230 kilometers by the end of
1998. The Company anticipates that its fiber optic network will travel through
the major commercial and industrial districts of Lima and the adjacent port city
of Callao (combined population of approximately 7.5 million people) upon its
scheduled completion in 1998. The Company is one of only two companies which is
currently permitted to compete in the provision of its services with Telefonica.
The Company intends to expand its existing service offerings to provide
local public switched telephony service in Lima upon liberalization of Peru's
telecommunications markets and the expiration of Telefonica's exclusive
concession to provide public switched local and long distance telephony
services, which is scheduled to occur in July 1999. Resetel also intends to seek
approval to provide long distance services as regulation permits. By
implementing its private line and value-added services prior to the expiration
of Telefonica's exclusive concession in 1999, the Company believes that it will
be able to develop a strong customer base and
51
<PAGE> 55
network presence that will enable it to rapidly enter the local telephony and
long distance markets upon deregulation.
Country Strategy. The Company intends to leverage Resetel's existing
customer base, its cost efficient, state-of-the-art infrastructure and its
market knowledge to expand its Peruvian operations. The Company is currently
directing its marketing efforts in Lima towards a number of Peru's leading
financial institutions and multinational companies with a strong presence in
Peru.
The Company also intends to expand the focus of its marketing efforts to
include medium- and small-sized businesses which are located in the major
commercial and industrial districts in Lima and in the port city of Callao. The
Company believes, based upon an independent market survey, that a large number
of its targeted business customers are located in commercial buildings which are
not connected to a fiber optic network, but rather are connected to networks
based on older, copper technology with limited capacity. The Company intends to
take advantage of this opportunity by directly offering its services to
businesses identified by management as having a need for the Company's services.
The Company also intends to (i) use an independent marketing firm to identify
commercial multi-tenant buildings in which a critical mass of occupants are
located that have or will have an interest in acquiring the Company's services,
(ii) rapidly connect many of these buildings to the Company's existing fiber
optic network, (iii) offer an extensive selection of high quality voice and data
services on a private line basis and (iv) pursue an aggressive sales and
marketing strategy that includes (A) an advertising and marketing campaign
designed to increase customer awareness of the Company's services, (B) holding
educational seminars which explain the benefits of using the telecommunications
services offered by the Company and (C) employing a highly qualified sales force
with extensive knowledge of the local market. The Company believes that
customers in Peru are seeking to utilize new communications technologies in
order to more effectively compete in the global market. By helping to educate
its customers on the use of the latest technologies and by providing turn-key
corporate networks and telecommunications solutions, the Company expects to
develop strong customer relationships that will help it to increase customer
revenues. The Company believes that this strategy will enable it to gain early
mover advantages, build its customer base and expand the range of services
provided to its customers to include local and long distance telephony upon the
expiration of Telefonica's exclusive concession in July 1999.
The Company believes that the quality of its private line services compares
favorably to similar services offered by its competitors. Accordingly, as part
of its marketing strategy, the Company is offering its services on a trial basis
to several major financial institutions in Lima. Upon completion of the trial
with Interbank in July 1997, the Company was hired to link ten of Interbank's
branches through the Company's network.
In addition, the Company believes that the rapid growth of Internet use in
Peru will provide it with a significant opportunity to further develop its
customer base through the strategic referral of customers between ISPs and the
Company.
Concessions. Resetel provides its services pursuant to a renewable local
carrier concession expiring in 2016. Resetel's concession can be renewed for an
additional 20 years upon prior approval by the Peruvian Ministry of Transport
and Communications. After July 1999, when the local telephony services market
opens for competition, Resetel and other carriers will be able to provide local
telephony services as regulations permit. At such time, Resetel intends to seek
approval to also provide long distance services.
Network Infrastructure. The Company provides its services in Peru through
its digital 60 kilometer fiber optic network, which is expected to expand to 90
kilometers by the end of 1997 and to approximately 230 kilometers by the end of
1998. The Company anticipates that its fiber optic network will extend
throughout the major commercial and industrial districts of Lima and the port
city of Callao (combined population of approximately 7.5 million people) upon
its scheduled completion in 1998. The Company's Lima network employs advanced
node equipment and has been designed to be fully redundant. Configured in
self-healing rings, the network is able to automatically re-route transmissions
through alternate circuits in the
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<PAGE> 56
event of a fiber cut or equipment failure. In most cases where a failure occurs
in a portion of the network, the traffic is re-routed before the customer
notices a problem. The Company believes that this network capability provides
the Company's customers with the highest degree of network reliability currently
available in Peru.
Resetel's network is being expanded around digital nodes which allow remote
monitoring and flexible management of the network's last mile connections that
link individual customer networks to the Company's network. Resetel has
installed four nodes utilizing the SDH protocol and plans to rapidly install 18
additional SDH nodes, as well as a satellite earth station that will enable it
to provide international private line data connections. The Company believes
that it has a competitive advantage through the cost saving efficiencies of its
fiber optic network's "drop and insert" technology. This technology enables the
Company to provide network capacity to users without dedicating a single fiber
strand to a single customer location. While networks without "drop and insert"
technology may have to dedicate entire fiber strands to individual customers,
the Company is able to optimize the capacity of its network through its ability
to share strands among all of the customers on the network. In addition,
customers often want their private networks to provide different amounts of
capacity to different branch offices. "Drop and insert" technology allows the
Company to meet such customer requirements. The Company's network has the
transmission capacity to carry all accepted data requirements for both
compressed and decompressed digital signalization.
The Company has utility pole rights-of-way contracts with two of the
Peruvian utility companies which allows the Company to use utility poles to
route cable throughout most of its existing and planned network.
In conjunction with its sales initiatives, the Company expects to invest in
the "last mile" network links that connect commercial buildings and customer
offices with the Company's fiber optic network by installing fiber optic cable
in selected commercial buildings in the Lima business district.
Customers. Resetel currently services 15 customers in Peru, including
Interbank and Sony Music Entertainment Peru S.A. Resetel will seek to enter into
contracts with new customers for a term of at least two years. Prices charged to
customers vary in accordance with the customer's type of business and the type
and anticipated volume of service to be rendered. Customers are charged an
initial installation fee and are billed monthly on a flat fee basis in
accordance with the terms of each contract.
Competition. Peru's telecommunications market is dominated by Telefonica,
a company formed by the merger in 1994 of the former local telephone service
PTT, Compania Peruana de Telefonos and ENTEL, the former long distance telephone
service PTT. Telefonica is 35% owned by Telefonica de Espana S.A. Telefonica has
announced plans to devote a large amount of its resources over the next few
years to install hundreds of thousands of telephone lines to provide basic
telephone service. The Company believes that the focus of Telefonica on
expanding basic telephone services has created an opportunity for the Company to
capture market share by providing value-added, high bandwidth services to
business customers on a private line basis. Currently, Peru's only other
wireline telecommunications carrier is Tele2000, approximately 58.7% of which is
owned by BellSouth Corporation. Tele2000 currently operates cellular, public pay
phone and cable television services in Lima and other Peruvian cities. Although
Tele2000 has to date focused largely on providing cellular and cable television
services, it owns and operates a fiber optic loop which it may utilize to
compete directly with the Company.
Management believes that following the deregulation of local and domestic
and international long-distance telephony in July 1999, competition in these
services may arise from a variety of new entrants, including telecommunications
carriers providing services in other countries as well as companies currently
providing services in other industries previously liberalized in Peru. Existing
telecommunications service providers may have established customer relationships
as well as other capabilities and resources to expand their current service
offerings and include local carriers, wireless telephone operators, the
providers of data services, cable television network operators and operators of
existing private network infrastructure, such as electric power companies. The
Company believes that there are currently two other companies which have filed
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<PAGE> 57
applications for local concessions. To the Company's knowledge, these companies
do not intend to employ a fiber-optic network service delivery strategy.
The identity of new entrants and the scope of increased competition, and
any corresponding adverse effect on the Company's results, will depend on a
variety of factors. Among such factors are the business strategies and financial
and technical capabilities of potential competitors, prevailing market
conditions at the time competition is permitted, applicable Peruvian regulations
with respect to new entrants and the Company, as well as the effectiveness of
the Company's strategy to prepare for increased competition. See "Risk
Factors -- Competition."
Chile
Country Overview. Chile is a highly urbanized country, with a population
of approximately 14.7 million in 1996, of which 85.0% are estimated to live in
cities. Santiago, the capital of Chile and a major international economic
center, has a population of approximately 5.1 million people. The Chilean
government has implemented a strategy to encourage foreign investment in Chile
and it has privatized and deregulated many industries, including transportation,
energy and telecommunications. Since 1991, the Chilean economy has experienced
high rates of economic growth. From 1991 through 1996, GDP increased by an
average annual rate of 7.3%. Inflation has been dramatically curtailed during
this period, falling from 18.7% in 1991 to 6.6% in 1996. GDP is expected to grow
at a compounded annual growth rate of 7.0% from 1997 through the year 2002.
Market Overview. As the first telecommunications market to commence
deregulation in Latin America, Chile has experienced substantial growth in
telecommunications revenue and telephone density. Total international long
distance revenues have grown from $99.9 million in 1993 to $178.2 million in
1996, representing a compound annual growth rate of 21.0%. Chile's
telecommunications markets continue to be dominated by the former PTTs, although
new entrants have begun to reduce the former PTTs' market share. In the long
distance market, Entel, the former PTT, faces competition from eight other
carriers, and its market share has been reduced to approximately 40.4% for
domestic long distance and 37.5% for international long-distance. As a result of
its open telecommunications market, Chilean subscribers enjoy some of the lowest
prices in the world for long distance telephony services. In the local telephony
market, CTC, the former PTT, which continues to control approximately 96% of the
local telephony market, faces competition from seven other carriers. The Company
believes that the full implementation of its business strategy will enable it to
penetrate this market and further develop its customer base.
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<PAGE> 58
The following table provides some general information on the historical
size and estimated growth of Chile's telecommunications market.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA -- CHILE
------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
----- ----- ------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TELEPHONE MINUTES
Local Service........................... -- -- -- -- -- -- -- --
Long Distance Domestic (millions)....... n/a n/a 1,847.2(1) 2,259.0(2) n/a n/a n/a n/a
Long Distance International
(millions)............................ n/a n/a 136.9(3) 172.9(2) n/a n/a n/a n/a
MAIN LINES IN SERVICE
(in thousands).......................... 1,513(4) 1,626(4) 1,846(4) 2,157(4) 2,623(4) 3,032(4) 3,474(4) 3,920(4)
PENETRATION RATE
(main lines per 100 pop)................ 11.0(4) 11.6(4) 13.0(4) 14.9(4) 17.8(4) 20.3(4) 22.9(4) 25.4(4)
SERVICE REVENUES
(US$ millions)
Local Services (US$ millions)........... 479.0(4) 560.6(4) 627.8(4) 733.3(4) 891.7(4) 1,030.9(4) 1,181.3(4) 1,332.9(4)
Toll Services (US$ millions)............ 135.2(4) 118.9(4) 235.6(4) 275.2(4) 334.6(4) 386.9(4) 443.3(4) 500.2(4)
International Services (US$ millions)... 99.9(4) 85.6(4) 152.6(4) 178.2(4) 216.8(4) 250.6(4) 287.1(4) 324.0(4)
DATA
X-25/Frame Relay Ports (in thousands)... 3.3(4) 3.6(4) 4.7(4) 10.2(4) 17.5(4) 25.8(1) 33.9(4) 39.7(4)
ISP Host Penetration
(main lines per 100 pop).............. 0.020(5) 0.022(5) 0.063(5) 0.157(5) 0.279(5) 0.413(5) 0.525(5) 0.601(5)
</TABLE>
- ---------------
n/a -- Information not publicly available.
(1) Statistical measures were changed in 1994 due to the multicarrier system
implementation.
(2) Source: Calculations based on monthly market share data provided by the
Subsecretaria de Telecomunicaciones ("SUBTEL") as of August 1997.
(3) Source: Calculations based on Pyramid Research Report estimates of lines in
services -- includes historical information for the years 1993-1995 and
projections for the years 1996-2000.
(4) Source: Pyramid Research Report -- includes historical information for the
years 1993-1995 and projections for the years 1996-2000.
(5) Source: Calculations based on Pyramid Research Report estimates of ISP hosts
and population for Chile.
Operating Company Overview. The Company conducts its business in Santiago
through its wholly-owned subsidiary, Hewster Chile. Hewster Chile currently
provides businesses in Santiago with high quality voice and data communications
services on a private line basis, including local area network interconnections,
remote terminal access, PBX to PBX connections, remote printing capabilities and
high speed access to the Internet through arrangements with a Chilean based ISP
and private line based services. In addition, Hewster Chile provides its
customers with local and wide area network design, engineering, installation,
systems integration and support services. The Company's Chilean customer base
currently includes approximately 40 large- and medium-sized businesses such as
Xerox de Chile S.A., Autorentas del Pacifico (Hertz) Ltda., Iberia Airlines, The
Aetna Life Insurance Company, Nike de Chile S.A. and one ISP. The Company
believes that its high quality transmission capabilities and responsive customer
service have become important elements in many of its customers'
telecommunications network and operational strategies. The Company provides
network services through its 120 kilometer digital fiber optic network which
covers the downtown business district and outlying industrial park and airport
corridor. This network utilizes advantageous rights-of-way through Santiago's
underground subway system (the "Metro") as well as through certain facilities of
ENERSIS, a Chilean power company.
In addition to private line voice and data transmission services, high
speed access to service providers and several support services currently offered
by the Company, the Company also plans, upon the receipt of necessary
governmental approvals, to offer additional services including local exchange
services and, upon consummation of the Iusatel Acquisition, long distance
services. In September 1997, the Company entered into an agreement to acquire
Iusatel, a Chilean long distance carrier based in Santiago. Iusatel currently
provides national and international long distance services in Santiago through
its own gateway switch and satellite earth station as well as through
interconnection with other Chilean long distance carriers. For the year ended
December 31, 1996, Iusatel reported gross revenues of $8.2 million. The Company
believes that the
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<PAGE> 59
acquisition of Iusatel will enable the Company to: (i) provide long distance
services to its existing corporate customers; (ii) bundle a variety of service
offerings, including long distance and data services, to attract additional
customers; and (iii) access the approximately $178.2 million Chilean
international long distance market. By implementing such bundling strategy and
by expanding Iusatel's marketing and advertising activities, the Company
believes that it will be able to increase Iusatel's market share from its
current level. There can be no assurance that (a) the Company will secure such
concessions, be able to make the necessary network enhancements to provide such
services or successfully market such services to potential customers or (b) the
Iusatel Acquisition will be consummated. See "Risk Factors -- Risk Related to
the Iusatel Acquisition."
The Iusatel Agreement provides for the purchase by the Company of 99.9% of
the issued and outstanding capital stock of Iusatel for $5.9 million in cash
(the "Iusatel Purchase Price"). The Iusatel Purchase Price may be reduced,
dollar-for-dollar, to the extent that the net worth of Iusatel as of December
31, 1997 is less than $500,000, as determined pursuant to an audited balance
sheet. The Iusatel Purchase Price may be increased up to a maximum of $850,000
based upon Iusatel's operating results for the 12 months ending December 31,
1998. The Iusatel Agreement also provides that Hernan Streeter, the principal
shareholder of Iusatel and the former Chairman of the Board of Directors and
Chief Executive Officer and a current shareholder of ICCA, shall remain as
General Manager of Iusatel until December 31, 1997, and shall thereafter be
retained as a consultant for a period of one year. The Iusatel Agreement is
subject to a number of conditions, many of which, including governmental
consent, are beyond the Company's control. See "Risk Factors -- Risks Related to
the Iusatel Acquisition."
Country Strategy. The Company's new management team intends to leverage
Hewster Chile's existing customer base, its cost efficient state-of-the-art
infrastructure and its extensive market knowledge to expand its Chilean
operations. The Company is currently directing its marketing efforts in Santiago
towards medium-and small-sized businesses. Large businesses in Santiago are
typically located in single-tenant buildings and are currently the focus of
Chile's major carriers. Therefore, the Company believes that a substantial
opportunity exists to provide services to medium- and small-sized businesses
which are currently underserved. These businesses are typically located in
multi-tenant buildings throughout downtown Santiago and the outlying industrial
district. The Company believes that, based upon an independent market survey, a
large number of its targeted business customers are located in commercial
buildings which are not connected to a fiber optic network, but rather are
connected to networks through older, copper technology with limited capacity.
The Company intends to take advantage of this opportunity by (i) using an
independent marketing firm to identify commercial, multi-tenant buildings in
which a critical mass of occupants are located that have or will have an
interest in acquiring the Company's services, (ii) rapidly connecting many of
these buildings to the Company's existing fiber optic network, (iii) offering an
extensive selection of high quality voice and data services on a private line
basis as well as local and long distance telephony upon consummation of the
Offering, the Iusatel Acquisition and receipt of the necessary government
approvals and (iv) pursuing an aggressive sales and marketing strategy that
includes a combination of direct sales calls, telemarketing and direct mail
campaigns and an increased advertising budget. The Company believes that this
strategy will enable it to gain early mover advantages, build its customer base
and expand the range of services provided to its existing customers.
Concessions. In 1991, HSI, Hewster Chile's predecessor, was granted a
concession with an unlimited duration to provide intermediate telecommunications
services (the "Hewster Concession"). The Hewster Concession authorized the
installation and operation of the Company's fiber optic cable local network in
metropolitan Santiago. Pursuant to the Hewster Concession, Hewster is authorized
to provide voice and data transmission services and certain value-added services
on a private line basis. The Hewster Concession may not be transferred, assigned
or leased, nor may control of Hewster Chile be transferred or assigned, without
the prior approval of SUBTEL. ICCA, through a wholly-owned subsidiary, Visat,
also holds a concession with an
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<PAGE> 60
unlimited duration to construct and operate a network of satellite earth
stations throughout Chile that can provide national and international long
distance telecommunications services (the "Visat Concession"). In addition, the
Company is authorized to provide services based on 38 GHz wireless technology in
Santiago. Iusatel holds a concession with an unlimited duration to provide
public, switched national and international long distance services in Chile.
Iusatel's concession was issued by the Chilean Ministry of Transport and
Communications in 1993.
Network Infrastructure. The Company provides network services in Chile
through its 120 kilometer fiber optic network which currently covers the
majority of Santiago's downtown business district and the outlying industrial
park and airport corridors. The Company's 120 kilometer digital fiber optic
network travels through the traditional commercial center of Santiago, where
many established businesses are headquartered, and the rapidly growing expansion
areas, including outlying industrial parks, and the airport corridor where many
branch offices and new companies have located.
The Company is in the process of upgrading its fiber optic network in Chile
by replacing the existing PDH nodes with SDH node equipment (the "SDH Upgrade").
The planned SDH Upgrade is expected to be completed by December 1998. As of
September 30, 1997, Hewster Chile has installed nine SDH nodes which will become
fully operational by December 1997.
Upon completion of the SDH Upgrade, the Company's network in Chile will be
fully redundant and will be configured in self-healing rings so that the network
will be able to automatically re-route transmissions through alternate circuits
in the event of a fiber cut or equipment failure. The Company's digital SDH
nodes also will allow for remote monitoring and flexible management of the
network's last mile connections that link individual customer networks to the
Company's network. Currently, CTC, Chilesat and Entel are the only three network
operators which use SDH technology in Chile.
The Company believes that it has a competitive advantage through the
flexibility, cost saving efficiencies and enhanced ability to interconnect
customers achieved through its "drop and insert" technology. This technology
enables the Company to provide network capacity to users without dedicating a
single fiber strand to a single customer location. While networks without "drop
and insert" technology may have to dedicate entire fiber strands to individual
customers, the Company is able to optimize the capacity in its network through
its ability to share strands among all of the customers on the network. In
addition, customers often want their private networks to provide different
amounts of capacity to different branch offices. "Drop and insert" technology
allows the Company to meet such customer requirements. The Company's network has
the transmission capacity to carry both compressed and decompressed digital
signalization.
The portion of the Company's network that passes through the downtown
business and financial district has been installed in Santiago's Metro subway
tunnels. The Metro subway tunnels protect the network from hazards such as
severe weather and vandalism. Metro access points, such as ventilation shafts
and platform entrances, are available every approximately 250 meters along the
subway route. These facilities serve as the "insert" points for last mile
connections between the Company's network and customer buildings. In addition to
its agreement with the Metro, the Company has a utility pole right-of-way
contract with one of Chile's electric companies which allows the Company to use
utility poles to route cable to outlying areas of Santiago.
The Company plans to invest in the "last mile" network links that connect
commercial buildings and customer offices with the Company's fiber optic
network. Where customers are operating in newly developed areas of Santiago, the
Company intends to install its own last mile network infrastructure to connect
those customers with its fiber optic network. In areas of Santiago where the
telecommunications infrastructure is more developed, the Company believes that
it may grow most efficiently by leasing such last mile connections from other
network operators.
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<PAGE> 61
The Company recently installed its first 38 GHz wireless connection between
its fiber optic network and an ISP. The Company intends to utilize this wireless
technology to connect customers more rapidly and efficiently to its fiber optic
network. This wireless connection is deployed by installing wireless
transceivers on rooftops, towers or windows where line-of-sight can be
established between the connected points. This technology will enable the
Company to develop POPs that serve buildings not currently reached by its fiber
optic network without paying interconnection fees to the local telephone
company. 38 GHz technology provides network connections similar to fiber optic
circuits in terms of both bandwidth and service quality.
Upon consummation of the Iusatel Acquisition, the Company intends to invest
in Iusatel to improve the quality of its service through the continuing upgrade
of Iusatel's switching infrastructure and customer service platforms. In
addition, the Company plans to acquire or install an additional satellite
antenna which will enable Iusatel to interconnect with additional international
long distance carriers, subject to regulatory approval. Such additional
satellite capability is expected to enable Iusatel to obtain lower prices for
international transmission services.
Iusatel obtains local access services through interconnection agreements
with the following operators or their subsidiaries: CTC, Complejo Manufacturero
de Equipos Telefonicos S.A.C.I. ("CMET"), Entel, BellSouth Chile S.A.,
Telefonica Manquehue S.A., Lucsic and Compania Nacional de Telefonos S.A.
("CNT"). In 1997, Iusatel installed a new Excel NS 2000 international long
distance gateway switch to handle all international long distance calls as well
as credit card and callback services. Iusatel operates a 9.1 meter satellite
earth station located in Santiago through which it links with Satelitron, a
Mexican carrier, which then links with a number of other carriers through the
Mexican Solidaridad I satellite. Iusatel's satellite earth station is linked
with its gateway switch via a 18-19 GHz microwave link. Iusatel currently
operates a 24-hour network control and operator service center in Santiago to
monitor its network and handle customer service calls. There can be no assurance
that the Iusatel Acquisition will be consummated on the terms described herein
or at all. See "Risk Factors -- Risks Related to the Iusatel Acquisition."
Customers. Hewster Chile currently services approximately 44 customers in
Santiago, including Xerox de Chile S.A., Iusatel Chile S.A., Iberia Airlines,
Autorentas del Pacifico (Hertz) Ltda., Nike de Chile S.A. and The Aetna Life
Insurance Company. Hewster Chile charges a monthly fee for its services based on
the length of the contract and the type and quantity of services provided.
Iusatel provides domestic and international long distance services to
approximately eight large corporations, 800 medium and small-size corporations
and 400 residential customers through annual service contract arrangements. In
addition, during the past three months, Iusatel provided casual dialing services
to approximately 20,000 non-subscriber users. Iusatel also provides routing
services to a number of other long distance carriers including Entel.
Competition. Chile's local and long distance markets were both opened 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, CTC. There
are currently five telecommunications groups that provide both local and long
distance services, three of which also provide data services. There are also
three other licensed providers of local telephony services and four other
licensed providers of domestic and international long distance services. In the
long distance market, Entel, the former PTT, has a market share of approximately
40.4% for domestic long distance and 37.5% for international long distance. In
the local telephony market, CTC, the former PTT, has a market share of
approximately 96%. Both CTC and Entel operate fiber optic loops in Santiago,
while Teleductos S.A. operates a passive point-to-point network built using a
star topology.
The Company believes it can successfully compete in the Santiago
telecommunications market by providing customers a competitively priced, bundled
service offering consisting of data, long distance and other value-added
services. In addition, the Company intends to begin offering long distance
services upon consummation of the Iusatel Acquisition and local services during
1998 after it receives a license, as to which there can be no assurance. Such
services will be delivered over the Company's digital fiber optic network which
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will help the Company control operating costs and minimize the need to rely on
other carriers' networks. The Company believes that it is well-positioned to
develop and increase its customer base in Santiago because (i) it will be able
to gain a "first mover" advantage in offering services to its targeted customer
base of medium and small-sized businesses which the Company believes have
significant unmet demand for advanced telecommunications services and (ii) its
services are provided via a digital fiber optic network that utilizes the SDH
protocol and "drop and insert" technology, which enables the Company to offer an
extensive range of advanced telecommunications services. The Company believes
that its size and the entrepreneurial culture of its management team will allow
it to react quickly to changes in the marketplace and that, coupled with its
strong commitment to customer service, will differentiate Hewster Chile from its
larger, less flexible competitors.
REGULATION
Peru
Peruvian Telecommunications Laws and Regulations. The principal features
of Peruvian regulation of telecommunications services include the General
Telecommunications Law (the "Peruvian Telecommunications Law"), State Contracts,
the General Regulation to the Telecommunications Law (the "General Regulation"),
and the Regulation (the "OSIPTEL Regulation") for the Organization for
Supervision of Private Investments in Telecommunications ("OSIPTEL"). These laws
and their related governmental authorities constitute the legal and regulatory
framework within which the Company provides services in Peru.
The Peruvian Telecommunications Law sets out the basic framework for the
provision and regulation of telecommunications services, and has the stated
objective of providing a competitive market in telecommunications. The law
grants the Peruvian government the ability to oversee telecommunications
services through the Ministry of Transportation, Communications, Housing and
Construction (the "Ministry of Transportation" or the "Ministry"). The Ministry
has the authority to grant concessions and impose sanctions for the violation of
telecommunications laws. Pursuant to Supreme Decree No. 007-97-MTC, the
Specialized Telecommunications Concession Unit ("STCU") became the government
agency within the Ministry charged with the following functions previously
performed by OSIPTEL: (i) grant, renew and cancel concessions, authorizations,
permits and licenses; (ii) manage the electric spectrum and approve the
assignment of frequencies; and (iii) discontinue the rendering of value added
services offered by concessionaires when such services cause any damage or harm
to the public telecommunications network.
Concessions. A private entity may only provide telecommunications services
in Peru pursuant to a concession granted by STCU and in accordance with a state
contract (the "State Contract") to be entered between the STCU and the
concessionaire. Such concessions, including the concession held by the Company
through Resetel, have a maximum period of twenty years and can be renewed for an
equal term without limitation subject to the submission of an application for
renewal two years prior to the expiration of the concession and compliance with
the requirements under the concession. The State Contract outlines, among other
obligations: (i) a minimum expansion plan for the operator; (ii) required fees
and tariffs; (iii) technology standards for all equipment; and (iv) quality
standards of service.
State Contracts are treated under Peruvian law the same as contracts
between private parties. For this reason, such contracts cannot be modified or
terminated by any subsequent regulation or legislation. The Ministry may,
however, if it is deemed in the public interest, modify the terms of State
Contracts unilaterally if such terms relate to the international
telecommunications policy of the Ministry, or if it is necessary to modify the
contract to comply with international laws, treaties or conventions. These
changes can only take place through an administrative process that provides for
public comment on any proposed changes.
Local and Long Distance Services. Dial tone and public switched local and
long distance services in Peru will be provided exclusively by Telefonica until
July 1999, at which time the exclusivity provisions in
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<PAGE> 63
Telefonica's concession will expire and the local and long distance markets are
scheduled to be opened to competition by new entrants. The Company operates
under a concession which permits it to provide private line, special access and
value-added services within the local telecommunications markets of Lima and
Callao. Beginning in 1999, the Company may seek to obtain authorization to begin
providing dial tone as well as public local and long distance switched services.
Technical Requirements. The Company is required to comply with regulations
and detailed technical plans promulgated by the OSIPTEL that apply to such
matters as the transmission, routing, signaling and assignment of numbers in the
Peruvian telephone network as well as use of the radio frequency spectrum.
Before concessionaires initiate service, their facilities must have been
authorized by the Ministry of Communications and must be in full compliance with
the applicable regulations and technical plans. Failure to comply with the
technical plans can be grounds for terminating a concession if the holder does
not comply within a period of time prescribed by the OSIPTEL.
Both Telefonica and operators of private networks must make their networks
available for interconnection with other carriers' networks in order to promote
competition within Peru's telecommunications marketplace.
Fees, Tariffs and Other Charges. In conformity with the Telecommunications
Law, the General Regulation, and the OSIPTEL Regulation, telephone operators,
including the Company, must pay certain fees, tariffs, and other charges which
are primarily comprised of: (i) a concession fee; (ii) annual tariffs; (iii)
payment to OSIPTEL for supervisory services; and (iv) contribution to the Fund
for Private Investment in Telecommunications (FITEL). The Company may set its
own tariff levels for its private line service, subject to certain maximum
tariff levels set by the OSIPTEL.
Foreign Investment and Exchange Controls. The basic legal framework to
attract foreign investment to Peru is provided by the Foreign Investment
Promotion Law. The Law provides for specific rules that guarantee
nondiscriminatory treatment of foreign investors investing in Peru, and provides
mechanisms to stimulate and secure foreign capital. Specifically, under the Law,
foreign investors may freely remit all profit and repatriate all capital
invested in Peru, and may freely convert such local currency proceeds into U.S.
dollars. No registration with any government authority of such profit remittance
or capital repatriation is required under Peruvian law irrespective of whether
the original investment was made in the form of a capital contribution or
intercompany loans. Notwithstanding the low level of restrictions on foreign
investment, Peruvian law provides that if the foreign investor's home country
imposes foreign investment restrictions on investments made by Peruvian
companies in that country, the Peruvian government is authorized to impose
similar restrictions with respect to investments made by companies from that
country. For this reason, foreign investors are encouraged to enter into a legal
stabilization agreement (the "Legal Stabilization Agreement") with the Peruvian
government to guarantee certain rights with respect to their foreign investment
in Peruvian companies.
Legal Stabilization Agreements are entered into for a term of ten years.
Foreign investors who execute such agreements are guaranteed the following
rights, as of the date of the execution of the agreement: (i) maintenance of the
existing tax treatment of the foreign investment; (ii) legal stability as to the
availability of foreign currency for the remittance of profits and repatriation
of capital and (iii) non-discriminatory treatment of the foreign investor.
Foreign investors may enter into the Legal Stabilization Agreement by
submitting an application to the National Commission on Foreign Investments,
provided that the capital contribution is made in the following manner: (i) a
capital contribution in cash of at least $2.0 million within two years of the
date of execution of the agreement; or (ii) a capital contribution in cash of at
least $500,000 and creation of at least 20 employment positions within two years
from the date of the execution of the agreement.
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Chile
Telecommunications Laws and Regulations. The Ley General de
Telecomunicaciones (General Law of Telecommunications), Law No. 18.168 (1982)
(the "Chilean Telecommunications Law") and various decrees issued by the
Ministry of Transportation and Telecommunications and other Chilean governmental
authorities, constitute the legal and regulatory framework within which the
Company provides services in Chile.
In 1994, the Chilean Telecommunications Law was amended to promote greater
competition in the telecommunications sector and to establish a framework for a
multicarrier dialing system. The most significant amendments were: (i) 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 (ii) 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, as set
forth in the following table. Companies that carry traffic above these units
will be subject to substantial financial penalties and the Undersecretary of
Telecommunications may suspend their service.
MAXIMUM MARKET SHARE CAPS
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
------ ------ ------ ------
(IN MINUTES)
<S> <C> <C> <C> <C>
Carriers Affiliated with Local Operators:
Domestic Long Distance................................... 35% 45% 55% 60%
International Long Distance.............................. 20 30 40 --
Other Carriers:
Domestic Long Distance................................... 80 70 60 60
International Long Distance.............................. 70 65 60 --
</TABLE>
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.
Concessions. The Chilean Telecommunications Law specifies which
telecommunications services require that a provider obtain a concession or
permit from the Ministry of Transportation and Telecommunications. Such
concessions or permits are granted by the Undersecretary of Telecommunications.
Concessions, which may be granted only to entities constituted and domiciled in
Chile, are necessary to provide the following services, among others: (i) public
telecommunications services which are provided to satisfy the telecommunications
needs of the general public and (ii) intermediate telecommunications services
which are transmission and switching services offered by third parties to other
concession holders who provide public telecommunications services or other
services to end-users. Permits, which are granted following a simplified
procedure and may have a shorter duration than concessions, are required to
provide limited services, which are services
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<PAGE> 65
necessary to satisfy specialized needs of businesses or other institutions, but
do not entail carrying traffic across public international and certain
telecommunications networks.
Concessions and permits are granted by the Chilean government for a fixed
term which is presently 30 years. These concessions and permits can be renewed
for the same period if so requested by the concessionaire. However, because the
Company's concession was granted before the establishment of fixed terms, such
concession is deemed to be indefinite in accordance with its terms and with
Transitory Article 3 of such Law. Concessions and permits cannot be assigned,
transferred or leased without the prior authorization of the Undersecretary of
Telecommunications, which authorization cannot be denied without reasonable
cause.
Holders of concessions to provide public telecommunications services must
establish and accept interconnection with others, in accordance with technical
requirements established by the Undersecretary of Telecommunications, to ensure
that users have access to all public services. Concession holders may establish
their own systems or use facilities of other entities.
Any telephone service outage must be corrected within 12 hours or users are
entitled to indemnification and the concession holder is subject to fines.
The Undersecretary of Telecommunications may suspend a concession holder's
service for up to thirty days for failure to comply with technical requirements,
which action may be challenged in the courts within a term of five days as of
the notification to the holder of the concession.
The Chilean Telecommunications Law provides that holders of concessions and
permits shall have access, on equal economic and technical basis, to satellite
systems and international cables.
Existing concessions may be terminated if the concession holder does not
fulfill certain of its obligations, including: (i) fulfillment of the technical
framework applicable to the service; (ii) reiterative sanctions because of the
suspension of transmissions; (iii) nonpayment of a fine imposed on the
concession holder for more than 30 days; and (iv) the unauthorized change of any
of the essential elements of the concession. The holder of the concession can
appeal such termination to the Chilean Supreme Court within ten days if it
believes that the termination was illegal.
Tariff System. Currently, providers of domestic and international long
distance services are subject to maximum tariffs fixed by the Chilean
government.
The Company's services are presently subject to maximum tariffs under the
Chilean Telecommunications Law. The Chilean government establishes the maximum
tariffs of regulated services by using a methodology that provides for the
recovery of investments and the costs of operations of such services, as well as
a profit based on the cost of capital. Under the Chilean Telecommunications Law,
the structure, level and mechanism for indexing the affected services are fixed
every five years by a joint decree issued by the Ministry of Transportation and
Telecommunications and the Ministerio de Economia, Fomento y Reconstruccion (the
"Ministry of the Economy") on the basis of the incremental costs of providing
the tariffed service in each geographical service area where the service is
provided, including capital costs taking into account the expansion plans of the
regulated companies over the five year period. In the absence of expansion
plans, the structure and level of rates are set on the basis of marginal
long-term costs. Maximum tariffs are established on the basis of an economic
model that relies on the costs of an ideally efficient enterprise that offers
only the service subject to tariff. The tariff for each service that is subject
to tariff regulation reflects the theoretical cost components associated with
such service.
Tariffs for domestic long distance telephone services must include the
prices of long distance transmission and switching as well as the price of local
telephone service. Tariffs for international long distance services must include
such price components as the price of domestic and international services, the
cost of access to the local network, as well as the settlement costs with
foreign correspondents.
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Providers of telecommunications services are prohibited from discriminating
among similarly situated users in the price charged for tariffed services. Each
tariff is subject to its own index, which is calculated using the prices of its
principal components. A concessionaire must give two months notice to the
Subsecretaria de Telecomunicaciones (the Undersecretary of Telecommunications)
of changes to the maximum tariff resulting from changes in the applicable index
(including inflation adjustments) and that tariff, upon readjustment, is the
maximum price that users may be charged for the service.
Because the tariff-setting process takes place every five years, providers
of long distance services subject to tariff regulation have to prepare a special
study for each regulated service included in their geographic concession areas.
The purpose of the study is to calculate the total and marginal long-term costs
with respect to each such service and to determine on the basis of such
calculation the structure and level of future tariffs. New tariff proposals must
be presented to the Ministries of Transportation and Telecommunications and of
Economy 180 days prior to the end of each five-year period. The Company and
other intermediate service providers are subject to the maximum tariffs
established by the corresponding authorities for the principal intermediate
service provider.
Encaje or deposit requirement. Thirty percent of amounts borrowed from
abroad must be placed on deposit with the Central Bank for a period equal to the
average term of the loan, with a minimum period of 90 days and a maximum period
of 1 year. These funds do not earn interest. In lieu of making this deposit, the
recipient may comply with the encaje through the purchase of special Central
Bank promissory notes equal to 30% of the principal, which the Central Bank
repurchases on the same date, prior to deduction of an interest rate equal to
LIBOR + 4% for one year. In addition to the 30% deposit requirement, payments
made by a Chilean company on interest in connection with a loan by a foreign
shareholder of such company are treated as dividends for purposes of the
imposition of a 35% withholding tax on the value of the payment of interest.
Foreign Investment and Exchange Controls. Complete foreign ownership of
investments in Chilean entities is possible and there is no minimum period
within which the foreign investments must remain in Chile. Foreign investment
capital may be remitted overseas one year after entering Chile.
The Central Bank requires most transactions relating to foreign investment
to be effected in a "formal" currency market. Appropriate approvals and
registrations must be obtained when foreign investment capital enters the
country to ensure the right to acquire foreign currency to pay for imports,
repatriate capital and profits and pay interest and capital due on foreign
currency loans.
Foreign investment capital may be remitted overseas one year after entering
Chile, but only from the proceeds of sale or liquidation of all or part of the
assets, business, shares or rights representing the investment. Capital
comprising reinvested profits are not subject to the one year restriction.
Annual profits may be remitted overseas at any time. Interim profits and
dividends can be remitted quarterly if supported by audited financial statements
and permitted by the foreign investment contract with the government.
Normally, foreign currency required to repatriate capital and profits must
be obtained in the local formal currency market. Certificates authorizing the
purchase of the foreign currency are issued by the Foreign Investment Committee,
normally within 48 hours in the case of profits. Investors may be able to
operate offshore foreign currency accounts which may be used to repatriate
capital profits directly.
The Foreign Investment Statute guarantees that restrictions applicable to
the remittance of capital and profits will not be less favorable than those
applying generally to the acquisition of foreign currency to pay for imports.
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TAXATION
Peru
The tax structure of Peru is composed of several broad based taxes, a
consumption tax on certain products (e.g. gasoline), a general income tax, an
alternative minimum tax based on a business' assets, a property tax, and a
simplified import tariff. In addition, withholding taxes are imposed on interest
and salary income, and Peru has a recently expanded value added tax (VAT) that
covers certain products and services.
Income Tax. Peruvian corporations or foreign corporations domiciled in
Peru are subject to a federal income tax at a rate of 30% on the net income
realized by the company during the fiscal year. There is no state or municipal
income tax.
Payment of Dividends. Under applicable Peruvian law, amounts paid as
dividends or distributed as profits are not deemed to be taxable income and,
consequently, are not subject to any taxation.
Asset Tax. Peruvian corporations are subject to an annual asset tax
calculated at a rate of 0.5% over the value of the net assets of the company.
The amount of the net asset tax which is due may be credited against the
corporation's income tax.
Value Added Tax. Peruvian corporations are subject to a value added tax
calculated at a rate of 18% over the value of services rendered to customers,
goods imported into Peru, sale of personal or real property and assignment of
fixed assets to an affiliate. Companies are entitled to an off-setting credit
against the value added taxes imposed on the sales of goods and services.
Chile
Taxation. Generally, foreign investors and local businesses are treated
equally, although foreign investors are given the benefit of certain fixed rate
tax options which allow them to limit the impact of future adverse tax changes.
To promote savings and investment, the income of business entities is taxed
in two stages, initially when income is earned and finally when profits are
distributed to the ultimate business owners. The effective rate payable on
foreign investment profits remitted abroad is normally 35%, 15% being payable at
the time profits are earned with the balance due on payment overseas.
Considerable emphasis is placed on indirect taxation through a 18% Value-Added
Tax which contributes about 60% of fiscal revenue.
First Category Income Tax, often referred to as the corporate tax, is paid
by all entities on accrued income from business operations at a rate of 15%.
Chile has a fully integrated tax system allowing this corporate tax to be
credited against personal income taxes payable by resident investors when
business profits are withdrawn by them or, in the case of foreign investors,
against withholding tax payable when profits are remitted overseas. Profit
distributions received by a resident business entity as an investor in another
business entity are not liable to tax until distributed to a non-business or
overseas entity.
Withholding Tax. Additional Withholding Income Tax of 35% is payable by
non-resident individuals and entities on Chilean-source business income
withdrawn or remitted overseas. This tax is withheld by the paying business
entity.
The 15% corporate tax is allowed as a credit against the Additional
Withholding Income Tax payable. As a result, the effective rate payable on
foreign investment profits remitted abroad is normally 35%, 15% being payable at
the time profits are earned with the 20% balance due on payment overseas.
Withholding tax is also imposed on most other payments made abroad. For
example:
1. 35% for royalty payments and patents, license and similar fees;
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2. 4% for interest payments to a foreign or international banking
institution or to a foreign or international financial institution
registered with the Central Bank of Chile. A 35% rate applies to interest
payments to all other entities;
3. 35% for rental payments, this rate can be reduced to 1.75% for
equipment rental payments; and
4. 20% withholding tax applied to remuneration of foreign individuals
not resident in Chile for "technical assistance" or "engineering services"
rendered in Chile or abroad.
These rates can be increased to 80% for royalties or fees for technical
services considered unproductive or unnecessary for the economic development of
the country. All these payments are tax deductible if necessary to produce
income.
Thin Capitalization Rules. Although the tax regime does not impose
restrictions on debt/equity ratios, the Foreign Investment Committee currently
limits borrowing levels when approving investments. The current debt to equity
ratio is 70:30.
Capital Gains. Gain recognized on the sale of shares will be subject to
both the First Category Income Tax and the Additional Withholding Income Tax, if
either (i) the foreign holder has held the shares for less than one year or (ii)
the foreign holder acquired and sold the shares in the ordinary course of
business or as an habitual trader of shares. In all other cases, gain on the
sale of shares will be subject to a sole 15% First Category Tax.
For purposes of determining the capital gains on the disposition of the
shares of the Chilean companies, the tax basis will be the acquisition value
adjusted by the variation of the Chilean Consumer Price Index between the last
day of the month prior to the purchase of the shares and the last day of the
month prior to the disposition of the shares. If the investment in the shares
has been made through DL 600, upon total or partial liquidation of the
investment, no taxes will be applied on gains up to the U.S. dollar equivalent
of the foreign investment.
Income Tax Payment. Chile has a calendar tax year and returns must be
lodged by April 30 of the following year. Business entities are required to make
monthly provisional payments of corporate tax equal to a percentage of the
previous month's gross revenue. The percentage is determined by the ratio of
gross revenue to First Category Income Tax for the business entity for the
preceding year. Any further tax due must be paid on filing of the relevant tax
return. Excess tax paid is recoverable after filing.
EMPLOYEES
As of November 15, 1997, the Company had 75 full-time employees, of whom
approximately 34 are in Resetel, 37 are in Hewster Chile and 4 are in ICCA. The
Company's employees are not represented by any labor union. The Company believes
that relations with its employees are good.
PROPERTIES
ICCA's corporate offices are located at 1221 Brickell Avenue, Miami,
Florida. These offices are occupied under a lease that expires on December 31,
1997 (the "ICCA Lease") at a rent of approximately $3,863 per month. The ICCA
Lease does not specify the conditions for its renewal, but the Company believes
that the current lease may be renewed for an additional one year term without
unreasonable effort or additional expense. The Company's offices in Santiago,
Chile are occupied under a lease which expires in April 1998, at a rent of
approximately $6,400 per month. The Company's offices in Lima, Peru are occupied
under a two year lease terminating on October 14, 1998 at a rent of
approximately $3,500 per month. The Company believes that its current
facilities, together with other contiguous rental space, are adequate to provide
for its current
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needs and that its current facilities and planned lease of replacement
facilities in Chile will be adequate for its current and anticipated needs and
anticipated growth.
LEGAL PROCEEDINGS
On July 3, 1997, NU Investments, LLC and KA Investments LDC (collectively,
the "7% Plaintiffs"), filed suit in the U.S. District Court for the Northern
District of Illinois, Eastern Division against the Company, Mr. Patricio E.
Northland, President, CEO and Chairman of the Board of the Company, and each of
Phillip S. Magiera and Paul A. Moore, both former directors of the Company,
alleging breach of contract, violation of Section 10(b) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and fraudulent
misrepresentation for the Company's failure to file a registration statement to
register the resale of shares of Common Stock issuable upon the conversion of
the 7% Plaintiffs' 7% Convertible Debentures and the exercise of warrants to
purchase 100,000 shares of Common Stock. See "Description of Capital Stock --
February 1997 Warrants." The 7% Plaintiffs demand compensatory damages in the
amount of $1.5 million plus prejudgment interest and costs.
On November 21, 1997, Arcadia Importers and Exporters, Inc. ("Arcadia"),
the purchaser of the Company's 8% Convertible Debentures in the aggregate
principal amount of $2,000,000 (the "8% Convertible Debentures"), filed suit in
the Supreme Court of the State of New York against the Company relating to the
failure to file in a timely manner the Registration Statement of which this
Prospectus forms a part with respect to the shares of Common Stock issuable upon
conversion of the 8% Convertible Debentures. Arcadia is seeking damages of not
less than $484,000 plus interest, costs and reasonable attorneys' fees.
The Company believes that it has meritorious defenses to the foregoing
claims, and intends to defend such actions fully and vigorously. Moreover, even
if the Company is found to be liable in either or both of these actions, it does
not believe that any such liability will have a material adverse effect on the
Company's business, financial condition and results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of ICCA:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Patricio E. Northland.................... 42 President, Chairman of the Board of Directors
and Chief Executive Officer
Douglas G. Geib II....................... 41 Chief Financial Officer and Director
David C. Kleinman........................ 62 Director
George A. Cargill........................ 56 Director
Patricio Silva Echenique................. 62 Director
</TABLE>
Patricio E. Northland has over sixteen years of experience as an
international telecommunications executive and entrepreneur. Mr. Northland has
been President, Chairman of the Board of Directors and Chief Executive Officer
of ICCA since November 1996. Born in Chile, Mr. Northland is a U.S. citizen who
brings to the Company many relationships with telecommunications carriers and
potential customers throughout Latin America. In 1991, Mr. Northland founded
AmericaTel Corporation ("AmericaTel"), a Miami-based international
telecommunications carrier focused on traffic originating and terminating in
Latin America, and in 1993, Mr. Northland successfully completed a joint venture
agreement between AmericaTel and Entel, Chile's major long distance carrier.
Under Mr. Northland's leadership, AmericaTel grew to provide satellite-based
voice, data and fax telecommunications services to corporate customers in
several Latin American nations. Prior to his involvement with AmericaTel, Mr.
Northland held key management positions with PanamSat and IntelSat. In 1996, Mr.
Northland sold his interest in AmericaTel to Entel. Mr. Northland holds
engineering degrees from the University of Chile, a master's degree in
communications from George Washington University, and an M.B.A. from The
University of Chicago.
Douglas G. Geib II has been the Chief Financial Officer and a Director of
ICCA since May 1997. For almost 20 years prior thereto, Mr. Geib worked with
Ernst & Young LLP and had been a Partner since 1989. While at Ernst & Young, Mr.
Geib provided corporate finance and audit services, as well as coordinated and
managed various consulting services to clients involved in telecommunications,
healthcare, manufacturing, real estate and consumer products. Mr. Geib holds an
undergraduate business degree from The Ohio State University and an M.B.A. from
The University of Chicago. Mr. Geib is a Certified Public Accountant.
David C. Kleinman has been a Director of ICCA since May 1997. Mr. Kleinman
is currently Senior Lecturer in Business Policy at the Graduate School of
Business of The University of Chicago where he has taught since 1971. Mr.
Kleinman serves as a member of the Board of Directors of Irex Corporation which
trades its stock in the over-the-counter market. Mr. Kleinman is also a member
of the Board of Directors of the Acorn Fund, the Acorn International Fund and
the Acorn USA Fund which are registered under the Investment Company Act of
1940.
George A. Cargill has been a Director of ICCA since July 1994. Mr. Cargill
has been the President and owner of Telectronic S.A., a major Chilean systems
integrator and the Northern Telecom equipment distributor in Chile since 1976.
Prior thereto, Mr. Cargill spent seven years with CTC as a network engineer and
manager of quality control.
Patricio Silva Echenique has been a Director of ICCA since August 1995.
From 1990 through 1994, Mr. Silva served as Ambassador from Chile to the United
States. During his career, Mr. Silva served as a member of the board of
directors of the State Bank of Chile, the Chilean Copper Corporation, and Entel,
Chile's major long distance carrier. He has also served as an executive of the
United Nations Development
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Office for Latin America and as an independent consultant. Mr. Silva holds an
undergraduate degree from the University of Chile and a Ph.D. (ABD) in economics
from the Massachusetts Institute of Technology.
KEY EMPLOYEES OR CONSULTANTS
Luis Thais Diaz, age 54, has been Chairman of the Board of Directors of
Resetel since November 1996. Since July 1996, he has also been Chairman of the
Board of Directors of Drake Beam Morin-Chile, a human resources consulting
company based in the United States. From 1972 through 1996, Mr. Thais served as
representative of the United Nations Secretary General in Central America,
Argentina, Panama, Colombia, Venezuela and Chile. Mr. Thais has supervised
various telecommunications projects in those countries on behalf of the
International Telecommunications Organization.
Moises Blumen Cohen, age 28, has been the Chief Executive Officer of
Resetel since October 1996 and its Administrative Manager since August 1996.
From July 1993 until July 1996, Mr. Blumen was President of Compania Central
911, a Peruvian security alarm installation company founded by Mr. Blumen in
July 1993.
Ivan Van de Wyngard, age 53, has been a consultant to the Company since
October 1997. From 1986 to 1994, Mr. Van de Wyngard was Chief Executive Officer
of Entel. From 1995 to August 1997, Mr. Van de Wyngard was President of
Consultora Internacional de Telecomunicaciones VamCon Ltda., a Chilean
telecommunications consulting company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit and Compensation
Committee. The members of each committee have been appointed by the Board of
Directors to serve until their respective successors are elected and qualified.
Audit Committee. The Audit Committee reviews the scope and results of the
audit of the financial statements of the Company and reviews the internal
accounting, financial and operating control procedures of the Company. The Audit
Committee also recommends the appointment of auditors and oversees the
accounting and audit functions of the Company. The Audit Committee is currently
composed of Messrs. Silva, Kleinman and Cargill, all of whom, in accordance with
the rules of the Nasdaq SmallCap Market, is independent of management and free
from any relationship that, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment as a committee member. The
Audit Committee did not meet in fiscal year 1996.
Compensation Committee. The Compensation Committee determines the cash and
other incentive compensation to be paid to the Company's executive officers,
including the award of stock options under the Company's stock option plans as
well as the award of non-qualified stock options and warrants issued pursuant to
individual stock option and warrant agreements. The Compensation Committee is
composed of Messrs. Silva and Kleinman, each of whom is a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act. The Compensation
Committee did not meet in fiscal year 1996.
The functions that would normally be performed by the Audit and
Compensation Committees were performed by ICCA's Board of Directors in 1996.
DIRECTORS COMPENSATION
Each non-employee director of ICCA, or of any of its subsidiaries, is
entitled to be paid such compensation for his or her services and reimbursed for
such expenses as fixed by ICCA's Board of Directors. Currently, non-employee
directors of ICCA are entitled to receive annual compensation consisting of
stock options to acquire 50,000 shares of Common Stock at a price calculated on
the average closing price of the Common Stock for the five trading days
immediately preceding the date of such grant.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation earned by the current Chief Executive Officer of ICCA, the person
who formerly served as Chief Executive Officer of ICCA during part of 1996 and
the other most highly compensated executive officer of ICCA during 1996 (such
persons are hereinafter referred to as the "Named Executive Officers") for
services rendered during 1996, 1995 and 1994.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- ---------------------- ----------
OTHER LONG-TERM
ANNUAL RESTRICTED NUMBER OF INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS PLAN COMPEN-
POSITION(S) YEAR SALARY($) BONUS($) SATION($)(1) AWARDS($) (#) PAYOUTS($) SATION($)(1)
- ------------------ ---- --------- -------- ------------ ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patricio E. Northland...... 1996 50,000 -- -- -- 333,334(2) -- --
Chairman of the Board, 1995 -- -- -- -- -- -- --
President and CEO(3) 1994 -- -- -- -- -- -- --
Hernan Streeter............ 1996 110,000 -- -- -- 125,000(4) -- --
Former President and 1995 120,000 -- -- -- 100,000(5) -- --
Chief Executive Officer 1994 55,000 -- -- -- 285,000(6) -- --
Douglas G. Geib II(7)...... 1996 -- -- -- -- -- -- --
Chief Financial Officer 1995 -- -- -- -- -- -- --
1994 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Perquisites to each officer did not exceed the lesser of $50,000 or 10% of
the total salary and bonus for any officer.
(2) Includes options to purchase 1,000,000 shares of Common Stock at an exercise
price of $2.81 per share in the following manner: (i) 333,334 which vested
in November 1996 and (ii) 666,666 which vested on September 22, 1997. See
"-- Employment and Consultants Agreements."
(3) Effective as of November 23, 1996.
(4) Includes options to purchase 125,000 shares of Common Stock at an exercise
price of $2.25 per share.
(5) Includes options to purchase 100,000 shares of Common Stock at an exercise
price of $1.96 per share.
(6) Includes options to purchase 100,000 shares of Common Stock at an exercise
price of $0.35 per share and 135,000 shares at an exercise price of $2.50
per share. Also includes options to purchase 50,000 shares of Common Stock
at an exercise price of $2.50 per share.
(7) Mr. Geib commenced employment with the Company on May 1, 1997. See
"-- Employment and Consultants Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted in 1996 to ICCA's Named Executive Officers. The Company has no
outstanding stock appreciation rights. None of the Named Executive Officers
exercised options during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICES EXPIRATION --------------------
NAME GRANTED FISCAL 1996 PER SHARE DATE 5% 10%
- ---- --------- -------------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Patricio E. Northland.............. 1,000,000 89% $2.81 Jan. 2007 $61,000 $3,000,000
Hernan Streeter.................... 125,000 11 2.25 Mar. 2006 78,000 448,000
Douglas G. Geib II................. 0 -- -- -- --
</TABLE>
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OPTION EXERCISES IN FISCAL 1996 AND
OPTION VALUES AT THE END OF FISCAL 1996
The following table sets forth information with respect to ICCA's Named
Executive Officers concerning the exercise of options during 1996 and
unexercised options held as of the end of 1996.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF DECEMBER 31, 1996 DECEMBER 31, 1996($)
SHARES ----------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
Patricio E. Northland................. 0 -- --/-- --/--
Hernan Streeter....................... 0 -- --/-- --/--
Douglas G. Geib, II................... 0 -- --/-- --/--
</TABLE>
EMPLOYMENT AND CONSULTANTS AGREEMENTS
In September 1997, the Company entered into an employment and severance
agreement (the "Northland Agreement") with Patricio E. Northland, President,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
which replaced his former employment agreement with the Company. The Northland
Agreement has a term of three years unless terminated earlier for cause, death
or disability, and provides for an initial annual base salary of $350,000,
subject to an increase of $50,000 in each of the second and third year of the
agreement. In addition, Mr. Northland was granted non-qualified stock options to
purchase 300,000 shares of ICCA's Common Stock in the following manner: 100,000
shares which vest on the date of employment at an exercise price of $4.00 per
share; 100,000 shares which vest one year thereafter at an exercise price of
$6.00 per share; and 100,000 shares which vest two years after the date of
employment at an exercise price of $8.00 per share. In consideration of Mr.
Northland's agreement to terminate his former employment agreement with the
Company, which would have provided for a substantial bonus to Mr. Northland upon
consummation of the Offering, the Company agreed to pay Mr. Northland a
performance bonus of $250,000 and vest all of his existing options to acquire
1,000,000 shares of Common Stock granted under his prior employment agreement.
During May 1997, the Company entered into an employment and severance
agreement (the "Geib Agreement") with Douglas G. Geib II, Chief Financial
Officer of ICCA. The Geib Agreement has a term of three years unless terminated
earlier for cause, death or disability, and provides for an annual salary of
$250,000. In addition to the base salary, the Geib Agreement provides for a
primary performance award based upon business criteria which is designed to
enhance shareholder value during each year up to a maximum of 100 percent of the
base salary payable thereunder. Mr. Geib was also granted non-qualified stock
options to purchase 500,000 shares of ICCA's Common Stock at an exercise price
of $2.42 per share. One-third of such options became exercisable on date of
employment, and the remainder vest in equal annual installments over the first
two years of Mr. Geib's three-year employment period.
During October 1997, the Company entered into an agreement with Mr. Ivan
Van de Wyngard (the "Van de Wyngard Agreement) for the performance of certain
management, consulting and advisory services to the Company. Under the Van de
Wyngard Agreement, Mr. Van de Wyngard will receive a monthly fee of $7,500 as
compensation for his services. The Van de Wyngard Agreement has a term of one
year and may be extended upon mutual agreement between the parties.
STOCK OPTIONS AND LONG-TERM INCENTIVE PLAN
As of September 30, 1997 ICCA has outstanding options to purchase 5,475,000
shares of Common Stock. No options have been granted under ICCA's 1994 Long-Term
Incentive Plan (the "Plan").
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During 1996, 2,060,000 stock options were granted by ICCA to its executive
officers and directors. On May 29, 1997, the Board of Directors of ICCA granted
stock options in an aggregate amount of 200,000 shares of Common Stock to Mr.
Kleinman of which 50,000 shares vested on May 29, 1997 and the remainder vest in
equal annual installments over a three year period. During September 1997, ICCA
agreed to grant the following stock options to the following officers of ICCA at
an exercise price of $2.13 per share, the then market value of the Common Stock:
(i) Patricio E. Northland, President, Chief Executive Officer and Chairman, was
granted options to acquire 600,000 shares; and (ii) Douglas G. Geib II, Chief
Financial Officer and a director of ICCA, was granted options to acquire 250,000
shares. In addition, in October 1997, ICCA agreed upon consummation of the
Initial Offering to grant options to acquire an additional 714,000 and 286,000
shares to Mr. Northland and Mr. Geib, respectively, at an exercise price of
$4.40 per share. See "Certain Relationships and Related Party Transactions."
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
ICCA's Articles of Incorporation and By-laws contain certain provisions
that eliminate the liability of its directors and officers to the fullest extent
permitted by the Texas Business Corporation Act, except that they do not
eliminate liability for: (i) any breach of the duty of loyalty to the Company or
its shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act or omission
for which the liability of a director is expressly provided by an applicable
statute; or (iv) any transaction from which the director derived an improper
personal benefit. The Texas Business Corporation Act provides that Texas
corporations may indemnify any director, officer or employee made or threatened
to be made a party to a proceeding, by reason of the former or present official
capacity of such person, if such person (i) conducted himself in good faith and
(ii) reasonably believed that his conduct was in the corporation's best
interests or, in the case of any criminal proceeding, that his conduct was not
unlawful and opposed to the corporation's best interests. The indemnification
provision does not permit indemnification of officers, directors and employees
(i) when such persons are found liable to the corporation or (ii) for any
transaction from which such persons derive improper personal benefits. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors, officers and employees of the Company and may discourage or deter
shareholders or management from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise have benefited the Company and its shareholders.
The Company has entered into an indemnification agreement with each
director (an "Indemnitee"). Pursuant to the indemnification agreement, the
Company will indemnify an Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by the
agreement, ICCA's Articles of Incorporation and By-laws, or statute. In
addition, the Company will indemnify each Indemnitee against any and all
expenses incurred in connection with claims relating to the fact that such
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company or any subsidiary of the Company, and the Company will advance all such
expenses. The Company maintains directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling ICCA pursuant to
the foregoing provisions, ICCA has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In 1994, 1995 and 1996 the Company spent approximately $946,000, $205,000
and $172,000, respectively, for the purchase of telecommunications equipment and
services from Telectronic, S.A. for its fiber optic network in Chile. Mr.
Cargill, a director of the Company, is a founder and General Manager of
Telectronic, S.A.
In addition, in 1994 and 1995 and prior to it being acquired by the
Company, HSA provided approximately $144,000 and $206,000, respectively, in
telecommunications services to the Company. Hernan Streeter, a principal
shareholder and the former Chairman and President of the Company was the founder
and Chief Executive Officer of HSA. HSA was subsequently acquired by the Company
and merged with HSI. The Company believes that each of the foregoing
transactions was an arm's-length transaction entered into under normal market
conditions and in the ordinary course of business.
In June 1994, the Company entered into a consulting agreement with Maroon
Bells, an entity in which Paul Moore and Phillip Magiera, both former members of
ICCA's Board of Directors, are principals. Pursuant to such consulting
agreement, the Company issued 1,150,000 shares of Common Stock to Maroon Bells,
its assigns and its investors, as consideration for contributed advisory
services in connection with the recapitalization of HSI, which shares were
valued at $0.25 per share by the Board of Directors of ICCA. The Company also
paid Maroon Bells $25,000 and issued to Maroon Bells warrants to purchase 75,000
shares of Common Stock at an exercise price of $0.25 per share in consideration
of consulting services provided under the consulting agreement.
In July 1994, the Company entered into a one-year agreement with Maroon
Bells, which was subsequently amended in October 1994, pursuant to which Maroon
Bells agreed to perform certain financial advisory services for the Company for
a monthly fee of $10,000. The Company paid $60,000 and $100,000 to Maroon Bells
pursuant to this agreement in 1994 and 1995, respectively.
In July 1997, the Company issued to Maroon Bells 80,000 shares of ICCA's
Common Stock in lieu of fees owed to Maroon Bells for consulting services
performed in 1996.
Pursuant to an employment agreement between the Company and Hernan
Streeter, a shareholder and former Chairman of the Board of Directors and Chief
Executive Officer of ICCA, the Company paid salaries to Mr. Streeter in the
amounts of $120,000 and $110,000 in 1995 and 1996, respectively.
During 1995 and 1996, Laura Investments, Ltd., a company wholly-owned by
Hernan Streeter, a shareholder and former Chairman of the Board of Directors and
Chief Executive Officer of ICCA, loaned to the Company approximately $1.6
million. On March 31, 1996 the loans, plus accrued interest, were converted into
839,235 shares of Common Stock.
The Iusatel Agreement provides that Mr. Hernan Streeter, the principal
shareholder of Iusatel and the former Chairman of the Board of Directors and
Chief Executive Officer and a current shareholder of ICCA, will remain as
General Manager of Iusatel until December 31, 1997, and he shall thereafter be
retained as a consultant for a period of one year for a monthly fee of $10,000.
In connection with the Iusatel Acquisition, the Company is expected to pay
to Mr. Silva, a director of the Company, a fee in the aggregate amount of
100,000 shares of Common Stock for his services in facilitating the transaction.
During September 1997, ICCA's Board of Directors ratified the issuance of
the following shares of Common Stock to the following officers of ICCA: (i)
600,000 shares of Common Stock to Patricio E. Northland, President, Chief
Executive Officer and Chairman of the Board and (ii) 250,000 shares of Common
Stock to Douglas G. Geib II, Chief Financial Officer of ICCA. In addition, on
the same date, the Company granted the following stock options to the following
officers of ICCA at an exercise price of $2.13 per share: (i) Patricio E.
Northland, President, Chief Executive Officer and Chairman of the Board, was
granted options to acquire 600,000 shares of Common Stock, one-third of which
vested immediately and the
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<PAGE> 76
remainder in equal annual installments over the next two years; and (ii) Douglas
G. Geib II, Chief Financial Officer and a director of ICCA, was granted options
to acquire 250,000 shares of Common Stock, one third of which vested immediately
and the remainder vest in equal annual installments over the next two years. In
addition, in October 1997, ICCA agreed upon consummation of the Offering to
grant options to acquire an additional 714,000 and 286,000 shares to Mr.
Northland and Mr. Geib, respectively, at an exercise price of $4.40 per
share -- One third of such options vested immediately and the remainder vest in
equal annual installments over the next two years.
During October 1997, the Company entered into an agreement with Maroon
Bells, Theodore Swindells, Paul Moore and Phillip Magiera to compensate them for
services rendered to ICCA. Pursuant to such agreement, ICCA agreed to make a
cash payment to Maroon Bells of $500,000 upon consummation of the Offering, and
to issue to each of Messrs. Moore and Magiera 250,000 shares of Common Stock and
options to acquire 250,000 shares of Common Stock at an exercise price of $2.13
per share. Messrs. Moore and Magiera resigned from ICCA's Board of Directors.
Pursuant to a settlement agreement, during October 1997, ICCA agreed to
issue 300,000 shares of Common Stock to Eleazar Donoso as compensation for
certain financial assistance Mr. Donoso provided to ICCA during its development
stage. Mr. Donoso is a co-founder with Mr. Cargill, a director of ICCA, of
Telectronic S.A. and its President. Mr. Donoso is also a shareholder of ICCA.
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<PAGE> 77
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Stockholders as of December 10,
1997 and the number of shares of Common Stock which may be offered pursuant to
this Prospectus for the account of each of the Selling Stockholders or their
transferees from time to time. See "Plan of Distribution." However, such Selling
Stockholders are under no obligation to sell all or any portion of the Common
Stock being offered hereby, nor are the Selling Stockholders obligated to sell
any such shares of Common Stock immediately under this Prospectus. Because the
Selling Stockholders may sell all or part of their shares of Common Stock, no
estimate can be given as to the number of shares of Common Stock that will be
held by any Selling Stockholder upon termination of the Offering made hereby. As
described in the footnotes below, certain of the Selling Stockholders have
occupied a position, office or other material relationship with the Company or
its affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------------------
NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES OWNED AFTER
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING OFFERED HEREBY OFFERING(1)
- --------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Patricio E. Northland(2)....................... 3,214,000 3,214,000 0
Douglas G. Geib II(3).......................... 1,286,000 1,286,000 0
Paul Moore(4).................................. 880,000 880,000 0
Philip Magiera(5).............................. 860,000 860,000 0
Maroon Bells Capital Partners, Inc.(6)......... 355,000 355,000 0
Eleazar Donoso................................. 300,000 300,000 0
Patricio Silva Echenique(7).................... 460,000 460,000 0
Dong K. Byun(8)................................ 388,900 388,900 0
UBS Securities LLC(9).......................... 2,250,000 2,250,000 0
Hernan Streeter Rios(10)....................... 2,738,750 510,000 2,228,750
George Cargill(11)............................. 1,950,000 260,000 1,690,000
David C. Kleinman(12).......................... 200,000 200,000 0
Moises Blumen Cohen(13)........................ 100,000 100,000 0
Jeffery Wattenberg(14)......................... 100,000 100,000 0
Windmill Corp.(15)............................. 100,000 100,000 0
Santiago Boza(16).............................. 97,000 97,000 0
Douglas MacLellan(17).......................... 90,000 90,000 0
Rodrigo Garcia(18)............................. 65,000 65,000 0
Luis Thais Diaz(19)............................ 50,000 50,000 0
Dinton Trader (UK) Ltd.(20).................... 68,171 68,171 0
Robert Richman(21)............................. 35,000 35,000 0
Rudy Beeck(22)................................. 20,000 20,000 0
Michel Carles(23).............................. 15,000 15,000 0
Alisha O'Hanlon(24)............................ 14,500 14,500 0
Sanaza Cliatio(25)............................. 9,000 9,000 0
Ganzalo Cuevas(26)............................. 9,000 9,000 0
Juan Gabriel Valdez(27)........................ 5,250 5,250 0
Aurelia Martinez(28)........................... 4,000 4,000 0
Paulina Swinburn(29)........................... 4,000 4,000 0
Huberto Ewert(30).............................. 2,000 2,000 0
Cede & Co.(31)................................. 5,250,000 5,250,000 0
United International Properties, Inc.(32)...... 200,000 200,000 0
Mainstreet Limited(33)......................... 50,000 50,000 0
Arcadia Importers & Exporters, Inc.(34)........ 851,182 851,182 0
</TABLE>
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<PAGE> 78
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------------------
NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES OWNED AFTER
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING OFFERED HEREBY OFFERING(1)
- --------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
KA Investments, LDC(35)........................ 140,248 140,248 0
NU Investments, LLC(36)........................ 210,372 210,372 0
Kevin Kimberlin(37)............................ 814 814 0
John Steinmetz(38)............................. 7,835 7,835 0
Spencer Trask Holdings, Inc.(39)............... 7,322 7,322 0
Carol Zervoulei(40)............................ 300 300 0
Claudio Sanhueza(41)........................... 9,000 9,000 0
</TABLE>
- ---------------
(1) Assumes that each Selling Stockholder will sell all of the shares of Common
Stock offered pursuant to this Prospectus, but not any other shares of
Common Stock beneficially owned by such Selling Stockholder. However, none
of the Selling Stockholders has indicated their intention to sell any of
the shares of Common Stock owned by them as of the date of this Prospectus.
(2) Mr. Northland is the President, Chairman of the Board of Directors and
Chief Executive Officer of the Company. Includes 2,614,000 shares of Common
Stock issuable upon the exercise of outstanding stock options, 1,538,000 of
which are fully vested and 538,000 vest on October 7, 1998 and 1999. Unless
exercised, options to purchase 1,000,000 shares of Common Stock will expire
on October 31, 2006 and options to purchase 1,614,000 shares of Common
Stock will expire on October 6, 2007.
(3) Mr. Geib is the Chief Financial Officer and a director of the Company.
Includes 1,036,000 shares of Common Stock issuable upon the exercise of
outstanding stock options, 345,334 of which are fully vested and 166,667
vest on April 8, 1998 and 1999 and 178,666 vest on October 7, 1998 and
1999. Unless exercised, options to purchase 500,000 shares of Common Stock
will expire on April 8, 2007 and options to purchase 536,000 shares of
Common Stock will expire on October 6, 2007.
(4) Mr. Moore is a former director of the Company. Includes 630,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 80,000 shares of
Common Stock will expire on August 1, 2004, options to purchase 100,000
shares of Common Stock will expire on December 19, 2005, options to
purchase 200,000 shares of Common Stock will expire on March 13, 2006 and
options to purchase 250,000 shares of Common Stock will expire on October
3, 2007.
(5) Mr. Magiera is a former director of the Company. Includes 610,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 160,000 shares of
Common Stock will expire on December 19, 2005, options to purchase 200,000
shares of Common Stock will expire on March 13, 2006 and options to
purchase 250,000 shares of Common Stock will expire on October 3, 2007.
(6) Maroon Bells Capital Partners, Inc. is a former provider of financial
advisory and consulting services to the Company. Includes 275,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 200,000 shares of
Common Stock will expire on March 14, 2006 and options to purchase 75,000
shares of Common Stock will expire on June 30, 2004.
(7) Mr. Silva is a director of the Company. Includes 360,000 shares of Common
Stock issuable upon the exercise of outstanding stock options which are
fully vested. Unless exercised, options to purchase 160,000 shares of
Common Stock will expire on December 19, 2005 and options to purchase
200,000 shares of Common Stock will expire on March 13, 2006.
(8) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 1998.
(9) The shares of Common Stock are issuable upon the exercise of outstanding
warrants which are exercisable upon the earliest to occur of: (i) April 27,
1998; (ii) such earlier date as may be
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<PAGE> 79
determined by UBS Securities LLC; (iii) the occurrence of a Change of Control
(as defined in the Indenture) and (iv) the date of effectiveness of a
registration statement to register the Senior Notes under the Securities Act.
See "Description of Senior Notes" and "Description of Capital Stock."
(10) Mr. Streeter is the former Chairman of the Board of Directors and Chief
Executive Officer of the Company. Includes 510,000 shares of Common Stock
issuable upon the exercise of outstanding stock options which are fully
vested. Unless exercised, options to purchase 100,000 shares of Common
Stock will expire on July 12, 2004, options to purchase 185,000 shares of
Common Stock will expire on July 31, 2004, options to purchase 100,000
shares of Common Stock will expire on December 19, 2005 and options to
purchase 125,000 shares of Common Stock will expire on March 13, 2006.
(11) Mr. Cargill is a director of the Company. Includes 240,000 shares of Common
Stock issuable upon the exercise of outstanding stock options which are
fully vested and 20,000 shares of Common Stock issuable upon the exercise
of outstanding warrants. Unless exercised, options to purchase 80,000
shares of Common Stock will expire on July 31, 2004, options to purchase
160,000 shares of Common Stock will expire on December 19, 2005 and the
warrants will expire on October 21, 2002.
(12) Mr. Kleinman is a director of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 50,000 of which
are fully vested and 50,000 vest on May 29, 1998, 1999 and 2000. Unless
exercised, the options will expire on May 29, 2007.
(13) Mr. Blumen is the Chief Executive Officer and Administrative Manager of
Resetel. The options vest ratably over a five-year period commencing on
October 9, 1998. The amount of options which have vested is subject to
reduction to the extent that certain target earnings of Resetel are not
attained.
(14) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
automatically expire on December 19, 2005.
(15) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on March 13, 2006.
(16) Mr. Boza is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 66,667 of which
are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(17) Mr. MacLellan is a former director of the Company. The shares of Common
Stock are issuable upon the exercise of outstanding stock options which are
fully vested. Unless exercised, options to purchase 80,000 shares of Common
Stock will expire on July 31, 2004 and options to purchase 10,000 shares of
Common Stock will expire on December 19, 2005.
(18) Mr. Garcia is an employee of Hewster. The shares of Common Stock are
issuable upon the exercise of outstanding stock options which are fully
vested. Unless exercised, the options will expire on July 31, 2004.
(19) Mr. Thias is the Chairman of the Board of Directors of Resetel. The options
vest ratably over a five-year period commencing on October 9, 1998. The
amount of options which have vested is subject to reduction to the extent
that certain target earnings of Resetel are not attained.
(20) The shares of Common Stock are issuable upon the exercise of outstanding
stock options and warrants which are fully vested. Unless exercised, the
options will expire on June 16, 2001 and the warrants will expire on
October 21, 2002.
(21) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on March 14, 2006.
(22) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on December 19, 2005.
(23) Mr. Carles is an employee of Hewster. The shares of Common Stock are
issuable upon the exercise of outstanding stock options which are fully
vested. Unless exercised, the options will expire on July 31, 2004.
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<PAGE> 80
(24) Ms. O'Hanlon is a former employee of Hewster. The shares of Common Stock
are issuable upon the exercise of outstanding stock options, 9,667 of which
are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(25) The shares of Common Stock are issuable upon the exercise of outstanding
stock options, of which are vested and the remainder vest in equal
increments over years.
(26) Mr. Cuevas is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 6,000 of which are
fully vested and the remainder of which vest in equal monthly increments
over one year commencing January 1998. Unless exercised, the options will
expire on December 19, 2005.
(27) Mr. Valdez is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 3,500 of which are
fully vested and the remainder vest in equal monthly increments over one
year commencing January 1998. Unless exercised, the options will expire on
December 19, 2005.
(28) Ms. Martinez is a former employee of the Company. The shares of Common
Stock are issuable upon the exercise of outstanding stock options, 2,667 of
which are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(29) Mr. Swinburn is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 2,667 of which are
fully vested and the remainder of which vest in equal monthly increments
over one year commencing January 1998. Unless exercised, the options will
expire on December 19, 2005.
(30) Mr. Ewert is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 1,333 of which are
fully vested and the remainder of which vest in equal monthly increments
over one year commencing January 1998. Unless exercised, the options will
expire on December 19, 2005.
(31) The shares of Common Stock are issuable upon the exercise of outstanding
warrants which are exercisable upon the earliest to occur of: (i) April 27,
1998; (ii) such earlier date as may be determined by UBS Securities LLC;
(iii) the occurrence of a Change of Control and (iv) the date of
effectiveness of a registration statement to register the Senior Notes
under the Securities Act. See "Description of Senior Notes" and
"Description of Capital Stock."
(32) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on May 1, 2000.
(33) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on October 21, 2002.
(34) Includes outstanding warrants to purchase 20,000 shares of Common Stock.
Unless exercised, the warrants will expire on June 30, 2002.
(35) Includes outstanding warrants to purchase 40,000 shares of Common Stock.
Unless exercised, the warrants will expire on February 2, 2002.
(36) Includes outstanding warrants to purchase 60,000 shares of Common Stock.
Unless exercised, the warrants will expire on February 2, 2002.
(37) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(38) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(39) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
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<PAGE> 81
(40) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(41) Mr. Sanhueza is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 6,000 of which are
fully vested and the remainder of which vest in equal monthly increments
over one year commencing January 1998.
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<PAGE> 82
DESCRIPTION OF SENIOR NOTES
The Senior Notes were issued under the Indenture, dated as of October 27,
1996, between the Company, as issuer, and State Street Bank and Trust Company,
N.A., as Trustee. A copy of the Indenture has been filed as an Exhibit to the
Registration Statement of which this Prospectus is a part. The following summary
of certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part thereof by reference to the Trust Indenture Act of 1939, as
amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "-- Certain Definitions."
GENERAL
The Senior Notes were issued pursuant to an Indenture (the "Indenture")
between the Company and State Street Bank and Trust Company, N.A. as trustee
(the "Trustee"). The terms of the Senior Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes
are subject to all such terms, and Holders of Senior Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
proposed form of Indenture, Proceeds Pledge and Escrow Agreement and
Registration Rights Agreement will be made available to prospective investors as
set forth under "Available Information." The definitions of certain terms used
in the following summary are set forth below under " -- Certain Definitions."
For purposes of this "Description of Senior Notes," the term "Company" refers
only to InterAmericas Communications Corporation and not to any of its
Subsidiaries.
RANKING
The Senior Notes rank senior in right of payment to all subordinated
Indebtedness of the Company incurred in the future, if any. The Senior Notes
will rank pari passu in right of payment to all senior Indebtedness of the
Company incurred in the future, if any. The Senior Notes will be secured by a
first priority pledge pursuant to the Proceeds Pledge and Escrow Agreement of
(1) securities purchased with a portion of the proceeds from the sale of the
Senior Notes (the "Pledged Securities"), which initially consist of Government
Securities, and the account established with the Trustee for the deposit of the
Pledged Securities (the "Pledge Account"), which will be released to the Company
upon payment in full of the first six scheduled interest payments due on the
Senior Notes and (2) $62.0 million of the net proceeds of the Offering, which
have been invested in Cash Equivalents (the "Collateral Funds") and placed in an
escrow account (the "Collateral Account") to be held by the Trustee, as
Collateral Agent, pending application of such funds by the Company for the
payment of (a) Permitted Expenditures (as defined below), (b) in the event of a
Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith. See
" -- Proceeds Pledge and Escrow Agreement."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Senior Notes. The
ability of the Company's Subsidiaries to make payments will be subject to, among
other things, the terms of such Subsidiaries' Indebtedness, the availability of
such funds and the applicable laws of the jurisdictions under which such
Subsidiaries are organized.
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<PAGE> 83
The Obligations under the Senior Notes will be effectively subordinated to
all Indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of the Company's Subsidiaries. Any right of the Company
to receive assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Senior Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any Indebtedness of such Subsidiary senior to that held by the
Company. As of September 30, 1997, the Company's Subsidiaries would have had
approximately $ million of Indebtedness and $ million of trade payables
and other liabilities outstanding after giving pro forma effect to the Senior
Note Offering, the use of proceeds therefrom and the Iusatel Acquisition. In
addition, under the Indenture, the Company's Subsidiaries are permitted to incur
certain additional Indebtedness the terms of which may restrict the ability of
the Company's Subsidiaries to pay dividends to the Company. See "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
PRINCIPAL MATURITY AND INTEREST
The Senior Notes are limited to $150.0 million in aggregate principal
amount and will mature on October 27, 2007. Interest on the Senior Notes will
accrue at the rate of 14% per annum and will be payable in cash semi-annually on
April 27 and October 27 (each, an "Interest Payment Date"), commencing on April
27, 1998 to holders of record on the immediately preceding April 12 and October
12. Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Senior Notes will be payable as to
principal, interest and Liquidated Damages, if any, at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders of the Senior Notes at their
respective addresses set forth in the register of Holders of Senior Notes;
provided that all payments with respect to Senior Notes the Holders of which
have given wire transfer instructions to the Company will be required to be made
by wire transfer of same day funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, its office or agency in New
York will be the office of the Trustee maintained for such purpose. The Senior
Notes were issued in registered form, without coupons, and in denominations of
$1,000 and integral multiples thereof.
PROCEEDS PLEDGE AND ESCROW AGREEMENT
Pursuant to the Proceeds Pledge and Escrow Agreement, upon the closing of
the Senior Note Offering (the "Closing"), the Company purchased and pledged to
the Trustee for the benefit of the Holders of the Senior Notes the Pledged
Securities in such amount as is sufficient upon receipt of scheduled interest
and principal payments of such securities, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the Senior Notes. The Company used approximately $63.0 million of the net
proceeds of the Initial Offering to acquire the Pledged Securities. The Pledged
Securities were pledged by the Company to the Trustee for the benefit of the
Holders of Senior Notes pursuant to the Proceeds Pledge and Escrow Agreement and
are being held by the Trustee in the Pledge Account. Pursuant to the Proceeds
Pledge and Escrow Agreement, immediately prior to an interest payment date on
the Senior Notes, the Company may either deposit with the Trustee from funds
otherwise available to the Company cash sufficient to pay the interest scheduled
to be paid on such date or the Company may direct the Trustee to release from
the Pledge Account proceeds sufficient to pay interest then due. In the event
that the Company exercises the former option, the Company may thereafter direct
the Trustee to release to the Company proceeds or Pledged Securities from the
Pledge Account in like amount. A failure by the Company to pay interest on the
Senior Notes within five days
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<PAGE> 84
of an Interest Payment Date through October 27, 2000 will constitute an
immediate Event of Default under the Indenture.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Senior
Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payments
remaining, up to and including the sixth scheduled interest payment) the Trustee
will be permitted to release to the Company at the Company's request any such
excess amount. The Senior Notes will be secured by a first priority security
interest in the Pledged Securities and in the Pledge Account and, accordingly,
the Pledged Securities and the Pledge Account will also secure all Obligations
of the Company under the Senior Notes and the Indenture to the extent of such
security.
Under the Proceeds Pledge and Escrow Agreement, if the Company makes the
first six scheduled interest payments on the Senior Notes in a timely manner,
all of the remaining Pledged Securities, if any, will be released from the
Pledge Account and thereafter the Senior Notes will be secured only by the
Collateral Funds and the Collateral Account described below to the extent that
Collateral Funds remain in the Collateral Account pursuant to the terms of the
Proceeds Pledge and Escrow Agreement.
In addition to the pledge by the Company of the Pledged Securities, the
Proceeds Pledge and Escrow Agreement required the Company to (i) deposit $62.0
million of the net proceeds of the Senior Note Offering in an account under the
Trustee's exclusive dominion and control pending application of such funds by
the Company for the payment of (a) Permitted Expenditures, (b) in the event of a
Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith and (ii) grant to the Trustee, as
Collateral Agent, for the benefit of Holders of the Senior Notes and itself as
Trustee, a first priority security interest in the Collateral Funds and the
Collateral Account securing all Obligations of the Company under the Senior
Notes and the Indenture. The Collateral Funds are required to be invested in
Cash Equivalents, as directed from time to time by the Company. The Company will
be permitted to obtain release of the Collateral Funds as follows: (a) any
amount of Collateral Funds for Permitted Expenditures, (b) in the event of a
Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith; provided that at least 60% of the
aggregate amount of Collateral Funds released from the Collateral Account for
Permitted Expenditures must be released in connection with Acquisition Costs or
Systems Costs directly related to Telecommunications Businesses in Peru.
"Permitted Expenditures" means (1)(A) the purchase price and related
expenses of any acquisition of (i) long-term assets used or useful in a
Permitted Business or (ii) a controlling interest in a Permitted Business
(collectively, "Acquisition Costs") or (B) expenditures by the Company or any
Restricted Subsidiary of the Company directly related to the engineering,
design, construction, installation or development of assets and systems used or
useful in a Permitted Business ("Systems Costs"), in each of clauses (A) and
(B), in connection with Telecommunications Businesses in Chile or Peru; (2) the
repayment of Indebtedness of any Restricted Subsidiary; provided that the
commitments with respect thereto in the case of revolving borrowings are
correspondingly reduced and (3) other general corporate purposes in an amount
not to exceed $20.0 million.
The Proceeds Pledge and Escrow Agreement allows the Company to withdraw
from the Collateral Account such amounts as are estimated by the Company in good
faith and set forth in a written request (as such request may be amended from
time to time), accompanied by a supporting budget or other supporting
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documentation, submitted to the Collateral Agent to be necessary for Permitted
Expenditures for the succeeding three months.
In the event that on or after October 27, 2000 Collateral Funds remain in
the Collateral Account, the Company shall make an offer to each Holder of Senior
Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Senior Notes (the "Special Offer to Purchase") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase and Liquidated
Damages, if any; provided that, if after the Special Offer to Purchase is
consummated at least $20.0 million in aggregate principal amount of Senior Notes
does not remain outstanding, the Company will be required by the terms of the
Indenture to redeem all of the Senior Notes (the "Special Mandatory Redemption")
at a redemption price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase. If required by the terms of the Indenture to make a
Special Offer to Purchase, the Company will mail a notice to each Holder
offering to repurchase Senior Notes in the Special Offer to Purchase pursuant to
the procedures required by the Indenture and described in such notice. If
required by the terms of the Indenture, within ten days following the
consummation of the Special Offer to Purchase, the Company will mail a notice to
each Holder setting forth the terms of the Special Mandatory Redemption pursuant
to the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the Special Offer to Purchase.
In the event that the Indenture does not require the Company to make a
Special Mandatory Redemption, after the consummation of the Special Offer to
Purchase, the Company shall apply all funds held in the Collateral Account not
previously released pursuant to the terms of the Indenture and the Proceeds
Pledge and Escrow Agreement, at its option, to the acquisition of a controlling
interest in a Permitted Business, the making of a capital expenditure or the
acquisition of other assets, in each case, in a Permitted Business or to the
reduction of senior Indebtedness of the Company or Indebtedness of any
Restricted Subsidiary of the Company.
In the event of the Company's bankruptcy, the Company, as a debtor in
possession under Chapter 11 of the Bankruptcy Code, would be entitled to
petition the United States Bankruptcy Court having jurisdiction over its case
for permission, under Section 363 of the Bankruptcy Code, to use the Pledged
Securities pledged by it pursuant to the Proceeds Pledge and Escrow Agreement
and the Collateral Funds pledged by it pursuant to the Proceeds Pledge and
Escrow Agreement to fund its operations during the pendency of the
reorganization proceedings. Permission for such use is likely to be granted so
long as the interests of the Trustee, as Collateral Agent, for the benefit of
the Holders of Senior Notes and itself as Trustee, are "adequately protected." A
secured creditor's interest in cash collateral to be used by a debtor in
possession may be adequately protected by, among other means, the granting of
liens on substitute collateral which may be substantially less liquid than Cash
Equivalents and Government Securities.
OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Company's option prior to
October 27, 2002. Thereafter, the Senior Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
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to the applicable redemption date, if redeemed during the twelve-month period
beginning on October 27 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 107.000%
2003........................................................ 104.666%
2004........................................................ 102.333%
2005 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before October 27, 2000,
the Company may on any one or more occasions redeem up to a maximum of 33 1/3%
of the aggregate principal amount of Senior Notes at a redemption price equal to
114% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds received by the Company after the date of the Indenture from the
issuance and sale of its Qualified Capital Stock to the public in a registered
public offering or to one or more Strategic Equity Investors to the extent that
such net cash proceeds have been, and continue to be, designated as Designated
Equity Proceeds to be used for such purpose as provided in the definition
thereof; provided that at least 66 2/3% of the original aggregate principal
amount of the Senior Notes remain outstanding immediately after the occurrence
of each such redemption; and provided, further, that such redemption shall occur
within 45 days of the date of the closing of any such public offering or sale to
such Strategic Equity Investors.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. Notices of redemption may
not be conditional. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Senior Note. Senior Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Senior Notes or portions of
them called for redemption.
MANDATORY REDEMPTION
Except as set forth above under " -- Proceeds Pledge and Escrow Agreement"
and as set forth below under " -- Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash (the "Change of Control Payment") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the date of repurchase. Within ten days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or
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transactions that constitute the Change of Control and offering to repurchase
Senior Notes on the date specified in such notice (the "Change of Control
Payment Date"), which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed, pursuant to the procedures required by
the Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result of
a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (iii) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new New Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such new New Note will be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Notes to require that the
Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar transaction.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of (a) "all or substantially
all" of the assets of the Company and its Restricted Subsidiaries taken as a
whole and (b) "all or substantially all" of the assets of the Company and its
Restricted Subsidiaries taken as a whole that are related or ancillary to the
business conducted by the Company and its Restricted Subsidiaries in Peru.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Senior Notes to
require the Company to repurchase such Senior Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than (a) all of the
assets of the Company and its Restricted Subsidiaries taken as a whole or (b)
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole that are related or ancillary to the business conducted by the Company and
its Restricted Subsidiaries in Peru to another Person or group may be uncertain.
The terms of any Indebtedness incurred by the Company's Subsidiaries and
the applicable laws of the jurisdictions under which the Company's Subsidiaries
are organized may restrict the Company's current and future Subsidiaries from
paying any dividends or making any other distribution to the Company. Thus, in
the event a Change of Control occurs, the Company could seek the consent of its
Subsidiaries' lenders to the purchase of the Senior Notes or could attempt to
repay or refinance the borrowings that contain such restrictions. If the Company
did not obtain such a consent or repay or refinance such borrowings or if the
applicable laws of the jurisdictions under which the Company's Subsidiaries are
organized restrict such Subsidiaries' ability to pay dividends or make other
distributions to the Company, the Company would likely not have the financial
resources to purchase the Senior Notes and the Subsidiaries would be restricted
in paying dividends to the Company for the purpose of such purchase. In
addition, any future Indebtedness may prohibit the Company from purchasing
Senior Notes prior to their maturity, and may also provide that certain change
of control events with respect to the Company would constitute a default
thereunder. In the event a
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Change of Control occurs at a time when the Company is prohibited from
purchasing Senior Notes, the Company could seek the consent of its lenders to
the purchase of Senior Notes or could attempt to repay or refinance the
borrowings that contain such prohibition. If the Company did not obtain such
consent or repay or refinance such borrowings, the Company would remain
prohibited from purchasing Senior Notes. In such event, the Company would be
required to seek to refinance the Senior Notes or such other borrowings, and
there can be no assurance that the Company would be able to consummate any such
refinancing. See "Risk Factors -- Substantial Leverage; Ability to Service
Indebtedness" and " -- Holding Company Structure; Inability to Access Cash
Flow."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Senior Notes or any
guarantee thereof) that are assumed by the transferee of any such assets or
Equity Interests pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 270 days after the Company's or any Restricted Subsidiary's receipt
of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary may apply such Net Proceeds, at its option, (a) to repay Indebtedness
under a Credit Facility (and to correspondingly reduce commitments with respect
thereto in the case of revolving borrowings) or (b) to the acquisition of a
Permitted Business or a controlling interest in a Permitted Business or the
making of a capital expenditure or the acquisition of other long-term assets, in
each case, in a Permitted Business. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Indebtedness under any Credit
Facility or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Senior Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Senior Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate principal amount of Senior Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Senior Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) to the direct or indirect holders of the Company's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Senior Notes, except a payment of interest or principal at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Debt) pursuant to the Debt to Cash Flow Ratio test set forth in
the first paragraph of the covenant described below under the caption
" -- Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of Indenture
(other than Restricted Payments permitted by clauses (ii), (iii) or (iv) of
the following paragraph) shall not exceed, at the date of determination,
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) an amount equal to the net cash proceeds received
by the Company after the date of the Indenture from the issuance and sale
of its Qualified Capital Stock to the extent such net cash proceeds have
been, and continue to be, designated as Designated Equity Proceeds to be
added to the cumulative amount calculated pursuant to this clause (c) as
provided in the definition thereof, plus (iii) an amount equal to the net
cash proceeds received by the Company from the sale of Disqualified Stock
or debt securities of the Company that have been converted into Equity
Interests (other than Equity Interests or convertible debt securities sold
to a Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iv) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (1) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (2) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit the following Restricted
Payments: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the redemption, repurchase,
retirement,
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defeasance or other acquisition of any subordinated Indebtedness or Equity
Interests of the Company in exchange for, or out of the net cash proceeds (other
than any such net cash proceeds that constitute Designated Equity Proceeds) of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of
the Company to the holders of its common Equity Interests on a pro rata basis;
(v) the payment of cash (in lieu of the issuance of fractional shares of Common
Stock) to holders of Warrants at the time of exercise of such Warrants as
required by the terms of the Warrant Agreement entered into in connection with
the Initial Offering; (vi) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement, stock option agreement or other similar agreement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $250,000 in any
twelve-month period and no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; and (vii) any payments
specifically described in this Prospectus under the caption "Use of Proceeds."
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary (other than
any Subsidiary of the Company that owns all or a material portion of the assets
(i) owned by the Company or any Subsidiary of the Company on the date of the
Indenture or (ii) owned by any Person described in this Prospectus under the
caption "The Iusatel Acquisition" on the date of the acquisition by the Company
of such Person) to be an Unrestricted Subsidiary if such designation would not
cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) and the Company may issue shares of Disqualified Stock if the Company's
Debt to Cash Flow Ratio would have been no greater than 5.5 to 1, in the case of
any such incurrence or issuance on or
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before December 31, 2000, or no greater than 5.0 to 1, in the case of any such
incurrence or issuance at any time thereafter, in each case, determined on a pro
forma basis (including a pro forma application of the net proceeds thereof), as
if the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of the applicable four full
fiscal quarter period.
The Indenture also provides that the Company will not incur any
Indebtedness that is contractually subordinated to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated to the
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually subordinated to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under Credit Facilities; provided that the aggregate principal
amount of all Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) outstanding under all Credit Facilities after giving effect to
such incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (i), does not exceed an amount equal to $40.0 million less the
aggregate amount of all Net Proceeds of Asset Sales that have been applied
since the date of the Indenture to repay Indebtedness under Credit
Facilities (or any such Permitted Refinancing Indebtedness) pursuant to the
covenant described above under the caption " -- Repurchase at the Option of
Holders -- Asset Sales;" provided, further, that the aggregate principal
amount of Indebtedness at any one time outstanding under Credit Facilities
that is incurred by, or secured by the Capital Stock or assets of, any
Restricted Subsidiary that is located, or that derives substantially all of
its revenue from the conduct of business, in Peru shall not exceed $15.0
million;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Notes;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Subsidiary prior to such
acquisition by the Company or such Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such acquisition by
the Company or such Restricted Subsidiary; and provided further that the
principal amount (or accreted value, as applicable) of such Indebtedness
(or accreted value, as applicable), including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (iv), does not exceed $5.0
million at any time outstanding;
(v) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Current Market Value as of the
date of issue of any Qualified Capital Stock of the Company issued to the
seller(s) of a Permitted Business as consideration for the acquisition of
such business and (B) the net cash proceeds received by the Company after
the date of the Indenture from the issuance and sale of its Qualified
Capital Stock to the extent that such net cash proceeds have been, and
continue to be, designated as Designated Equity Proceeds to be used for the
purpose of incurring additional Indebtedness pursuant to this clause (v) as
provided in the definition thereof; provided that, to the extent that any
such Qualified Capital Stock ceases to be outstanding for any reason, any
Indebtedness that was incurred as a result of the receipt of net cash
proceeds from the issuance of such Qualified Capital Stock
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shall cease (as of the date on which such Qualified Capital Stock ceases to
be outstanding) to be permitted by virtue of this clause (v);
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness or Indebtedness pursuant to a Credit
Facility) that was permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(A) if the Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Senior Notes and (B)(1) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary and (2) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(viii) the guarantee by the Company of Indebtedness of the Company or
a Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness of the Company or any Restricted Subsidiary of the
Company (A) in respect of statutory obligations, performance, surety or
appeal bonds or other obligations of a like nature incurred in the ordinary
course of business or (B) under Hedging Obligations; provided that such
agreements (1) are designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (2) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities
and compensation payable thereunder; and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (xi), not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Debt to Cash Flow Ratio test
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set forth in the first paragraph of the covenant described above under the
caption " -- Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
below under the caption " -- Liens," (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted by,
and the Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption " -- Repurchase at the Option of
Holders -- Asset Sales."
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) the terms of any
Permitted Debt permitted to be incurred by any Restricted Subsidiary of the
Company, (b) Existing Indebtedness as in effect on the date of the Indenture or
by reason of any agreement or instrument in effect on the date of the Indenture,
(c) the Indenture and the Senior Notes, (d) applicable law or regulation, (e)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (i) any mortgage or other Lien on real property
acquired or improved by the Company or any Restricted Subsidiary after the date
of the Indenture that prohibit transfers of the type described in (iii) above
with respect to such real property, (j) any such customary encumbrance or
restriction contained in a security document creating a Permitted Lien to the
extent related to the property or assets subject to such Permitted Lien, and (k)
with respect to a Restricted Subsidiary, an agreement that has been entered into
for the sale or disposition of all or substantially all of the Company's Equity
Interests in, or substantially all of the assets of, such Restricted Subsidiary.
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Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) such
transaction will not result in the loss or suspension or material impairment of
any licenses or other authorizations that are material to the future prospects
of the Company and its Subsidiaries, taken as a whole; and (v) except in the
case of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company or into a parent corporation the principal purpose of which transaction
is to change the state of incorporation of the Company, the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described above under the caption " -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $250,000, (1) a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors or (2) an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (w) the Iusatel
Acquisition, (x) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business having terms
consistent with industry practice for reasonably similar companies, (y)
transactions between or among the Company and/or its Restricted Subsidiaries and
(z) Restricted Payments that are permitted by the provisions of the Indenture
described above under the
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caption " -- Certain Covenants -- Restricted Payments," in each case, shall not
be deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of the Company
The Indenture provides that the Company will not transfer, convey, sell,
lease or otherwise dispose of any Equity Interest of the Company to any Person
unless the consideration received therefor is at least equal to the Fair Market
Value of such Equity Interests and all of such consideration is in the form of
cash.
The provisions of the first paragraph of this covenant does not apply to:
(i) the transfer, conveyance, sale, lease or other disposition of all
or substantially all of the Equity Interests of the Company; provided that
the transfer, conveyance, sale, lease or other disposition of all or
substantially all of the Equity Interest of the Company will be governed by
the provisions of the Indenture described above under the caption
" -- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption " -- Merger, Consolidation or
Sale of Assets" and not by the provisions of this covenant;
(ii) the transfer, conveyance, sale, lease or other disposition of
Equity Interests of the Company in exchange for long-term assets used or
useful in a Permitted Business or a controlling interest in a Permitted
Business; provided that the Company delivers to the Trustee (a) with
respect to any such transfer, conveyance, sale, lease or other disposition
or series of related transfers, conveyances, sales, leases or other
dispositions involving Equity Interests with a fair market value less than
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such transfer, conveyance, sale,
lease or other disposition is fair to the Company's shareholders and (b)
with respect to any such transfer, conveyance, sale, lease or other
disposition or series of related transfers, conveyances, sales, leases or
other dispositions involving Equity Interests with a fair market value
equal to or in excess of $5.0 million, an opinion as to the fairness to the
Company's shareholders of such transfer, conveyance, sale, lease or other
disposition from a financial point of view issued by UBS Securities or any
other investment banking firm of national standing chosen by the Company;
and
(iii) (A) the grant or issuance of options, warrants or other rights
to acquire Capital Stock of the Company ("Options") pursuant to a stock
option plan which (a) shall have been approved by the Company's
stockholders, (b) shall prohibit the granting of Options prior to June 30,
1998 (other than to directors or employees of the Company or any Subsidiary
of the Company appointed or hired subsequent to the date of the Indenture),
(c) shall limit the aggregate number of shares of common stock of the
Company issuable in any fiscal year upon the exercise of Options to 1.0
million (subject to adjustments for stock splits and other customary
events) and (d) shall provide that any Option must have an exercise price
equal to or in excess of the market price for the underlying common stock
of the Company on the date such Option is granted by the Company and (B)
the issuance of Capital Stock of the Company upon the exercise of any such
Option.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Equity Interest of any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests of
such Wholly Owned Restricted Subsidiary owned by the Company or any of its
Subsidiaries and (b) the Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant described
above under the caption
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" -- Repurchase at the Option of Holders -- Asset Sales," and (ii) will not
permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its
Equity Interests (other than, if required by applicable law, shares of Capital
Stock (y) constituting directors' qualifying shares and (z) of non-U.S.
Restricted Subsidiaries sold to non-U.S. nationals as required by the laws of
the jurisdiction of incorporation of such non-U.S. Restricted Subsidiary) to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries
The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the guarantee of the payment of the Senior Notes by such Subsidiary, which
guarantee shall be senior to or pari passu with such Subsidiary's guarantee of
or pledge to secure such other Indebtedness. Notwithstanding the foregoing, any
such guarantee by a Subsidiary of the Senior Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's stock in, or all or substantially all the assets of,
such Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture. A form of such guarantee is attached as
an exhibit to the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Senior Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Senior Notes unless such consideration is
offered to be paid or is paid to all Holders of the Senior Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding, the
Company will furnish to the Holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Form 10-Q or, if the Company is eligible to file such Form,
Form 10-QSB and Form 10-K or, if the Company is eligible to file such Form, Form
10-KSB if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case, within the time
periods set forth in the Commission's rules and regulations. In addition,
commencing after the consummation of the Exchange Offer, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) within the time periods
set forth in the Commission's rules and regulations and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company has agreed that, for so long as any Senior Notes remain
outstanding, it will furnish to the Holders
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and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest and
Liquidated Damages, if any, on the Senior Notes, provided, however, that prior
to October 27, 2000, the failure by the Company to pay interest on the Senior
Notes within five days of an Interest Payment Date will constitute an immediate
Event of Default; (ii) default in payment when due of the principal of or
premium, if any, on the Senior Notes; (iii) failure by the Company to comply
with the provisions described under the captions " -- Proceeds Pledge and Escrow
Agreement," " -- Repurchase at the Option of Holders -- Change of Control,"
" -- Repurchase at the Option of Holders -- Asset Sales," " -- Certain
Covenants -- Restricted Payments," " -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" or " -- Certain
Covenants -- Merger, Consolidation or Sale of Assets;" (iv) failure by the
Company for 60 days after notice to comply with any of its other agreements in
the Indenture or the Senior Notes; (v) breach by the Company of any material
representation, warranty or agreement set forth in the Proceeds Pledge and
Escrow Agreement, or repudiation by the Company of its obligations under the
Proceeds Pledge and Escrow Agreement or the unenforceability of the Proceeds
Pledge and Escrow Agreement against the Company for any reason; (vi) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately. Upon such
declaration, the principal of, premium, if any, and accrued and unpaid interest
and Liquidated Damages, if any, on the Senior Notes shall be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, the foregoing amount shall
ipso facto become due and payable without further action or notice. Holders of
the Senior Notes may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Senior Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders of
the Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest or
Liquidated Damages, if any) if it determines that withholding notice is in their
interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to October 27, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to October 27, 2002, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Senior
Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of principal or premium, if any, interest or Liquidated Damages,
if any on the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Notes, the Subsidiary Guarantees, the Indenture or the Proceeds Pledge
and Escrow Agreement or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Senior Notes by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Senior Notes. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Senior Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect to
the Senior Notes concerning issuing temporary Senior Notes, registration of
Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Senior Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any,
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and interest and Liquidated Damages, if any, on the outstanding Senior Notes on
the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Senior Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Restricted Subsidiaries is a party or by which the Company or any
of its Restricted Subsidiaries is bound; (vi) the Company must have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Senior Notes over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture,
the Senior Notes or the Proceeds Pledge and Escrow Agreement may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Senior Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Senior Notes), and any existing default or compliance with any
provision of the Indenture, the Senior Notes or the Proceeds Pledge and Escrow
Agreement may be waived with the consent of the Holders of a majority in
principal
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amount of the then outstanding Senior Notes (including consents obtained in
connection with a tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption " -- Repurchase at the Option of Holders" and certain
provisions set forth under the caption "-- Proceeds Pledge and Escrow
Agreement"), (iii) reduce the rate of or change the time for payment of interest
on any New Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Senior Notes (except a rescission of acceleration of the Senior Notes by the
Holders of at least a majority in aggregate principal amount of the Senior Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any New Note payable in money other than that stated in the Senior Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Senior Notes to receive payments of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Senior Notes, (vii) waive a redemption payment with respect to any New Note
(other than a payment required by one of the covenants described above under the
caption " -- Repurchase at the Option of Holders" and certain provisions set
forth under the caption "-- Proceeds Pledge and Escrow Agreement") or (viii)
make any change in the foregoing amendment and waiver provisions. In addition,
any amendment to the covenants described under the caption " -- Proceeds Pledge
and Escrow Agreement," including the related definitions will require the
consent of the Holders of at least 75% in aggregate principal amount of the
Senior Notes then outstanding if such amendment would adversely affect the
rights of Holders of Senior Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's obligations to Holders of
Senior Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of Senior Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture,
Proceeds Pledge and Escrow Agreement and Registration Rights Agreement without
charge by writing to InterAmericas Communication Corporation, 1221 Brickell
Avenue, Suite 900, Miami, Florida 33131, Attention: Chief Financial Officer.
Registration Rights; Liquidated Damages
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on the Closing Date. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Senior Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the Holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted Securities
for New Senior Notes. If (i) the Company is not permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company prior to the 20th day following consummation of the Exchange Offer
that (A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) that it may not resell the Senior Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns Senior Notes acquired directly from the Company or an affiliate of the
Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Senior Notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Senior Note until (i) the date on
which such Senior Note has been exchanged by a person other than a broker-dealer
for a new Senior Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of an existing Senior Note for a new Senior
Note, the date on which such new Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Senior Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Senior Note is distributed to the public pursuant to Rule 144
under the Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, New Senior Notes in exchange for all
Senior Notes tendered prior thereto in the Exchange Offer and (iv) if obligated
to file the Shelf Registration Statement, the Company will use its best efforts
to file the Shelf Registration Statement with the Commission on or prior to 45
days after such filing obligation arises and to cause the Shelf Registration to
be declared effective by the Commission on or prior to 120 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer
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Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Existing Notes,
with respect to the first 90-day period immediately following the occurrence of
the first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Existing Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Existing Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Existing
Notes. All accrued Liquidated Damages will be paid by the Company on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Senior Notes are required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and are required to deliver information to be
used in connection with the Shelf Registration Statement and to provide comments
on the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Senior Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 5% or more of the voting securities of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described above under the caption "-- Repurchase
at the Option of Holders -- Change of Control" and/or the provisions described
above under the caption "-- Certain Covenants -- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million
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or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests
by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments," and (iv) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be, will
not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thompson Bankwatch, Inc.
rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the sale, lease, transfer, conveyance or other
disposition (other than to the Company or a Wholly Owned Restricted Subsidiary
of the Company), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, that are related or ancillary to the business conducted by the
Company and its Restricted Subsidiaries in Peru to any "person" (as defined
above), (iii) the adoption of a plan relating to the liquidation or dissolution
of the Company, (iv) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 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 currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or
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indirectly, of more than 35% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior governmental approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (iii) the aggregate liquidation value of all Disqualified
Stock of such Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting
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principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means, with respect to the Company or any of its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Current Market Value" means, with respect to any shares of Qualified
Capital Stock, (i) the last reported bid price of such Qualified Capital Stock
on the principal national securities exchange on which such Qualified Capital
Stock is then being traded on the fifth Business Day following the consummation
of the acquisition of the applicable Permitted Business or (ii) if such
Qualified Capital Stock is not then listed or traded on a national securities
exchange, the value as determined in good faith by the board of directors of the
issuer of such Qualified Capital Stock (whose determination shall be supported
by a concurring valuation opinion from a nationally recognized investment
banking firm if such Current Market Value exceeds $5.0 million).
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio
of (a) the Consolidated Indebtedness of the Company as of such date to (b) the
Consolidated Cash Flow of the Company for the four most recent full fiscal
quarters ending immediately prior to such date for which internal financial
statements are available, determined on a pro forma basis after giving effect to
all acquisitions or dispositions of assets made by the Company and its
Restricted Subsidiaries from the beginning of such four-quarter period through
and including such date of determination (including any related financing
transactions) as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period. In addition, for purposes of calculating
Consolidated Cash Flow for the computation referred to above, (i) acquisitions
that have been made by the Company or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the date on which the event for which the
calculation of the Debt to Cash Flow Ratio is made (the "Calculation Date")
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without
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giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Equity Proceeds" means any net cash proceeds received by the
Company after the date of the Indenture from the issuance and sale of its
Qualified Capital Stock (other than Qualified Capital Stock sold to a Subsidiary
of the Company) providing the basis for (i) a redemption of Senior Notes in a
transaction consummated in compliance with the second paragraph of the section
captioned "-- Optional Redemption," (ii) an addition to the cumulative account
calculated pursuant to clause (c) of the first paragraph of the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments,"
(iii) the incurrence of additional Indebtedness pursuant to clause (v) of the
second paragraph of the covenant described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" or (iv)
an Investment pursuant to clause (f) of the definition of "Permitted
Investments," in each case, as designated by a written resolution of the Board
of Directors of the Company filed with the Trustee on or prior to the date on
which such net cash proceeds are received by the Company. In no event shall the
same net cash proceeds be treated as Designated Equity Proceeds for more than
one purpose under the Indenture. Once designated for a particular purpose, such
net cash proceeds may not be redesignated for an alternative purpose. In
addition, to the extent that any such Qualified Capital Stock ceases to be
outstanding for any reason, any Indebtedness, Restricted Payment or Investment
that was incurred or made as a result of the receipt of net cash proceeds from
the issuance of such Qualified Capital Stock shall cease (as of the date on
which such Qualified Capital Stock ceases to be outstanding) to be permitted by
virtue of the issuance of such Qualified Capital Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $1.0 million in aggregate principal
amount of (a) Indebtedness of the Company and its Restricted Subsidiaries in
existence on the date of the Indenture and (b) Acquired Debt incurred by the
Company and its Restricted Subsidiaries in connection with the Iusatel
Acquisition, until such amounts are repaid.
"Fair Market Value" means, with respect to assets, Equity Interests or any
other securities having a fair market value (a) of less than $5.0 million, the
fair market value of such assets, Equity Interests or any other securities
determined in good faith by the Board of Directors of the Company (including a
majority of the Independent Directors thereof) and evidenced by a board
resolution and (b) equal to or in excess of $5.0 million, the fair market value
of such assets, Equity Interests or any other securities as determined by an
investment banking firm of national standing; provided that the fair market
value of the assets purchased in an arm's-length transaction by an Affiliate of
the Company (other than a Subsidiary) from a third party that is not also an
Affiliate of the Company or such purchaser and contributed to the Company within
five Business Days of the consummation of the acquisition of such assets by such
Affiliate shall be deemed to be the aggregate consideration paid by such
Affiliate (which may include the fair market value of any non-cash consideration
to the extent that the valuation requirements of this definition are complied
with as to any such non-cash consideration); provided, further, that the fair
market value of Equity Interests issued and sold to the public in a registered
public offering or to one or more Strategic Equity Investors shall be deemed to
be the
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aggregate cash consideration paid to the Company in such public offering or by
such Strategic Equity Investors.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligation" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements and other agreements and
arrangements designed to protect such Person against fluctuations in interest
rates and (ii) foreign exchange swap agreements, foreign exchange option
agreements, foreign exchange futures agreements and other agreements and
arrangements designed to protect such Person against fluctuations in foreign
currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the penultimate paragraph of the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
in connection with such Asset Sale, and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise) or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Senior Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any Telecommunications Business that operates
primarily in Latin American or Caribbean markets or any Telecommunications
Business reasonably related or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company in a Person, if as a result of such Investment (i) such Person becomes a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company and that is engaged in a Permitted Business; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales;" (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of
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the Company; (f) Investments (measured as of the time made and without giving
effect to subsequent changes in value) in a Person engaged in a Permitted
Business, having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed the sum of (A) $5.0 million plus
(B) 100% of the aggregate net cash proceeds received by the Company after the
date of the Indenture from the issuance and sale of its Qualified Capital Stock
to the extent that such net cash proceeds have been, and continue to be,
designated as Designated Equity Proceeds to be applied to make Investments
pursuant to this clause (f) as provided in the definition thereof; provided
that, to be extent that any such Qualified Capital Stock ceases to be
outstanding for any reason, any Investment that was made as a result of the
receipt of net cash proceeds from the issuance of such Qualified Capital Stock
shall cease to be permitted by virtue of this clause (f) as of the date on which
such Qualified Capital Stock ceases to be outstanding; (g) any Investment in
prepaid expenses, negotiable instruments held for collection, and lease,
utility, workers' compensation, performance and other similar deposits; (h)
loans and advances to employees made in the ordinary course of business in an
aggregate amount not to exceed $1.0 million at any one time outstanding; and (i)
Investments made in connection with Hedging Obligations.
"Permitted Liens" means, without duplication, each of the following:
(i) Liens in favor of the Company or any of its Wholly Owned
Restricted Subsidiaries;
(ii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary;
(iii) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(iv) Liens existing on the date of the Indenture;
(v) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(vii) Liens securing Indebtedness of any Restricted Subsidiary of the
Company that does not exceed $5.0 million at any one time outstanding
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of such Restricted
Subsidiary;
(viii) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(ix) Liens created pursuant to the Proceeds Pledge and Escrow
Agreement;
(x) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding and that (a)
are not incurred in connection with the borrowing of money or the obtaining
of advances or
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credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property
or materially impair the use thereof in the operation of business by the
Company or such Restricted Subsidiary;
(xi) Liens securing the Senior Notes;
(xii) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects which, in the aggregate, are
not material in amount, and which do not, in any case, materially detract
from the value of the property subject thereto (as such property is used by
the Company or any of its Restricted Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(xiii) Liens arising by reason of any judgment, decree or order or any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(xiv) any interest or title of a lessor under any Capital Lease
Obligation; and
(xv) any extension, renewal or replacement, in whole or in part, of
any Permitted Lien, provided that any such extension, renewal or
replacement shall be no more restrictive in any material respects that the
Lien so extended, renewed or replaced and shall not extend to any
additional property or assets.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries; provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Senior Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Notes on terms at least
as favorable to the Holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means Patricio E. Northland, the current President of the
Company, and Douglas G. Geib II, the current Chief Financial Officer of the
Company.
"Proceeds Pledge and Escrow Agreement" means the Proceeds Pledge and Escrow
Agreement, dated as of the date of the Indenture, by and between the Company and
the Trustee, as Collateral Agent, governing the disbursement of funds from the
Pledge Account and the Collateral Account.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Strategic Equity Investor" means a corporation, partnership or other
entity engaged in one or more Telecommunications Businesses that has, or 80% or
more of the voting power of the Capital Stock of which is owned by a Person that
has an equity market capitalization, at the time of its initial Investment in
the Company, in excess of $2.0 billion.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (x) of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) or (y) which such Person either alone or together with one
or more Restricted Subsidiaries of such Person has the absolute right, pursuant
to law, contract or otherwise, to direct the payment of dividends or the making
of other distributions, loans or advances by such corporation, association or
other business entity and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of payment of the Senior Notes
by a Subsidiary issued by such Subsidiary pursuant to the covenant described
above under the caption "-- Certain Covenants -- Limitations on Issuances of
Guarantees of Indebtedness by Subsidiaries."
"Telecommunications Business" means any business that derives substantially
all of its revenue from the business of (i) transmitting, or providing services
relating to the transmission of, voice, video or data through owned or leased
transmission facilities, (ii) creating, developing or marketing communications
related network equipment for use in a telecommunications business or (iii)
evaluating, participating in or pursuing any other activity or opportunity that
is primarily related to those identified in (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the Board of Directors of the Company.
"Unrestricted Subsidiary" means any Subsidiary (other than any Subsidiary
of the Company that owns all or a material portion of the assets (i) owned by
the Company or any Subsidiary of the Company on the date of the Indenture or
(ii) owned by any Person described in this Prospectus under the caption "The
Iusatel Acquisition" on the date of the acquisition by the Company of such
Person) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (c) is a Person with
respect to which neither the Company nor any of its
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Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe
for additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than (i) directors' qualifying shares or
(ii) shares of non-U.S. Restricted Subsidiaries held by non-U.S. nationals as
required by the laws of the jurisdiction of incorporation of such non-U.S.
Restricted Subsidiary) shall at the time be owned by such Person or by one or
more Wholly Owned Restricted Subsidiaries of such Person; provided, that no
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which are not owned by such Person, shall in any
case be a "Wholly Owned Restricted Subsidiary" under the Indenture unless such
Person either alone or together with one or more Wholly Owned Restricted
Subsidiaries of such Person has the absolute right, pursuant to law, contract or
otherwise, to direct the payment of dividends or the making of other
distributions, loans or advances by such Restricted Subsidiary.
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DESCRIPTION OF CAPITAL STOCK
The following statements are qualified in their entirety by reference to
ICCA's Certificate of Incorporation and By-laws, copies of which are available
from the Company.
The authorized capital stock of ICCA consists of 50,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
COMMON STOCK
As of December 2, 1997, there were 18,984,300 outstanding shares of Common
Stock held of record by approximately 200 persons or entities. Holders of the
Common Stock are entitled to cast one vote for each share held of record on all
matters acted upon at any meeting of ICCA's shareholders. Holders of Common
Stock are entitled to receive ratably such dividends if and when declared by the
Board of Directors out of funds legally available therefor, subject to
preferences that may be applicable to any outstanding Preferred Stock. There are
no cumulative voting rights, the absence of which will, in effect, allow the
holders of a majority of the outstanding shares of the Common Stock to elect all
of the directors then standing for election. In the event of any liquidation,
dissolution or winding up of ICCA, each holder of Common Stock will be entitled
to participate, subject to the rights of any outstanding Preferred Stock,
ratably in all assets of ICCA remaining after payment of liabilities. Holders of
Common Stock have no preemptive or conversion rights. All outstanding shares of
Common Stock are fully paid and non-assessable.
PREFERRED STOCK
As of December 2, 1997, there were no outstanding shares of Preferred
Stock. The Board of Directors has the authority to issue shares of Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, redemption rights, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the shareholders.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock. In addition, because the
terms of such Preferred Stock may be fixed by the Board of Directors without
shareholder action, the Preferred Stock could be designated and issued quickly
in the event ICCA requires additional equity capital. The Preferred Stock could
also be designated and issued with terms calculated to defeat a proposed
take-over of the Company or with terms that may have the effect of delaying,
deferring or preventing a change of control of ICCA. Under certain
circumstances, this could have the effect of decreasing the market price of the
Common Stock.
FEBRUARY 1997 WARRANTS
ICCA has outstanding warrants (the "February 1997 Warrants") to purchase an
aggregate of 100,000 shares of Common Stock, exercisable through February 2,
2002 at an exercise price of $5.00 per share, which price is subject to
adjustment under certain circumstances. The February 1997 Warrants were issued
in connection with the private placement of $1.5 million aggregate principal
amount of the 7% Convertible Debentures.
MAY 1997 WARRANTS
ICCA has outstanding warrants (the "May 1997 Warrants") to purchase an
aggregate of 20,000 shares of Common Stock, exercisable through June 30, 2002 at
an exercise price of $2.37 per share, which price is subject to adjustments
under certain circumstances. The May 1997 Warrants were issued in connection
with the private placement of $2.0 million aggregate principal amount of the 8%
Convertible Debentures.
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TELEPORT CHILE UNIT WARRANTS
ICCA has outstanding warrants (the "Teleport Warrants") to purchase an
aggregate of 388,900 shares of Common Stock of ICCA, exercisable through June
30, 1998, at an exercise price of $3.00 a share or at a price at which any of
ICCA's Common Stock is sold through a private placement or registered offering
through the expiration date of the Teleport Warrants. The Teleport Warrants were
issued in connection with the assignment to Teleport Chile of a loan in the
aggregate principal amount of $1.0 million made to the Company by Cablex
Electronique Ltd. dated July 8, 1994.
VISAT NOTE WARRANTS
ICCA has outstanding warrants (the "VISAT Note Warrants") to purchase an
aggregate of 200,000 shares of Common Stock at an exercise price of $3.50 a
share. The VISAT Note Warrants were issued in connection with a loan to ICCA
dated May 2, 1995.
BRIDGE WARRANTS
The Company has outstanding warrants (the "Bridge Warrants") to purchase an
aggregate of 95,000 shares of Common Stock at exercise prices between $2.56 and
$3.06 per share. The Bridge Warrants were issued in connection with the Bridge
Notes.
UNIT WARRANTS
The Company has outstanding Unit Warrants to purchase an aggregate of
5,250,000 shares of Common Stock. The Unit Warrants were issued pursuant to a
Unit Warrant Agreement (the "Unit Warrant Agreement") between the Company and
State Street Bank and Trust Company, as Unit Warrant Agent (the "Unit Warrant
Agent"), a copy of which is available for inspection at InterAmericas
Communication Corporation, 1221 Brickell Avenue, Suite 900, Miami, Florida
33131, Attn: Chief Financial Officer. The following summary of certain
provisions of the Unit Warrant Agreement does not purport to be complete and is
qualified in its entirety by reference to the Unit Warrant Agreement, including
the definitions therein of certain terms used below.
General
Each Unit Warrant, when exercised, will entitle the holder thereof to
receive one fully paid and non-assessable share of Common Stock of the Company,
par value $.001 per share ("Unit Warrant Share"), at an exercise price of $4.40
per share, subject to adjustment (the "Exercise Price"). The Exercise Price and
the number of Unit Warrant Shares are both subject to adjustment in certain
cases referred to below. The Unit Warrants will entitle the holders thereof to
purchase in the aggregate 5,250,000 Unit Warrant Shares, or approximately 15.2%
of the Company's Common Stock on a fully diluted basis as of the closing of the
Offering.
The Unit Warrants will become exercisable after the Separation Date. Unless
exercised, the Unit Warrants will automatically expire on October 27, 2007 (the
"Expiration Date"). The Company will give notice of expiration not less than 90
and not more than 120 days prior to the Expiration Date to the registered
holders of the then outstanding Unit Warrants. If the Company fails to give such
notice, the Unit Warrants will not expire until 90 days after the Company gives
such notice. In no event will holders be entitled to any damages or other remedy
for the Company's failure to give such notice other than any such extension.
The Unit Warrants may be exercised by surrendering to the Company the
warrant certificates evidencing the Unit Warrants to be exercised with the
accompanying form of election to purchase properly completed and executed,
together with payment of the Exercise Price. Payment of the Exercise Price may
be made (A) by
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tendering Senior Notes having an aggregate principal amount, plus accrued and
unpaid interest, if any, thereon, to the date of exercise equal to the Exercise
Price, (B) by tendering Unit Warrants having a fair market value (as determined
in good faith by the Company's Board of Directors) equal to the Exercise Price
or (C) by a combination of Senior Notes and Unit Warrants. Upon surrender of the
warrant certificate and payment of the Exercise Price, the Company will deliver
or cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole shares of Common Stock to which
the holder is entitled. If less than all of the Unit Warrants evidenced by a
warrant certificate are to be exercised, a new warrant certificate will be
issued for the remaining number of Unit Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Unit Warrants. The Company will pay to the holder of the Unit Warrant at the
time of exercise an amount in cash equal to the current market value of any such
fractional share of Common Stock less a corresponding fraction of the Exercise
Price.
The holders of the Unit Warrants will have no right to vote on matters
submitted to the stockholders of the Company and will have no right to receive
dividends. The holders of the Unit Warrants will not be entitled to share in the
assets of the Company in the event of liquidation, dissolution or the winding up
of the Company. In the event of bankruptcy or reorganization is commenced by or
against the Company, a bankruptcy court may hold \that unexercised Unit Warrants
are executory contracts which may be subject to rejection by the Company with
approval of the bankruptcy court, and the holders of the Unit Warrants may, even
if sufficient funds are available, receive nothing or a lesser amount as a
result of any such bankruptcy case than they would be entitled to if they had
exercised their Unit Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of Common Stock that
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Unit Warrant may be exercised, the holders of the Unit
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
Adjustments
The number of shares of Common Stock purchasable upon exercise of Unit
Warrants and the Exercise Price will be subject to adjustment in certain events
including: (i) the payment by the Company of dividends and other distributions
on its Common Stock in Common Stock, (ii) subdivisions, combinations and
reclassifications of the Common Stock, (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitled them to subscribe for
Common Stock or securities convertible into, or exchangeable or exercisable for,
Common Stock at an offering price (or with an initial conversion, exchange or
exercise price) which is less than the Fair Value per share (as defined) of
Common Stock, (iv) the distribution to all holders of Common Stock of any of the
Company's assets (including cash), debt securities, preferred stock or any
rights or warrants to purchase any such securities (excluding those rights and
warrants referred to in clause (iii) above), (v) the issuance of shares of
Common Stock for a consideration per share less than the Fair Value per share of
Common Stock (excluding securities issued in transactions referred to in clauses
(i) through (iv) above), (vi) the issuance of securities convertible into or
exchangeable for Common Stock for a conversion or exchange price plus
consideration received upon issuance less than the Fair Value per share of
Common Stock (excluding securities issued in transactions referred to in clauses
(i) through (iv) above), and (vii) certain other events that could have the
effect of depriving holders of the Unit Warrants of the benefit of all or a
portion of the purchase rights evidenced by the Unit Warrants.
"Fair Value" per security at any date of determination shall be (l) in
connection with a sale to a party that is not an Affiliate of the Company in an
arm's-length transaction (a "Non-Affiliate Sale"), the price per security at
which such security is sold and (2) in connection with any sale to an Affiliate
of the Company, (a) the last price per security at which such security was sold
in a Non-Affiliate Sale within the three-month
112
<PAGE> 116
period preceding such date of determination or (b) if clause (a) is not
applicable, the fair market value of such security determined in good faith by a
nationally recognized investment banking, appraisal or valuation firm, which is
not an Affiliate of the Company, in each case, taking into account, among all
other factors deemed relevant by the Board of Directors or such investment
banking, appraisal or valuation firm, the trading price and volume of such
security on any national securities exchange or automated quotation system on
which such security is traded.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; provided however, that any adjustment that is not made will be
carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, each Unit Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such consolidation,
merger or sale had the Unit Warrants been exercised immediately prior thereto.
Reservation of Shares
The Company has authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of Common Stock as will be
issuable upon the exercise of all outstanding Unit Warrants. Such shares of
Common Stock, when paid for and issued, will be duly and validly issued, fully
paid and non-assessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issuance thereof.
Amendments
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Unit Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not materially adversely affect the rights of any
holder. Any amendment or supplement to the Warrant Agreement that has a material
adverse effect on the interests of the holders of the Unit Warrants will require
the written consent of the holders of a majority of the then outstanding Unit
Warrants (excluding Unit Warrants held by the Company or any of its Affiliates).
The consent of each holder of the Unit Warrants affected will be required for
any amendment pursuant to which the Exercise Price would be increased or the
number of shares of Common Stock purchasable upon exercise of Unit Warrants
would be decreased (other than pursuant to adjustments provided in the Warrant
Agreement).
Registration Rights
The holders of the Unit Warrants and the Unit Warrant Shares are entitled
to certain rights with respect to the registration of the Unit Warrant Shares
under the Securities Act, including the right to have the Unit Warrant Shares
included in the Registration Statement of which this Prospectus forms a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock and warrant agent for the warrants
(other than the Unit Warrants) is OTC Transfer, Inc., Salt Lake City, Utah.
113
<PAGE> 117
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have outstanding
18,984,300 shares of Common Stock. All of such shares may be sold under Rule
144, subject to the volume and manner of sale limitations contained in Rule 144
and to the lock-up agreement referred to below.
During October 1997, the Company issued 851,162 shares of Common Stock in
connection with the conversion of $1.45 million aggregate principal amount of
its 8% Convertible Debentures, plus related accrued interest and issued 250,620
shares of Common Stock in connection with the conversion of $500,000 aggregate
principal amount of its 7% Convertible Debentures, plus, related accrued
interest.
All of the executive and directors and certain shareholders of ICCA who
will be deemed to beneficially own 8,822,083 shares of Common Stock (including
options to purchase 3,543,333 shares) upon consummation of the Senior Note
Offering have agreed not to sell, otherwise dispose of or pledge any shares of
Common Stock or securities convertible into or exercisable or exchangeable for
such Common Stock for a period of 180 days from the commencement of the Senior
Note Offering without the prior written consent of UBS Securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
within the meaning of Rule 144 ("Restricted Shares") for at least one year, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock and
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
SmallCap market during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding a sale, and
who owns restricted shares that were purchased from the Company (or any
affiliate) at least two years previously, will be entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
No prediction can be made as to the effect, if any, that future sales of
shares, the availability of shares for future sale, or the registration of
substantial amounts of currently restricted shares will have on the market price
of the Common Stock prevailing from time to time. Sales of substantial amounts
of Common Stock in the public market, under Rule 144, pursuant to the exercise
of registration rights or otherwise, and even the potential for such sales,
could have a material adverse effect on the prevailing market price of the
Common Stock and impair the Company's ability to raise capital through the sale
of its equity securities. See "Risk Factors -- Shares Eligible for Future Sale."
114
<PAGE> 118
PLAN OF DISTRIBUTION
The Shares are being offered hereby on behalf of the Selling Stockholders.
Except for the exercise price of the Selling Stockholders' warrants and options,
none of the proceeds from the sale of the Shares by the Selling Stockholders
pursuant to this Prospectus will be received by the Company. The Shares may be
sold or distributed by the Selling Stockholders or by donees, transferees or
pledges of, or the successors in interest to, the Selling Stockholders from time
to time in transactions for their own account, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may change, at market
prices prevailing at the time of sale, at prices relating to such prevailing
market prices or at negotiated prices. The sale of the Shares may be effected in
one or more of the following methods: (i) ordinary brokers' transactions, which
may include long or short sales; (ii) transactions involving cross or block
trades or otherwise on the Nasdaq Stock Market; (iii) purchases by brokers,
dealers or underwriters as principal and resale by such purchasers for their own
accounts pursuant to this Prospectus; (iv) "at the market" to or through market
makers or into established trading markets, including direct sales to purchasers
or sales effected through agents; or (v) any combination of the foregoing, or by
any other legally available means. In addition, the Selling Stockholders or
their successors in interest may enter into hedging transactions with
broker-dealers who may engage in short sales of the Shares in the course of
hedging the position they assume with the Selling Stockholders. The Selling
Stockholders or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus. There can be no assurance that all or any of the Shares will be
issued to, or sold by, the Selling Stockholders.
Brokers-dealers, underwriters or agents participating in the sale of the
Shares may receive compensation in the form of commissions, discounts or
concessions from the Selling Stockholders and/or purchasers of the Shares for
whom such broker-dealers may act as agent, or to whom they may sell as
principal, or both (which compensation to a particular broker-dealer may be less
than or in excess of customary commissions). The Selling Stockholders and any
broker-dealers or other persons who act in connection with the sale of the
Shares hereunder may be deemed to be "Underwriters" within the meaning of the
Securities Act, and any commission they receive and proceeds of any sale of the
Shares may be deemed to be underwriting discounts and commission under the
Securities Act. Neither the Company nor any Selling Stockholders can presently
estimate the amount of such compensation. The Company knows of no existing
arrangements between any Selling Stockholder any other stockholders, broker,
dealer, underwriter or agent relating to the sale or distribution of the Shares.
The Selling Stockholders and any other persons participating in the sale or
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Stockholders or any other such persons. The foregoing may affect the
marketability of the Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify certain of the Selling Stockholders and certain
related persons against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Legal matters with respect to the Common Stock offered hereby will be
passed upon for the Company by Baker & McKenzie, Miami, Florida.
115
<PAGE> 119
EXPERTS
The consolidated financial statements of InterAmericas Communications
Corporation and its subsidiaries as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, included in this
Prospectus, have been so included in reliance on the report (which contains
explanatory paragraphs relating to the terms of transactions and relationships
with related parties described in Note 10 and the removal of the going concern
paragraph included in their original report, after the Company completed a
private debt offering described in Note 15) of Price Waterhouse LLP, independent
certified public accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of Iusatel Chile S.A. as of December 31, 1996 and
1995 and for each of the two years in the period ended December 31, 1996,
included in this Prospectus, have been audited by Langton Clarke y Cia.
Ltda.\Coopers & Lybrand, independent accountants, as stated in their report
appearing herein, and have been so included in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
116
<PAGE> 120
GLOSSARY OF DEFINED TERMS
ATM (Asynchronous Transfer Mode): An information transfer standard that is
one of a general class of packet technologies that relay traffic by way of an
address contained within the first five bytes of a standard 53 byte-long packet
or cell. The ATM format can be used by many different information systems,
including LANs, to deliver traffic at varying rates, permitting a mix of data,
voice and video.
Backbone: Refers to the major fiber cable carrying the accumulated
transmissions of many businesses connected to a network system. Similar to a
water main, the backbone is the high volume conduit for transmissions input by
multiple smaller connections (last-mile connections) from business offices.
Bandwidth: The range of frequencies that can be passed through a medium,
such as glass fibers, without distortion. The greater the bandwidth, the greater
the information carrying capacity of such medium. For fiber optic transmission,
electronic transmitting devices determine the bandwidth, not the fibers
themselves.
CAP (Competitive Access Provider): A company that provides its customers
with an alternative to the local telephone company for local transport of
private line, special access telecommunications services and switched access
services. CAPs are also referred to in the industry as alternative access
vendors, alternative local telecommunications service providers (ALTS) and
metropolitan area network providers (MANs).
Carrier's carrier: Refers to a telecommunications network that provides
wholesale telecommunications transmission to other major telecommunications
networks such as long distance, local and cellular telephone companies.
Centrex: Refers to the switching capability provided by a telephone
company's central office to a customer over telephone lines on a subscription
basis. Centrex allows a customer to receive such services as intra-office call
routing and voice mail from a telephone company's switch, thereby avoiding the
purchase of a private switch known as PBX.
CLEC (competitive local exchange carrier): A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CTC: Compania de Telefonos de Chile, S.A., the PTT of Chile which was
privatized in 1987.
Dedicated lines: Telecommunications lines reserved for use by particular
customers along predetermined routes (in contrast to telecommunications lines
within the local telephone PTT's public switched network).
Digital: Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission and switching
technologies employ a sequence of these pulses to represent information, as
opposed to the continuously variable analog signal. The precise digital numbers
preclude any distortion (such as graininess or snow, in the case of video
transmission, or static or other background distortion, in the case of audio
transmission).
Drop and insert: Refers to a network's capability to share capacity among
users without dedicating any fiber strand to a single end user.
Earth station: A parabolic antenna and associated electronics for
receiving or transmitting satellite signals.
Enhanced services: Refers to private line services, and LAN and WAN
connectivity services.
Entel: Empresa Nacional de Telefonos, S.A. Privatized in 1989, Entel has
historically been Chile's national long distance company. Under the Multicarrier
Agreement, Entel is now licensed to provide all types of telecommunications
services within Chile.
117
<PAGE> 121
ESN (Enhanced Services Network): The name used to describe the
communication services providing digital connectivity, primarily for data
applications via frame relay, ATV, or digital interexchange private line
facilities.
Fiber optics: Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. Fiber optic cable
currently is the medium of choice for the telecommunications and cable
industries. Fiber is resistant to electrical interference and many environmental
factors that affect copper wiring and satellite transmission.
Frame relay: A form of data communications packet switching that uses
smaller packets and requires less error checking than traditional technologies
such as X.25 or SNA. Frame Relay is used in wide area networks to interconnect
LANs and computer systems. Frame Relay was designed to operate at higher speeds
on modern fiber optic networks.
Gateway Switch: A switch which is used to establish connection with other
carriers.
GHz or Gigahertz: A unit of frequency equal to one billion cycles or hertz
per second.
ILEC (incumbent local exchange carrier): The name used to describe a
company which is the principal local exchange carrier.
Interconnection: Interconnection of facilities between or among local
exchange carriers, including potential physical collocation of one carrier's
equipment in the other carrier's premises to facilitate such interconnection.
ISP (Internet Service Provider): The name used for those companies which
provide its subscribers with access to the Internet.
Internet: The name used to describe the global open network of computers
that permits a person with access to exchange information with any other
computer connected to the network.
LAN (Local Area Network): Refers to the interconnection of computers for
the purpose of sharing files, programs and printers. LANs may include dedicated
computers or file servers that provide a centralized source of shared files and
programs.
Last mile: A shorthand reference to the last section of a
telecommunications path to the ultimate end-user which may be less than or
greater than one mile.
LEC (local exchange carrier): A company providing local telephone
services.
Long distance carriers (interexchange carriers): Long distance carriers
provide services between local exchanges on an interstate or intrastate basis. A
long distance carrier may offer services over its own or another carrier's
facilities.
Long exchange services: Services provided within a geographic area
determined by the appropriate state regulatory authority which calls are
transmitted without toll charges to the calling or called party.
Ministry of Transportation and Telecommunications: Chile's government body
which, through the Undersecretariat of Telecommunications, is responsible for
regulating and registering all telecommunications equipment and services. Its
role is equivalent to that of the Federal Communications Commission in the
United States.
Ministry of Transportation, Communications, Housing and Construction: The
Peruvian government entity with the authority to regulate telecommunications and
with the authority to grant concessions and licenses for telecommunications
service providers such as the Company.
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<PAGE> 122
Multicarrier Agreement: The legislation passed by Chile's Ministry of
Telecommunications in 1994 which opens Chile's long distance market to
competition while temporarily limiting the market share in that market which may
be held by the CTC.
Node: Devices on a network that demand or supply services or where
transmission paths are connected.
PBX (private branch exchange): A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
PDH (Plesiochronous Digital Hierarchy): Refers to a digital transmission
system that operates as a Time Division Multiplexing (TDM) system by combining
multiple signals of 2 Mbit/s through the use of a multiplexor that operates by
adding "dummy" bits (otherwise known as justification bits). The justification
bits are recognized as such when multiplexing occurs, and discarded as original
signals. This process is known as plesiosynchronous operation. The use of
plesiosynchronous operation has led to the adoption of the term
plesiosynchronous digital hierarchy, or PDH.
POPs (points of presence): Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PTT (Public Telephone and Telegraph): A government or privately-owned
monopoly carrier of telecommunications services or having a dominant market
share such as CTC.
Private Line: Refers to a private, dedicated telecommunications connection
between different locations (excluding long distance carriers' POPs).
Public switched network: Refers to traditional public (not dedicated) LEC
networks that switch calls between different customers.
Redundant electronics: Describes a telecommunications facility using two
separate electronic devices to transmit the telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.
Right-of-way: Rights negotiated with the appropriate entity, such as a
utility company or transportation agency, to secure access to poles, ducts,
conduits or subway tunnels, as the case may be, to install the fiber optic
lines.
SONET (Synchronous Optical Network Technology): Refers to a set of
standards for optical communications transmission systems that define the
optical rates and formats, signal characteristics, performance, management and
maintenance information to be embedded within the signals and the multiplexing
techniques to be employed in optical communications transmission systems. SONET
facilitates the interoperability of dissimilar vendors equipment. SONET benefits
business customers by minimizing the equipment necessary for various
telecommunications applications and supports networking diagnostic and
maintenance features. Allows selective adding and dropping of signals.
Switch: A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is the process of
interconnecting circuits to form a transmission path between users.
Switched services: Refers to transportation of switched traffic along
dedicated lines between the local telephone company's central offices and the
long distance carrier's POPs.
SDH (Synchronous digital hierarchy): An open standard for signals used in
optical fiber networks. It provides a basic data transport format that can be
used for all types of digital information (voice, video, data, facsimile and
graphics) and is used internationally. The specified base rate is 51.48 MBPS
(called synchronous transport signal level 1, or STS-1), and specifications
exist for data speeds up to 2.4 Gbps.
Teleport: Refers to a facility capable of transmitting and receiving
satellite signals for other users.
119
<PAGE> 123
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERAMERICAS COMMUNICATIONS CORPORATION
Report of Independent Certified Public Accountants..... F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996 (audited) and September 30, 1997 (unaudited)..... F-3
Consolidated Statements of Operations for the years
ended December 31, 1994, 1995 and 1996 (audited) and
the nine months ended September 30, 1996 and 1997
(unaudited)........................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996 (audited)
and the nine months ended September 30, 1997
(unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1995 and 1996 (audited) and
the nine months ended September 30, 1996 and 1997
(unaudited)........................................... F-6
Notes to Consolidated Financial Statements............. F-7
IUSATEL CHILE S.A.
Report of Independent Accountants...................... F-28
Balance Sheets at December 31, 1995 and 1996 and
September 30, 1997.................................... F-29
Statements of Income for each of the two years ended
December 31, 1995 and 1996 and the nine month periods
ended September 30, 1996 and 1997..................... F-30
Statements of Changes in Financial Position for each of
the two years ended December 31, 1996 and the nine
month period ended September 30, 1996................. F-31
Statements of Cash Flows for each of the two years
ended December 31, 1995 and 1996 and the nine month
period ended September 30, 1996 and 1997.............. F-32
Notes to Financial Statements.......................... F-33
Ch$ = Chilean pesos
ThCh$ = Thousands of Chilean pesos
US$ = United States dollars
ThUS$ = Thousands of United States dollars
U.F. = The Unidad de Fomento, or U.F., is an inflation-indexed,
peso denominated monetary unit used in Chile. The U.F. rate
is set daily in advance based on the change in the Chilean
Price Index of the previous month.
</TABLE>
F-1
<PAGE> 124
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of InterAmericas Communications Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
InterAmericas Communications Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards 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
audits provide a reasonable basis for the opinion expressed above.
As described in Note 15, the Company completed a private debt offering
subsequent to April 11, 1997. The Company believes that the capital raised
pursuant to the private debt offering will improve the Company's financial
condition to a level at which the Company is expected to meet its foreseeable
cash needs. Accordingly, the going concern paragraph included in our original
report has been removed.
As described in Note 10, the Company has transactions and relationships
with related parties. Because of these relationships, it is possible that the
terms of these transactions may not be the same as those that would result from
transactions among wholly unrelated parties.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
April 11, 1997
(Except for Note 15,
for which the date
is October 27, 1997)
F-2
<PAGE> 125
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 57 $ 723 $ 299
Restricted bank deposits................................ -- -- 164
Accounts receivable..................................... 8 113 76
Other receivables....................................... 7 97 80
Prepaid expenses........................................ 119 330 467
Due from related parties................................ 93 26 27
Other current assets.................................... 4 38 29
------- -------- ----------
Total current assets............................ 288 1,327 1,142
Property and equipment at cost, net....................... 2,885 3,956 5,956
Intangible assets, net.................................... 1,166 5,029 4,826
Deferred financing costs and other........................ 8 42 1,797
------- -------- ----------
Total assets.................................... $ 4,347 $ 10,354 $ 13,721
======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank lines of credit and Bridge Notes................... $ -- $ -- $ 1,407
8% Convertible debentures, net of original issue
discount............................................. -- -- 532
7% Convertible debentures, net of original issue
discount............................................. -- -- 861
Accounts payable........................................ 342 299 2,700
Accrued expenses........................................ 536 674 282
Due to related parties.................................. 779 416 47
Notes payable, including $634 to related parties in
1995................................................. 1,647 -- --
Lease obligations, current.............................. 11 114 45
Other current liabilities............................... -- 171 85
------- -------- ----------
Total current liabilities....................... 3,315 1,674 5,959
Lease obligations, less current portion................... 210 248 463
Deferred income taxes..................................... 152 152 152
------- -------- ----------
Total liabilities............................... 3,677 2,074 6,574
------- -------- ----------
Commitments and contingencies............................. -- -- --
------- -------- ----------
Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000
shares, none issued
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding as of December 31,
1995 and 1996 and September 30, 1997, 16,152,518 and
18,984,300 shares, respectively...................... 12 16 19
Additional paid in capital.............................. 6,153 18,493 27,026
Warrants................................................ -- -- 298
Accumulated deficit..................................... (5,525) (10,151) (20,044)
Cumulative translation adjustments...................... 30 (78) (152)
------- -------- ----------
Total stockholders' equity...................... 670 8,280 7,147
------- -------- ----------
Total liabilities and stockholders' equity...... $ 4,347 $ 10,354 $ 13,721
======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 126
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................ $ 34 $ 224 $ 652 $ 477 $ 853
---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of sales...................... 163 408 958 618 942
Selling, general and administrative
expenses........................ 1,968 1,918 3,345 2,154 7,651
Depreciation and amortization...... 76 396 706 518 658
---------- ---------- ---------- ---------- ----------
2,207 2,722 5,009 3,290 9,251
---------- ---------- ---------- ---------- ----------
Loss from operations................. (2,173) (2,498) (4,357) (2,813) (8,398)
Interest expense..................... (313) (319) (246) (96) (1,543)
Interest income...................... 1 10 80 36 48
Other income......................... (46) (66) (103) (11) --
---------- ---------- ---------- ---------- ----------
Net loss............................. $ (2,531) $ (2,873) $ (4,626) $ (2,884) $ (9,893)
========== ========== ========== ========== ==========
Net loss per share................... $ (1.30) $ (.31) $ (.31) $ (.20) $ (.61)
========== ========== ========== ========== ==========
Weighted average common shares
outstanding........................ 1,952,000 9,407,000 14,795,660 14,345,509 16,170,296
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 127
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE ACCRUED
-------------------- PAID-IN ACCUMULATED TRANSLATION DISTRIBUTIONS
SHARES AMOUNTS CAPITAL DEFICIT ADJUSTMENTS AND WARRANTS TOTAL
---------- ------- ---------- ----------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993........... 19,302 $ -- $ 676 $ (121) $ (80) $ -- $ 475
Recapitalization of HSI shares and
other................................. 331,008 -- 488 -- -- -- 488
Common stock issued in private
placements............................ 315,714 -- 1,002 -- -- -- 1,002
Conversion of debt...................... 4,500,000 5 197 -- -- -- 202
Issuance of notes payable for purchase
of common stock of HSI................ -- -- -- -- -- (6,088) (6,088)
Stock issued for consulting services.... 1,150,000 1 274 -- -- -- 275
Currency translation adjustment......... -- -- -- -- 66 -- 66
Net loss................................ -- -- -- (2,531) -- -- (2,531)
---------- ---- ------- -------- ----- ------- -------
Balances at December 31, 1994........... 6,316,024 6 2,637 (2,652) (14) (6,088) (6,111)
Common stock issued in private
placements............................ 635,761 1 1,962 -- -- -- 1,963
Conversion of debt...................... 4,888,900 5 1,126 -- -- 6,088 7,219
Stock issued for acquisitions........... 111,000 -- 400 -- -- -- 400
Imputed interest on related party
notes................................. -- -- 16 -- -- -- 16
Stock option grants..................... -- -- 12 -- -- -- 12
Currency translation adjustment......... -- -- -- -- 44 -- 44
Net loss................................ -- -- -- (2,873) -- -- (2,873)
---------- ---- ------- -------- ----- ------- -------
Balances at December 31, 1995........... 11,951,685 12 6,153 (5,525) 30 -- 670
Common stock issued in private
placements............................ 1,939,042 2 7,430 -- -- -- 7,432
Conversion of debt...................... 1,011,791 1 1,985 -- -- -- 1,986
Stock issued for acquisitions........... 1,250,000 1 2,812 -- -- -- 2,813
Imputed interest on related party
notes................................. -- -- 40 -- -- -- 40
Stock option grants..................... -- -- 73 -- -- -- 73
Currency translation adjustment......... -- -- -- -- (108) -- (108)
Net loss................................ -- -- -- (4,626) -- -- (4,626)
---------- ---- ------- -------- ----- ------- -------
Balances at December 31, 1996........... 16,152,518 16 18,493 (10,151) (78) -- 8,280
Warrants to purchase common stock
(Unaudited)........................... -- -- -- -- -- 298 298
Beneficial conversion features related
to convertible debentures
(Unaudited)........................... -- -- 810 -- -- -- 810
Currency translation adjustment
(Unaudited)........................... -- -- -- -- (74) -- (74)
Conversion of debt (Unaudited).......... 1,101,782 1 1,993 -- -- -- 1,994
Stock issued to certain officers and
former directors (Unaudited).......... 1,350,000 1 4,639 -- -- -- 4,640
Stock issued for financial assistance
and extinguishment of liability to
related parties (Unaudited)........... 380,000 1 1,091 -- -- -- 1,092
Net loss (Unaudited).................... -- -- -- (9,893) -- -- (9,893)
---------- ---- ------- -------- ----- ------- -------
Balances at September 30, 1997
(Unaudited)........................... 18,984,300 $ 19 $27,026 $(20,044) $(152) $ 298 $ 7,147
========== ==== ======= ======== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 128
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(2,531) $(2,873) $(4,626) $(2,884) $(9,893)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.......... 76 396 706 518 658
Amortization of deferred financing costs and
original issue discounts..................... -- -- -- 216 91
Beneficial conversion features on convertible
debentures................................... -- -- -- -- 810
Capitalized interest related to network
construction................................. -- -- -- -- (600)
Services exchanged for common stock............ 275 12 73 -- 852
Non-cash compensation and consulting expense... 4,640
Interest converted to equity................... -- 183 49 -- --
Changes in assets and liabilities:
Accounts receivable.......................... (9) (70) (105) (272) 37
Due from related parties..................... -- -- (73) -- (1)
Other receivables............................ -- -- -- -- 17
Prepaid expenses............................. (221) 167 (217) -- (137)
Other current assets......................... 304 35 93 (127) 9
Other assets................................. (69) 76 (53) -- --
Accounts payable and accrued expenses........ 1,563 (4) 299 (950) 297
Due to related parties....................... 112 (66) (251) -- (129)
Other current liabilities.................... 11 -- 171 28 (86)
Deferred taxes............................... -- (6) -- -- --
------- ------- ------- ------- -------
Cash used in operating activities......... (489) (2,150) (3,934) (3,471) (3,435)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............... (1,849) (720) (1,453) (334) (1,855)
Acquisition of Visat............................. (200) (450) -- -- --
Acquisition of Hewster........................... -- -- (1,515) (1,500) --
------- ------- ------- ------- -------
Cash used in investing activities......... (2,049) (1,170) (2,968) (1,834) (1,855)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock......................... 1,490 1,963 7,430 7,443 --
Proceeds from issuance of convertible
debentures..................................... -- -- -- -- 3,500
Net proceeds from issuance of (repayments to)
notes payable and Bridge Notes................. 1,067 893 (1,061) 203 950
Deferred financing costs and other............... -- -- -- 51 --
Proceeds from bank line of credit, net of
restricted bank deposits....................... -- -- -- -- 343
Additions to notes payable to related party...... 92 407 1,232 -- --
(Payments under) proceeds from leasing
obligations.................................... -- -- (31) -- 147
------- ------- ------- ------- -------
Cash provided by financing activities..... 2,649 3,263 7,570 7,697 4,940
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 111 (57) 668 2,392 (350)
Effect of exchange rate changes on cash............ -- -- (2) 57 (74)
Cash and cash equivalents at beginning of year..... 3 114 57 57 723
------- ------- ------- ------- -------
Cash and cash equivalents at end of year........... $ 114 $ 57 $ 723 $ 2,506 $ 299
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 129
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
1. ORGANIZATION AND BUSINESS
InterAmericas Communications Corporation ("the Company") and is a new
provider of telecommunications services over a fiber optic network in Santiago,
Chile, and holds international long distance services and satellite
communication concessions and licenses. The Company is currently integrating the
Santiago fiber-loop and satellite station. During 1996 the Company acquired a
telecommunications concession in Peru and commenced operations in Lima. The
Company operates in Chile as Hewster Chile, S.A. ("Hewster") and VISAT S.A.
("Visat") and in Peru as Red de Servicios de Telecomunicaciones, S.A.
("Resetel"). During the three years ended December 31, 1996, the Company has
only generated revenues from Hewster.
The Company is the successor to Theodore Games, Inc. ("TGI"), a "public
shell," which acquired Hewster Servicios Intermedios, S.A. ("HSI") on July 15,
1994 (Note 4). The acquisition of HSI was treated for accounting purposes as a
reverse acquisition as if HSI acquired TGI; accordingly, the historical
financial statements are those of HSI. TGI was originally incorporated in the
State of Nevada in 1989 for the purpose of marketing a copyrighted board game.
On June 28, 1994, the stockholders of TGI approved a 7.025 to 1 reverse stock
split, which resulted in the reduction of outstanding shares of common stock
from 1,405,000 shares, par value $.001 to 200,000 shares, par value $.001. On
July 15, 1994, Maroon Bells Capital Partners, Inc. ("MBCP") acquired from TGI's
stockholders, 150,000 shares of common stock of TGI representing 75% of the
issued and outstanding stock of TGI for $90. Effective July 31, 1994, the
Company sold its board game business. In September 1994, HSI acquired Visat S.A.
(Note 4). Effective October 5, 1994, TGI changed its state of incorporation from
Nevada to Texas and its name to InterAmericas Communications Corporation.
During the three years ended December 31, 1996 the Company concentrated its
efforts on the installation of fiber optic cable, raising capital and acquiring
rights to erect and operate satellite earth stations. The Company has developed
a long-term financial plan to address future cash flow needs which contemplates
significant debt and equity financings (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the accompanying
consolidated financial statements follows:
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The future recoverability of its investments is contingent upon the
Company's ability to complete its construction of fiber optic networks and to
establish an effective marketing plan that will enable it to generate revenues
in its competitive environment. Given the uncertainties surrounding these
matters, as well as the Company's limited operations to date, it is not
presently known whether the Company's investments in Hewster, Visat and Resetel
will ultimately be recoverable. No adjustment has been recorded in the
accompanying financial statements regarding the recoverability of invested
amounts. The Company continu-
F-7
<PAGE> 130
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
ously evaluates the recoverability of its long lived assets, and provides for
impairment at the time which, in management's judgment, the asset is impaired.
CASH AND CASH EQUIVALENTS
The Company considers all certificates of deposit and highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized as service is provided in accordance with contracts
with customers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repair
expenditures are expensed as incurred and expenditures for improvements which
increase the expected useful lives of the assets are capitalized.
Depreciation expense is computed using the straight line method over the
estimated useful lives of the related assets.
INTANGIBLE ASSETS
Long-lived assets are reviewed by management for impairment whenever events
or changes in circumstances indicate that the projected cash flows of related
activities may not provide for cost recovery.
Goodwill relating to the acquisition of Hewster is being amortized using
the straight line method over the estimated useful life of ten years.
Satellite transmission rights acquired in the acquisition of Visat consist
of permits and concessions granted by the Chilean governmental authorities. The
amortization will be calculated using the straight-line method over their
estimated remaining useful lives, approximately ten years.
The concession acquired by Resetel, which was granted by the Peruvian
governmental authorities to operate a fiber optic network in Peru, is being
amortized using the straight line method over the life of the concession, which
is twenty years.
NET LOSS PER SHARE
All share and per share data presented in the financial statements reflect
the retroactive effects of the 7.025 to 1 reverse stock split which occurred on
June 28, 1994. The computation of net loss per share of common stock is computed
by dividing net loss for the year by the weighted average number of shares
outstanding during the year. Antidilutive common stock equivalents are excluded
from the calculation.
F-8
<PAGE> 131
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
COMMON STOCK EXCHANGED FOR OTHER THAN CASH
Common stock exchanged for services and as inducements to make loans have
been recorded as consulting expense or interest expense and additional paid in
capital at the estimated fair value of the common stock as determined by the
Board of Directors of the Company.
INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
STOCK BASED COMPENSATION
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 establishes a fair value based method of accounting for stock based
compensation, the effect of which can either be recorded or disclosed. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and is providing proforma
disclosure of net income and earnings per share as if the fair value based
method prescribed by SFAS 123 had been applied in measuring compensation expense
for options granted in 1996 and 1995. In accordance with APB 25 compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated at end-of-period rates of exchange.
Income, expense and cash flows are translated at weighted average rates of
exchange for the period. The resulting currency translation adjustments are
accumulated and reported as a component of stockholders' equity. The effect of
foreign exchange rates on the consolidated statements of operations and of cash
flows is not significant.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements were reclassified to
conform with the 1996 presentation.
3. FINANCIAL CONDITION
The Company has developed a long-term financial plan to address future cash
flow needs. The plan contemplates significant debt and equity financings to
continue the development of the Chilean and Peruvian telecommunications system
and for working capital. In February 1995, the Company completed a private
placement equity offering which generated net proceeds of approximately $3.0
million. In March and August of 1996, the Company completed private placement
equity offerings of $1.1 million and $6.4 million, respectively. These proceeds
have been used to continue construction and development of the Chilean
telecommunication system, acquire Visat and Hewster, S.A. and provide working
capital. Also in 1996, the Company converted $2 million of debt to equity. The
Company expects that additional financing will be
F-9
<PAGE> 132
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
obtained in the near future; however, no assurance can be given that the
financing will be obtained and the nature of the terms of such financing.
The Company has sustained recurring losses and negative cash flow from
operations and has a net working capital deficiency that raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
4. ACQUISITIONS
ACQUISITION OF HSI
On July 15, 1994, Theodore Games, Inc. ("TGI"), a public shell, now
InterAmericas Communications Corporation, acquired 99.9% of the outstanding
common stock of Hewster Servicios Intermedios, S.A., a Chilean Corporation
controlled by the Company's former President and Chairman of the Board. The
acquisition was effected through the issuance by TGI of two notes to the major
stockholders of HSI in exchange for 99.9% of the issued and outstanding common
stock of HSI. One of the notes, in the amount of $3,112, was convertible into
2.3 million shares of common stock of the Company and the second note, in the
amount of $6,088, was convertible into 4.5 million shares. This $6,088
convertible note was recorded at December 31, 1994 as a liability and as a
reduction of stockholders' equity as "accrued distribution". Effective September
30, 1994, the first note was converted and effective June 30, 1995 the second
note was converted. The former holders of the notes are currently directors of
the Company.
The acquisition of HSI was accounted for as a reverse acquisition,
resulting in HSI acquiring the Company, for accounting purposes, and the
recapitalization of HSI. The Company's negative net worth at the date of
acquisition was $8, represented by assets of $317 and liabilities of $325. The
historical stockholders' equity of HSI was restated for the equivalent number of
shares of TGI's stock outstanding.
ACQUISITION OF VISAT
Effective September 23, 1994, the Company acquired 11 of the 20 issued and
outstanding common shares of Visat for $200. Visat holds a government concession
to provide intermediate telecommunication services, including the installation
and operation of a network of up to 12 satellite earth stations, throughout
Chile. The Company and an officer of the Company and the remaining shareholder
of Visat also entered into an agreement, effective September 1994, whereby the
Company and the officer of the Company agreed to acquire the 9 remaining
outstanding shares of common stock of Visat for $900 ($850 for the Company and
$50 for the officer), payable during 1995. During 1995, the Company paid $450 in
cash and the remaining $400 was satisfied on June 30, 1995 by the issuance of
111,000 shares of common stock. Visat had no operations and no assets other than
a government concession to provide intermediate telecommunication services. The
acquisition is being accounted for under the purchase method of accounting. The
total cost of the acquisition of Visat totaled $1,050 and is included as part of
intangible assets in the accompanying consolidated balance sheet.
ACQUISITION OF RESETEL
Pursuant to a stock purchase agreement dated May 7, 1996, the Company
acquired 100% of the issued and outstanding stock of Resetel, a Peruvian
corporation, in exchange for 1,250,000 shares of Common Stock of the Company. In
addition, the Company paid debts owed to the shareholders and others in the
amount of
F-10
<PAGE> 133
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
approximately $300. The purchase price of approximately $2,819, (including $6 of
capitalized acquisition costs), net of cash acquired of approximately $300, has
been substantially allocated to a concession and is included as part of
intangibles in the accompanying consolidated balance sheet. The acquisition has
been accounted for under the purchase method of accounting. A fair value of
$2.25 was assigned to each share issued to the shareholders of Resetel based on
the net proceeds per share in the March 1996 private placement.
Resetel obtained a local carrier concession to operate a fiber-optic
telecommunications network serving corporate customers in metropolitan Lima,
Peru and the port city of Callao. The Company has commenced the construction and
operation of the fiber-optic network in Peru.
Effective May 1, 1996 the Company has consolidated the financial position,
results of operation and cash flows of Resetel. Resetel results of operations
for the year ended December 31, 1995 and for the four months ended April 30,
1996 were not significant.
ACQUISITION OF HEWSTER, S.A.
On July 31, 1996 the Company's wholly owned subsidiary, Hewster Servicios
Intermedios, S.A. acquired 99% of Hewster, S.A. ("HSA") for $1,500. Hewster,
S.A. was a Chilean corporation controlled by the Company's former President and
Chairman of the Board.
On September 2, 1996, the Company paid $15 to the former Chairman of the
Board of Directors for the acquisition of the remaining 1% of the outstanding
stock of Hewster. The combined entity is operating under the name of Hewster
Chile, S.A.
The acquisition has been accounted for under the purchase method of
accounting. The estimated fair value of net assets acquired amounted to
approximately $183. The excess of cost over the fair value of net assets
acquired in the amount of $1,332 was recorded as goodwill and is included as
part of intangibles in the accompanying consolidated balance sheet. Effective
July 31, 1996, the Company has consolidated the financial position, results of
operation and cash flows of HSA. HSA's result of operations for the year ended
December 31, 1995 and for the seven months ended July 31, 1996 were not
significant.
F-11
<PAGE> 134
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Fiber optic network......................................... $2,781 $2,868
Office space -- capital lease............................... 218 209
Office equipment, including $0 in 1995 ($311 in 1996) under
capital leases............................................ 117 566
Furniture and fixtures...................................... 34 62
Motor vehicles, including $0 in 1995 ($13 in 1996) under
capital leases............................................ -- 114
Equipment pending installation and construction in
progress.................................................. -- 1,021
Other....................................................... 117 56
------ ------
3,267 4,896
Less: accumulated depreciation, including $9 in 1995 ($132
in 1996) under capital leases............................. (382) (940)
------ ------
$2,885 $3,956
====== ======
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Satellite transmission rights............................... $1,166 $1,166
Concession.................................................. -- 2,819
Goodwill.................................................... -- 1,289
------ ------
1,166 5,274
Less: accumulated Amortization.............................. -- (245)
------ ------
$1,166 $5,029
====== ======
</TABLE>
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Accrued expenses consist of:
Purchases of telecommunication equipment.................... $ 14 $ 376
Professional fees........................................... 85 63
Interest.................................................... 80 83
Salaries.................................................... 67 14
Travel...................................................... -- 17
Other....................................................... 290 121
------ ------
$ 536 $ 674
====== ======
</TABLE>
F-12
<PAGE> 135
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
8. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Promissory note payable to unrelated party, dated May 2,
1995, bearing interest at 8% per annum, due May 1, 1996.
This note is secured by the shares of common stock of HSI
owned by the Company, the shares of VISAT owned by HSI,
and all of the assets of HSI. As part of this note, the
Company issued the note holder warrants to purchase
200,000 shares of common stock of the Company at $3.50 per
share. This note, plus accrued interest, was paid on March
15, 1996.................................................. $1,000 $ --
Promissory note payable to Laura Investments, Ltd (a company
wholly-owned by the former President and Chairman of the
Board), dated September 30, 1995, bearing interest at 6%
per annum. This note, plus accrued interest, was converted
into shares of common stock of the Company as described
below..................................................... 115 --
Promissory note payable to Laura Investments, Ltd, dated
December 31, 1995, bearing interest at 6% per annum. This
note, plus accrued interest, was converted into shares of
common stock of the Company as described below............ $ 284 $ --
Unsecured promissory note payable on demand, dated November
8, 1994, bearing interest at 6% per annum through June 30,
1995, and the lesser of 12% or the highest rate allowed by
applicable law, thereafter. This note, plus accrued
interest, was converted into shares of common stock of the
Company as described below................................ 35 --
Notes payable to MBCP: On June 1, 1994 MPCB loaned the
Company $300 pursuant to a convertible secured promissory
note. MBCP assigned the note as described in Note 10. The
note bears interest at 8% per annum and is due June 30,
1996. A portion of the note ($100) was converted into 1.7
million shares of common stock of the Company on September
23, 1994 upon the completion of the HSI acquisition. The
remaining $200, plus accrued interest, was converted into
shares of common stock as described below................. 200 --
Other notes payable......................................... 13 --
------ ------
$1,647 $ --
====== ======
</TABLE>
On July 8, 1994 the Company borrowed $1,000 through bridge loan financings
from Cabelex Electronique, Ltd. and Teleport Chile, Inc. The bridge loans bear
interest at 7% per annum and are due June 1, 1996. As an inducement to make the
loans, the Company also issued an aggregate of 500,000 shares of restricted
common stock valued at $.20 per share.
Cabelex Electronique, Ltd. transferred its interest in the $1,000 bridge
loan described above to Teleport and the outstanding principal plus accrued
interest at July 1, 1995, of $781 was converted into 388,900 shares of common
stock and the Company issued to Teleport warrants to purchase 388,900 shares of
common stock at $3.00 per share or the price at which any common stock of the
Company is offered for sale pursuant to a private placement, public offering, or
other financing during the outstanding term of this warrant. The Teleport
warrants expire on June 30, 1998. The Company attributed no value to the
warrants given the financial condition of the Company at the time.
F-13
<PAGE> 136
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
In 1996, several loans from related parties were converted to shares of the
Company's common stock in accordance with the respective loan agreements, as
follows:
<TABLE>
<CAPTION>
INTEREST CONVERSION CONVERSION SHARES
PRINCIPAL INTEREST LOAN DATE RATE DATE PRICE ISSUED
--------- -------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LAURA INVESTMENTS:
Promissory note payable....................... $ 115 9/30/95 6% 3/31/96 $1.87 61,499
Promissory note payable....................... 284 12/31/95 6% 3/31/96 1.96 144,770
Promissory note payable....................... 1,233 3/31/96 6% 3/31/96 1.96 628,980
Interest on promissory note -- 9/30/95........ $ 3 1.87 1,865
Interest on promissory note -- 9/30/95........ 4 1.96 2,171
MBCP:
Convertible note payable...................... $ 200 7/01/94 8% 3/01/96 $2.25 88,888
Ted Swindells note payable.................... 35 11/08/94 6% 1/01/96 1.75 20,000
Accounts payable.............................. 81 Various 0% 3/01/96 1.75 46,515
Interest on notes payable..................... $30 1.75 17,103
---------
1,011,791
=========
</TABLE>
9. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In anticipation of the HSI acquisition, the Board of Directors granted, in
1994, stock options to three key executives to each purchase 100,000 shares of
common stock at a purchase price of $.35 per share, which was no less than the
estimated fair value of the common shares as determined by the Board of
Directors. The options are fully vested and expire in 2004. Subsequently, of the
three, two key executives terminated their relationship with the Company and
200,000 options were cancelled.
Under the terms of employment agreements dated August 1, 1994, three key
executives were granted options to purchase 350,000, 250,000 and 135,000 shares
of common stock, respectively, all at $2.50 per share, which was no less than
the estimated fair value of the common shares as determined by the Board of
Directors. Subsequently, two key executives terminated their relationship with
the Company and 600,000 of the options were cancelled.
On August 1, 1994, the Board of Directors granted one employee options to
purchase 65,000 shares of common stock and another employee options to purchase
15,000 shares of common stock at a purchase price of $2.50 per share, which was
no less than the fair value of the common shares as determined by the Board of
Directors. Options to purchase 50,000 shares of common stock vest monthly over a
three year period and expire on July 31, 2004. The remaining options to purchase
30,000 shares of common stock vest immediately on the date of grant.
On August 1, 1994, for serving on the Board of Directors, options were
granted to each of the four directors to purchase 50,000 shares of common stock
at a purchase price of $2.50 per share, which was no less than the fair value of
the common shares as determined by the Board of Directors. In addition, each
director who served on a committee also received options to purchase an
additional 15,000 shares at $2.50 per share. Six directors serving on a
committee received options to purchase 90,000 shares of common stock. The
options vested immediately on the date of grant.
Effective in September 1994, the Board of Directors and a majority of the
stockholders of the Company approved a Long-term Incentive Plan (the "Plan") for
key employees. The Plan authorizes grants of incentive stock options,
non-qualified stock options and stock equivalents. On December 19, 1995, the
Board of
F-14
<PAGE> 137
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
Directors approved a stock option plan for directors for the years 1995 and
1996. Under this plan the Board, in 1995, granted to each director options to
purchase 10,000 shares and to certain directors additional options were given to
purchase from 90,000 to 150,000 shares of common stock of the Company at a price
based upon the preceding ten day moving average of the closing price of the
stock at December 19, 1995, which was $1.96 per share. The total number of
options granted under the Plan in 1995 was 840,000 options.
On December 19, 1995, the Board of Directors approved the issuance to
outside consultants options to acquire 120,000 shares of common stock of the
Company at a price based upon the preceding ten day moving average of the
closing price of the stock at December 19, 1995, which was $1.96 per share. The
related estimated fair market value of these options ($12) was expensed in 1995.
On March 14, 1996, the Board of Directors granted to five directors and an
underwriter options to purchase 925,000 and 100,000 shares of common stock,
respectively, at a purchase price of $2.25 per share, which was not less than
the fair value of the common shares as determined by the Board of Directors. The
Board also granted options to acquire 35,000 shares of common stock to an
outside consultant. The option price of $2.35 per share was based upon the
stock's trading price from the private placement in February 1996. The related
fair value of these options of $73 is included as part of general and
administrative expenses in the accompanying consolidated statement of operations
for the year ended December 31, 1996.
On November 13, 1996, the Board of Directors granted an option to the Chief
Executive Officer to acquire 1,000,000 shares of common stock at a purchase
price based on the average closing bid price (as reported by the Nasdaq SmallCap
Market) of the first fifteen calendar days after the date of issuance of the
option. The option vests over a two year period and expires in ten years.
PRIVATE PLACEMENTS
In October 1994, the Company commenced a private offering of its common
stock. The Company issued 315,714 shares of common stock and raised $1.1 million
prior to December 31, 1994. In early 1995, the Company closed the private
placement, having issued a total of 951,476 shares of common stock and raised a
total of $3.0 million, net of expenses of $260.
In February 1996, the Company commenced a private offering of its common
stock. The Company issued 500,000 shares of common stock and raised $1.12
million through March 31, 1996, net of expenses of $80.
In June 1996, the Company commenced a private offering of its common stock.
The Company issued 1,439,000 shares of common stock and raised $6.4 million
through August, 1996, net of expenses of $520.
10. RELATED PARTY TRANSACTIONS
Pursuant to a consulting agreement with MBCP and other consultants, as
amended on June 5, 1994, the Company issued 1,150,000 shares of common stock as
consideration for contributed advisory services in connection with the
recapitalization of HSI described in Note 4. These shares were valued at $.25
per share by the Board of Directors. The Company has also paid MBCP $25 and
issued warrants to purchase 75,000 shares of common stock at $.25 per share in
connection with services rendered in connection with the bridge loans totalling
$1,000 described in Note 8. Included in general and administrative expenses at
December 31, 1994 are approximately $300 relating to this compensation.
On July 12, 1994, the Company entered into an agreement with MBCP, amended
October 13, 1994, which provides that MBCP will perform certain financial
advisory services for the Company for a fee of $10
F-15
<PAGE> 138
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
per month up to a maximum of $50 per month. The term of the agreement was for
twelve months. The amounts expensed relating to this agreement were $60 and $100
in 1994 and 1995, respectively.
Pursuant to the terms of the MBCP Note (Note 8), MBCP was to receive
1,700,000 shares of common stock of the Company in connection with the partial
conversion of the Note in the amount of $100.
Pursuant to the terms of an agreement dated March 28, 1997, the Company
accrued $240 for consulting services provided by MBCP for the year ended
December 31, 1996.
In 1996, the Company purchased $493 in equipment whereby MBCP acted as a
broker.
The Company purchased approximately $946, $205 and $172 of certain
telecommunication equipment in 1994, 1995 and 1996, respectively, from
Telectronic, S.A. A Director of the Company is a founder and general manager of
Telectronic, S.A. Prior to its acquisition, Hewster, S.A. provided to the
Company approximately $206 in telecommunications services and $31 in
communication services during 1995. The Company's former President and Chairman
of the Board controlled Hewster, S.A.
The Company has issued notes payable to related parties which are at rates
below those that would have prevailed had the notes been between unrelated
parties. The Company imputed additional interest to these loans in the aggregate
amount of approximately $0, $16 and $40 in 1994, 1995 and 1996, respectively,
based on the prevailing market interest rates. The imputed interest on the loans
was credited as additional paid in capital.
All debt converted to common stock of the Company during the three years
ended December 31, 1996 was transacted with related parties (Note 8).
Pursuant to employment agreements, the Company paid $120 and $110 to a
shareholder in 1995 and 1996, respectively, to serve as President and Chairman
of the Board (Note 13).
Other non-interest bearing balances with related parties are as follows:
Due from related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Inversiones Druma, S.A...................................... $45 $10
Former President and Chairman of the Board and current
shareholder............................................... 48 16
--- ---
$93 $26
=== ===
</TABLE>
F-16
<PAGE> 139
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
Due to related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Hewster, S.A................................................ $ 50 $ --
Inversiones Druma, S.A...................................... 118 --
Telectronic, S.A............................................ 442 98
Directors................................................... 38 --
Shareholders................................................ 50 16
MBCP........................................................ 81 240
General Manager............................................. -- 62
---- ----
$779 $416
==== ====
</TABLE>
In addition, the Company has entered into the following related party
transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Expense reimbursements to directors......................... $ -- $ -- $ 57
Expense reimbursements to other shareholders................ -- -- 166
Consulting fees to directors................................ -- 56 50
Fixed asset installation and maintenance services provided
by a company controlled by a shareholder.................. -- 150 --
Interest paid to a company controlled by a shareholder...... -- -- 86
Communication services paid to a company controlled by a
shareholder............................................... -- 31 --
---- ---- ----
$ -- $237 $359
==== ==== ====
</TABLE>
11. INCOME TAXES
The Company is subject to federal, state and foreign income taxes but has
not incurred a liability for such taxes due to losses incurred. At December 31,
1996 the Company has net tax operating loss carryforwards of approximately
$3,782 for U.S. income tax purposes and approximately $4,466 for foreign income
tax purposes. These carryforwards are available to offset future taxable income,
if any, and expire for U.S. income tax purposes in the years 2007 through 2011
and do not expire for foreign income tax purposes. As a result of a substantial
change in the Company's ownership at July 15, 1994, approximately $475 of the
U.S. net operating loss carryforward is subject to an annual limitation on the
amount that can be utilized.
F-17
<PAGE> 140
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
The Company's deferred tax balances consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Deferred asset:
Net operating loss carryforward........................... $1,036 $2,081
Deferred liability:
Purchase accounting adjustments (VISAT)................... (152) (152)
------ ------
884 1,929
Valuation allowance......................................... (884) (1,929)
------ ------
$ -- $ --
====== ======
</TABLE>
The valuation allowance results from the uncertainty surrounding the future
realization of the net operating loss carryforwards.
The Company has not yet filed its federal and state income tax returns for
the year ended December 31, 1995, for which the extended due date was September
16, 1996. Because of its net operating loss position, management believes that
the tax consequences of not yet filing the 1995 tax return will not have a
material impact on the financial statements and related income tax disclosures.
12. EMPLOYEE STOCK OPTION PLAN
As discussed in Note 9, the Company established in 1994 a Long-term
Incentive Plan (the "Plan") for key employees. The Company applies APB 25 and
related interpretations in accounting for the Plan. The policy of the Company
has been to grant options under the Plan at an exercise price equal to the
estimated market value of the Company's common stock at the date of the grant,
except for certain grants made in 1995 for which $12 was charged to expense in
that year. Had compensation costs for the Company's Plan been determined based
on the fair value at the grant dates of options granted consistent with the
method of SFAS 123, the Company's loss and loss per share would have been
increased to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C> <C>
Net loss................................. As Reported $(2,873) $(4,626)
Proforma (4,375) (7,510)
Net loss per share....................... As Reported (.31) (.31)
Proforma (.47) (.51)
</TABLE>
The Company's Plan provides for the granting of non qualified stock options
to officers and key employees. Under the terms of the Plan, options have a
maximum term of ten years from the date of the
F-18
<PAGE> 141
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
grant. The options vesting period varies from full vesting upon issuance of
options to one thirty sixth per month to the end of the option term. A summary
of the Plan's activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... -- $ -- 605,000 $2.13 1,565,000 $2.03
Granted.................................... 1,405,000 2.04 960,000 1.96 2,060,000 2.52
Exercised.................................. -- -- -- -- -- --
Cancelled.................................. (800,000) 1.96 -- -- -- --
--------- ----- --------- ----- --------- -----
Outstanding at end of year................. 605,000 $2.13 1,565,000 $2.03 3,625,000 $2.31
========= ===== ========= ===== ========= =====
Options exercisable at year-end............ 534,170 $2.10 1,250,350 $2.57 2,754,734 $2.54
========= ===== ========= ===== ========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
REMAINING ----------------------
EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE
PRICE OUTSTANDING LIFE EXERCISABLE PRICE
- -------- ----------- ----------- ----------- --------
<C> <C> <C> <C> <C>
$ .35 100,000 8 100,000 $ .35
1.96 960,000 9 860,000 1.96
2.25 1,025,000 10 1,025,000 2.25
2.35 35,000 8 35,000 2.35
2.50 505,000 8 401,400 2.50
2.81 1,000,000 10 333,334 2.81
--------- ---------
3,625,000 2,754,734
========= =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: volatility of 113 percent
(computed based on historical daily stock prices and considered management's
best estimate), risk-free interest rates of 6.72 percent, zero dividend yield
and expected lives ranging from 4 to 8 years. The fair value of options granted
during 1995 and 1996 includes 960,000 shares at a weighted average exercise
price of $1.77 in 1995 and 2,060,000 shares at a weighted average exercise price
of $2.38 in 1996.
13. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company entered into an operating agreement in 1993 with Metro S.A. to
install and operate the Company's optical fiber telecommunication network in the
tunnels, conduits and stations of lines 1 and 2 of the Santiago subway system.
The Company has given Metro S.A. a $50 performance bond relating to these
leases. The monthly lease rental is equivalent to 15% of the net monthly
invoicing of the company for services rendered in the metropolitan region of
Chile, subject to minimum amounts. The lease expires in the year 2003. Under the
agreement, the Company is obligated to provide certain telecommunications
services to Metro, S.A.
F-19
<PAGE> 142
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
Effective April 8, 1996 the Company entered into a one year lease agreement
by assignment from a consultant to the Company. The Company maintained its
corporate office at this location until December 31, 1996. The original
leaseholder has occupied this office subsequent to December 31, 1996.
Effective December 12, 1996 the Company entered into a one year lease
agreement for its corporate offices in Miami, Florida.
The following summarizes future minimum payments under non-cancelable
operating lease agreements at December 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $ 769
1998........................................................ 776
1999........................................................ 838
2000........................................................ 923
2001........................................................ 1,077
2002-2003................................................... 1,941
------
$6,324
======
</TABLE>
Rental expense for the leases was $88, $255 and $508 for the years ended
December 31, 1994, 1995 and 1996, respectively.
On March 10, 1995 the Company entered into a 144 month capital lease
agreement with Aetfin-Mixto, S.A. for the offices its occupies in Santiago,
Chile. During 1996 the Company entered into several 12-24 month capital lease
agreements for office equipment and vehicles. Its obligations under these
leases, including deferred interest, are summarized as follows:
<TABLE>
<S> <C>
1997........................................................ $ 144
1998........................................................ 82
1999........................................................ 34
2000........................................................ 34
2001........................................................ 34
Thereafter.................................................. 176
-----
504
Less-Amount Representing Deferred Interest.................. (142)
-----
Present Value of Obligations Under Capital Lease............ 362
Less-Current Portion........................................ (114)
-----
$ 248
=====
</TABLE>
EMPLOYMENT AGREEMENT
On November 13, 1996 the Board of Directors appointed a new Chairman and
Chief Executive Officer. The new Chairman and Chief Executive Officer entered
into an agreement with the Company through December 31, 1999. Terms of the
employment and severance agreement include base salary, performance awards up to
100% of base salary, non-qualified stock option to purchase 1,000,000 shares of
the Company's common stock (Note 9), a severance payment equal to 100% of base
salary and 100% vesting of the options.
F-20
<PAGE> 143
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Interest.......................... 35 2 153
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $-0-, $221 and $172 were incurred in 1994,
1995 and 1996, respectively, as a result of the Company entering into equipment
leases.
Notes payable were converted to shares of the Company's common stock in the
amounts of $202, $7,219 and $1,986 in 1994, 1995 and 1996, respectively.
In 1996, common stock was issued in connection with the acquisition of
Resetel in the amount of $2,813.
In 1995, common stock was issued for the purchase of Visat in the amount of
$400.
In 1994, notes payable were issued in connection with the acquisition of
Hewster in the amount of $6,088.
15. ISSUANCE OF $150 MILLION SENIOR NOTES
On October 27, 1997, the Company completed a private offering (the "Senior
Note Offering") pursuant to Rule 144A and Regulation S promulgated under the
U.S. Securities Act of 1933 (the "Act") of 150,000 Units, consisting of an
aggregate of $150 million aggregate principal amount of 14% Senior Notes due
October 27, 2007 ("Senior Notes") and 5,250,000 warrants to purchase 5,250,000
shares of Common Stock of the Company at an exercise price of $4.40 per share.
The warrants when exercised would entitle the holders thereof to acquire an
aggregate of 5,250,000 shares of Common Stock, representing approximately 15.2%
of the Common Stock of the Company on a fully diluted basis as of the date of
the consummation of the Senior Note Offering (assuming full vesting and exercise
of all options and warrants outstanding as of October 22, 1997). In addition,
UBS Securities LLC, the Initial Purchaser of the Units in the Senior Note
Offering, was granted 2,250,000 warrants to acquire 2,250,000 shares of Common
Stock of the Company at an exercise price of $4.40 per share.
The net proceeds to the Company from the Senior Note Offering were
approximately $142.5 million, after deducting the underwriting discount and
estimated offering expenses. In addition, approximately $57.3 million of the
proceeds were used to purchase a portfolio of securities that was deposited in
escrow for payment of interest on the Senior Notes through October 27, 2000 and,
under certain circumstances, as security for repayment of principal of the
Senior Notes. The Company expects to use the remaining proceeds as follows (all
amounts represent approximations): (i) $62.0 million to expand and operate the
Company's fiber optic networks in Peru and Chile; (ii) up to $7.2 million to
consummate the Iusatel Acquisition (as defined herein); (iii) $2.9 million to
redeem the Convertible Debentures (as defined herein); (iv) $1.5 million to pay
existing short-term liabilities of the Company, including outstanding bank debt
and trade payables; (v) $975,000 to pay indebtedness under the Bridge Notes (as
defined herein); and (vi) the remaining amounts for general corporate purposes.
While the Company currently expects to use the proceeds of the Senior Note
Offering as set forth above, there can be no assurance that the Company's actual
expenditures will equal the currently anticipated amounts.
F-21
<PAGE> 144
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. Although the Company continues to
consider potential acquisitions from time to time, other than the pending
acquisition of Iusatel Chile S.A. ("Iusatel"), no agreement in principle to
acquire or effect any acquisition has been reached. Furthermore, there can be no
assurance that the acquisition of Iusatel will be consummated upon the terms
presently contemplated or at all. New sources of capital such as credit
facilities and other borrowings, and additional debt and equity issuances, may
be used to fund such acquisitions and similar strategic investments.
16. UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The interim financial data as of September 30, 1997 and for the nine months
ended September 30, 1996 and 1997 is unaudited. The information reflects all
adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to present fairly the financial position
and results of operations of the Company for the periods indicated. Results of
operations for the interim periods are not necessarily indicative of the results
of operations for the full year.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." This statement is effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 supersedes APB Opinion No. 15 and
replaces primary and fully diluted EPS with basic and diluted EPS. Basic EPS is
computed by dividing net income available to common shareholders by the weighted
average common shares outstanding. Diluted EPS includes all dilutive potential
common shares. Because the Company has had a history of operating losses, it
does not expect the new standard to have a material impact on its financial
position or results of operations for 1997.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This statement is effective for financial statements
issued for periods ending after December 15, 1997. SFAS 129 supersedes specific
disclosure requirements of APB Opinion No. 10 and No. 15 and FASB Statement No.
47 and consolidates them into this Statement. FAS 129 contains no change in
disclosure requirements for the Company as the Company was previously subject to
the requirements of the above superseded statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income
F-22
<PAGE> 145
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
Management does not expect the new standard to have significant changes in
the disclosure requirements for the Company in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for financial statements for
periods beginning after December 15, 1997. This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement supersedes FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise," but retains the requirement to report
information about major customers. It amends FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. In the
initial year of application, comparative information for earlier years is to be
restated. This Statement need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application. Management
does not expect the new standard to have a material impact on the disclosure
requirements for the Company in 1998.
The financial statements have been prepared on the going concern basis of
accounting, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has incurred
operating losses since inception while investing in the infrastructure necessary
to generate material operating revenues in the future. In addition, the Company
has funded a significant amount of capital expenditures over the same time
period. The Company's continued funding of its operating expenses, working
capital needs and capital expenditures is dependent on its ability to raise
additional financing in the future. Historically, the Company has been
successful in raising such funds. However, there can be no assurance that the
Company will be successful in raising such funds in the future.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental schedule of non cash investing and financing activities:
a. During the nine months ended September 30, 1997, the Company
authorized the issuance of 1,101,782 shares of Common Stock to convert
outstanding debt, and related accrued interest, totaling $1,994.
b. During the nine months ended September 30, 1997, the Company issued
80,000 shares of Common Stock to extinguish a $240 liability with a related
party.
c. During the nine months ended September 30, 1997 the Company issued
warrants to purchase shares of Common Stock valued at $298.
d. During the nine months ended September 30, 1997 the Company
deferred approximately $1,755 of offering costs that were not paid as of
the end of this period.
F-23
<PAGE> 146
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
RESTRICTED BANK DEPOSITS AND BANK LINES OF CREDIT
Restricted bank deposits are held by banks that require such deposits to be
maintained in support of loans made to certain of the Company's subsidiaries.
PROPERTY AND EQUIPMENT
Of the total interest incurred by the Company for the nine months ended
September 30, 1997, $600,000 of such costs were capitalized in connection with
the Company's construction of its fiber optic network in Lima, Peru.
NOTES PAYABLE
On February 13, 1997, the Company borrowed $350 from a commercial bank in
Peru. The loan bears interest at 9.5% and matures in 180 days. The loan is
guaranteed by a $350 cash deposit. In addition, the Company established a letter
of credit in the amount of $415 with an expiration term of July 2, 1997. At the
date of expiration, the company converted the letter of credit into a loan
bearing interest at 12.5% and matures in 30 days. These loans have been repaid
with proceeds from the Initial Offering.
On April 1, 1997, Hewster obtained a revolving credit line (the "Credit
Line") from Citibank-Chile in the amount of $228 at an annual interest rate of
10.7%. Indebtedness under the Credit Line is secured by a certificate of deposit
from ICCA in the amount of $160. The Credit Line matures in September 1997.
Borrowings under the Credit Line were used for the purchase of equipment.
Outstanding balances under the credit line were repaid with proceeds from the
Initial Offering.
On February 3, 1997, the Company issued $1.5 million aggregate principal
amount of 7% Convertible Debentures ("7% Convertible Debentures") due February
3, 2000 and Warrants to purchase an aggregate 100,000 shares of the Company's
Common Stock. On May 6, 1997 the Company issued $2.0 million aggregate principal
amount of 8% Convertible Debentures ("8% Convertible Debentures") due April 30,
1998 and Warrants to purchase an aggregate 20,000 shares of the Company's Common
Stock. Original issue discounts of $167 and $31 related to the 7% Convertible
Debentures and the 8% Convertible Debentures, respectively, resulted from
proceeds allocated to the Warrants. The 7% Convertible Debentures and the 8%
Convertible Debentures are collectively referred to as the "Convertible
Debentures." The net proceeds of the Convertible Debentures were used to pay for
(i) capital expenditures related to the Company's fiber optic networks, (ii)
operating expenses of ICCA's wholly owned subsidiaries and (iii) corporate
expenses primarily related to salaries, professional fees, travel, rent, and
similar items.
At the option of the Company, the Convertible Debentures may be redeemed at
predetermined premiums, at any time or from time to time, upon not less than ten
nor more than twenty days prior written notice. The prepayment price for the 7%
Convertible Debentures and 8% Convertible Debentures shall equal 117% and 130%,
respectively, of the principal amount to be prepaid plus accrued interest. In
addition, the Convertible Debentures are convertible based on predetermined
formulas, at the option of the Holders, into Common Stock at any time prior to
maturity at a conversion price that will be less than the closing bid price as
reported by the Nasdaq SmallCap Market at time of conversion ("beneficial
conversion features"). The value attributable to the beneficial conversion
features have been expensed at date of issuance because the agreements could
allow the holders of the Convertible Debentures to convert at that date. As a
result, for the six months ended June 30, 1997 the Company incurred interest
cost of $810 related to the fair value of the beneficial
F-24
<PAGE> 147
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
conversion features. The Company may be required to pay certain penalties if it
fails to convert the Convertible Debentures, in a timely manner, pursuant to
written Notices of Conversion received from the Holders.
In connection with the Convertible Debentures, the Company is required to
file with the Commission (as defined herein) a registration statement covering a
sufficient number of shares of Common Stock into which the Convertible
Debentures may be converted (the "Registered Shares"). As of November 15, 1997,
the Company had not filed such registration statements with the Commission.
Pursuant to the terms of the Convertible Debentures, the Company will be
required to pay the Holders certain penalties until such time as the Company
either files the registration statement or redeems the Convertible Debentures.
Legal Proceedings
On July 3, 1997, NU Investments, LLC and KA Investments LDC (collectively,
the "7% Plaintiffs"), filed suit in the U.S. District Court for the Northern
District of Illinois, Eastern Division against the Company, Mr. Patricio E.
Northland, President, CEO and Chairman of the Board of the Company, and each of
Phillip S. Magiera and Paul A. Moore, both former directors of the Company,
alleging breach of contract, violation of Section 10(b) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and fraudulent
misrepresentation for the Company's failure to file a registration statement to
register the resale of shares of Common Stock issuable upon the conversion of
the 7% Plaintiffs' 7% Convertible Debentures and the exercise of warrants to
purchase 100,000 shares of Common Stock. The 7% Plaintiffs demand compensatory
damages in the amount of $1.5 million plus prejudgment interest and costs.
On November 21, 1997, Arcadia Importers and Exporters, Inc. ("Arcadia"),
the purchaser of the Company's 8% Convertible Debentures in the aggregate
principal amount of $2,000,000 (the "8% Convertible Debentures"), filed suit in
the Supreme Court of the State of New York against the Company relating to the
failure to file in a timely manner the Registration Statement of which this
Prospectus forms a part with respect to the shares of Common Stock issuable upon
conversion of the 8% Convertible Debentures. Arcadia is seeking damages of not
less than $484,000 plus interest, costs and reasonable attorneys' fees.
The Company believes that it has meritorious defenses to the foregoing
claims, and intends to defend such actions fully and vigorously. Moreover, even
if the Company is found to be liable in either or both of these actions, it does
not believe that any such liability will have a material adverse effect on the
Company's business, financial condition and results of operations.
The Pending Iusatel Acquisition
During August 1997, the Company entered into an agreement to acquire
Iusatel Chile, S.A. ("Iusatel"), a Chilean long distance carrier based in
Santiago, Chile. Iusatel is controlled by a shareholder of the Company. Iusatel
currently provides national and international long distance services in Chile
through its own gateway switch and satellite earth station as well as through
interconnection with other Chilean long distance carriers.
The Iusatel Agreement provides for the purchase by the Company (the
"Iusatel Acquisition") of 100% of the issued and outstanding capital stock of
Iusatel for $5,900 in cash (the "Iusatel Purchase Price"). The Iusatel Purchase
Price may be reduced to the extent that the net worth of Iusatel as of December
31, 1997 is less than $500, as determined pursuant to an audited balance sheet.
The Iusatel Purchase Price may be increased by up to a maximum of $850 based
upon Iusatel's operating results for the 12 months ending December 31, 1998. The
Iusatel Agreement also provides that Hernan Streeter, the former Chairman and
Chief Executive Officer, and a current shareholder, of the Company, will
continue to serve as General Manager
F-25
<PAGE> 148
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
of Iusatel until December 31, 1997, and will thereafter serve as a consultant to
Iusatel until December 31, 1998 for a monthly fee of $10. The Iusatel Agreement
is subject to a number of conditions, many of which, including governmental
consent, are beyond the Company's control. In connection with the Iusatel
Acquisition, the Company is expected to pay a director of the Company, a fee in
the aggregate amount of 100,000 shares of Common Stock for his services in
facilitating the transaction.
Convertible Debentures
During September 1997, the Company authorized the issuance of 851,162
shares of Common Stock in connection with the conversion of $1.45 million
aggregate principal amount of its 8% Convertible Debentures, plus related
accrued interest and authorized the issuance of 250,620 shares of Common Stock
in connection with the conversion of $500 principal aggregate amount of its 7%
Convertible Debentures, plus, related accrued interest.
The Company intends to redeem all outstanding Convertible Debentures prior
to December 31, 1997. The Company estimates that approximately $1.0 million and
$550 in aggregate principal amount of the 7% Convertible Debentures and 8%
Convertible Debentures, respectively, will be outstanding at such time and that
the Company will be required to pay an aggregate of $2.9 million to extinguish
its liabilities related to the Convertible Debentures, including outstanding
principal, related accrued interest, redemption premiums, and penalties related
to non-registration and non-conversion. The payment of this amount would result
in an extraordinary loss on debt extinguishment of approximately $1,204. The
actual payment, and therefore the magnitude of the Company's loss on debt
extinguishment, could be lower or higher than the aforementioned amounts.
Stock Options and Grants
On May 1, 1997 the Company granted an officer non-qualified stock options
to purchase 500,000 shares of the Company's common stock at $2.42 per share.
During July 1997 the Company issued 80,000 shares of Common Stock granted
on March 28, 1997 to a related party in order to extinguish a $240 obligation
for consulting services that were rendered and accrued for as of December 31,
1996. The value assigned to the Shares approximated the quoted market price of
the Nasdaq SmallCap Market on date of grant.
During September 1997, the Company agreed to issue the following shares of
Common Stock to the following officers of the Company: (i) 600,000 shares of
Common Stock to Patricio E. Northland, President, Chief Executive Officer and
Chairman of the Board and (ii) 250,000 shares of Common Stock to Douglas G. Geib
II, Chief Financial Officer of the Company. In addition, on the same date, the
Company granted the following stock options to the following officers at an
exercise price of $2.13 per share: (i) Patricio E. Northland, President, Chief
Executive Officer and Chairman of the Board, was granted options to acquire
600,000 shares of Common Stock, one-third of which vested immediately and the
remainder in equal annual installments over the next two years; and (ii) Douglas
G. Geib II, Chief Financial Officer and a director of the Company, was granted
options to acquire 250,000 shares of Common Stock, one third of which vested
immediately and the remainder vest in equal annual installments over the next
two years.
Concurrent with the closing of the Senior Note Offering, the Company
granted options to acquire an additional 714,000 and 286,000 shares to Mr.
Northland and Mr. Geib, respectively at an exercise price of $4.40 per share,
one third of which vest immediately and the remainder vest in equal installments
over the next two years.
F-26
<PAGE> 149
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
Bridge Notes
During August and September 1997, ICCA entered into Bridge Loan Agreements
with certain lenders (some of which are affiliates) pursuant to which such
lenders provided the Company loans of $950 aggregate principal amount of the
Company's 10% Senior Notes (the "Bridge Notes"). As additional consideration for
such loans, the Company issued warrants to acquire, for a period of five years
from the date of the Bridge Notes, 95,000 shares of the Company's Common Stock
at an exercise price equal to the closing market price of ICCA's Common Stock on
the day of issuance. On October 27, 1997 the Company redeemed the Bridge Notes
with the proceeds from the Initial Offering.
Agreement with Maroon Bells and Certain Maroon Bells Affiliates
During October 1997, the Company entered into an agreement with Maroon
Bells, Theodore Swindells, Paul Moore and Phillip Magiera, to compensate them
for past services rendered to ICCA. Pursuant to such agreement, the Company
agreed to make a cash payment to Maroon Bells of $500 upon consummation of the
Offering and to issue to each of Messrs. Moore and Magiera 250,000 shares of
Common Stock and options to acquire 250,000 shares of Common Stock at an
exercise price of $2.13 per share. Messrs. Moore and Magiera resigned from
ICCA's Board of Directors effective as of the date of the agreement.
Donoso Settlement Agreement
Pursuant to a settlement agreement, during October 1997, ICCA agreed to
issue 300,000 shares of Common Stock to Eleazar Donoso for certain financial
assistance Mr. Donoso provided to ICCA during its development stage. Mr. Donoso
is a co-founder with Mr. Cargill, a director of ICCA, of Telectronic S.A. and
its President. Mr. Donoso is also a shareholder of ICCA. The Company recorded a
non cash expense for the three months ended September 30, 1997 of $852 related
to the aggregate fair value of such shares of Common Stock based on the date of
the Settlement Agreement.
Net Employment Agreement with Patricio E. Northland
In September 1997, the Company entered into an employment and severance
agreement (the "Northland Agreement") with Patricio E. Northland, President,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
which replaced his former employment agreement with the Company. The Northland
Agreement has a term of three years unless terminated earlier for cause, death
or disability, and provides for an initial annual base salary of $350,000,
subject to an increase of $50,000 in each of the second and third year of the
agreement. In addition, Mr. Northland was granted non-qualified stock options to
purchase 300,000 shares of ICCA's Common Stock in the following manner: 100,000
shares which vest on the date of the Northland Agreement at an exercise price of
$4.00 per share; 100,000 shares which vest one year thereafter at an exercise
price of $6.00 per share; and 100,000 shares which vest two years thereafter at
an exercise price of $8.00 per share. In consideration of Mr. Northland's
agreement to terminate his former employment agreement with the Company, which
would have provided for a substantial bonus to Mr. Northland upon consummation
of the Initial Offering, the Company agreed to pay Mr. Northland a performance
bonus of $250,000 and vest all of his existing options to acquire 1,000,000
shares of Common Stock granted under his prior employment agreement. The
performance bonus of $250,000 was expensed by the Company in its 1997 third
quarter.
F-27
<PAGE> 150
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Iusatel Chile S.A.:
We have audited the accompanying balance sheets of Iusatel Chile S.A. (the
"Company") as of December 31, 1995 and 1996, and the related statements of
income and changes in financial position for each of the two years ended
December 31, 1996, and the statement of cash flows for the year ended December
31, 1996, all expressed in thousands of constant Chilean pesos. 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 have conducted our audits in accordance with generally accepted auditing
standards in Chile, which are substantially the same as those followed 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 presentation of
the financial statements. 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 Iusatel Chile S.A. at
December 31, 1995 and 1996, and the results of their operations and changes in
their financial position for each of the two years ended December 31, 1996, and
its cash flows for the year ended December 31, 1996, in conformity with
generally accepted accounting principles in Chile.
The accompanying financial statements have been prepared assuming that
Iusatel Chile S.A. continues as a going concern. Iusatel Chile S.A. has shown
recurring operating losses and shows negative working capital and shareholders'
equity that raise substantial doubt about its ability to continue as a going
concern. Management's actions regarding these situations are described in Note
27. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
As described in Note 3, the financial statements of the Company for the
year ended December 31, 1996, includes a statement of cash flows in accordance
with generally accepted accounting principles in Chile and a statement of
changes in financial position in compliance with the regulations set forth by
the Superintendency of Securities and Insurance Companies.
Accounting principles generally accepted in Chile vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net income for each of the two years in the period ended
December 31, 1996 and the determination of shareholders' equity as of December
31, 1995 and 1996 to the extent summarized in Note 28 to the financial
statements.
JUAN PABLO HESS LANGTON CLARKE
COOPERS & LYBRAND
Santiago, February 7, 1997
(except with respect to the matters discussed
in Notes 27 and 28, for which the date is
August 11, 1997)
F-28
<PAGE> 151
IUSATEL CHILE S.A.
BALANCE SHEETS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE NINE MONTH
FOR THE YEARS ENDED PERIOD
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- -------------------------
1995 1996 1996 1997 1997
THCH$ THCH$ THUS$ THCH$ THUS$
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. 55,907 23,758 57 87,284 211
Time deposits......................................... 16,168 -- -- 661 2
Trade accounts receivable, net (Note 5)............... 479,047 902,217 2,177 629,051 1,518
Notes receivable...................................... 7,494 72,248 174 40,551 98
Sundry accounts receivable (Note 6)................... 37,369 130,305 314 19,453 47
Inventories........................................... 627 5,318 13 5,620 14
Taxes recoverable (Note 7)............................ 222,116 206,904 499 135,944 328
Prepaid expenses (Note 8)............................. 187,642 157,605 380 30,755 74
Other................................................. -- 638 2 8,784 21
---------- ---------- ------- ---------- -------
Total current assets............................ 1,006,370 1,498,993 3,617 958,103 2,312
---------- ---------- ------- ---------- -------
FIXED ASSETS: (Note 9)
Land.................................................. 31,132 31,132 75 32,347 78
Machinery & equipment................................. 1,373,753 1,543,272 3,723 1,589,468 3,835
Other fixed assets.................................... 203,351 609,110 1,470 319,416 771
Accumulated depreciation.............................. (161,343) (381,085) (919) (446,375) (1,077)
---------- ---------- ------- ---------- -------
Total fixed assets.............................. 1,446,893 1,802,429 4,349 1,494,856 3,607
---------- ---------- ------- ---------- -------
OTHER ASSETS: (Note 10)
Intangibles........................................... 746 4,010 10 4,168 10
Other................................................. 37,748 37,530 91 3,101 7
---------- ---------- ------- ---------- -------
Total other assets.............................. 38,494 41,540 100 7,269 18
---------- ---------- ------- ---------- -------
Total assets................................ 2,491,757 3,342,962 8,066 2,460,228 5,936
========== ========== ======= ========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank liabilities (Note 11)................. 3,385,197 3,353,913 8,092 12,000 29
Current portion of lease obligations (Note 12)........ 108,308 114,386 276 105,860 255
Accounts payable (Note 13)............................ 326,863 716,825 1,729 602,560 1,454
Notes payable (Note 14)............................... 156,182 280,143 676 284,611 687
Sundry creditors...................................... -- 2,656 6 41,091 99
Amounts payable to related companies (Note 15)........ 39,697 167,587 404 575,675 1,389
Accrued liabilities (Note 16)......................... 313,643 189,517 457 301,175 727
Withholding taxes (Note 17)........................... 25,380 38,291 92 66,727 161
Income taxes payable.................................. -- 3,222 8 -- --
---------- ---------- ------- ---------- -------
Total current liabilities....................... 4,355,270 4,866,540 11,742 1,989,699 4,801
---------- ---------- ------- ---------- -------
LONG-TERM LIABILITIES:
Long-term portion of lease obligations (Note 12)...... 165,972 91,306 220 20,689 50
Notes payable (Note 14)............................... 1,212 245,961 593 94,301 228
Amounts payable to related companies (Note 15)........ 660,193 2,328,098 5,617 -- --
Other (Note 18)....................................... 14,531 21,986 53 17,775 43
---------- ---------- ------- ---------- -------
Total long-term liabilities..................... 841,908 2,687,351 6,484 132,765 320
---------- ---------- ------- ---------- -------
SHAREHOLDERS' EQUITY: (Note 20)
Paid-in capital....................................... 760,529 760,529 1,835 6,731,002 16,240
Accumulated losses.................................... (885,720) (3,465,950) (8,362) (5,165,344) (12,463)
Loss for the year..................................... (2,580,230) (1,505,508) (3,632) (1,227,894) (2,963)
---------- ---------- ------- ---------- -------
Total shareholders' equity...................... (2,705,421) (4,210,929) (10,160) 337,764 815
---------- ---------- ------- ---------- -------
Total liabilities & shareholders' equity.... 2,491,757 3,342,962 8,066 2,460,228 5,936
========== ========== ======= ========== =======
</TABLE>
The accompanying notes 1 to 28 form an integral part of these financial
statements
F-29
<PAGE> 152
IUSATEL CHILE S.A.
STATEMENTS OF INCOME
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIODS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------
1995 1996 1996 1996 1997 1997
THCH THCH$ THUS$ THCH$ THCH$ THUS$
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Operating revenues........................ 1,134,550 3,377,825 8,150 2,588,309 2,661,035 6,420
Operating expenses excluding
depreciation............................ (1,111,790) (2,008,635) (4,846) (1,421,304) (1,924,900) (4,644)
Operating depreciation.................... (69,502) (189,227) (457) (110,009) (93,827) (226)
---------- ---------- ------ ---------- ---------- ------
Operating margin.................... (46,742) 1,179,963 2,847 1,056,996 642,308 1,550
Administrative and selling expenses
excluding depreciation.................. (2,190,360) (2,178,427) (5,256) (1,606,914) (1,564,123) (3,774)
General and administrative depreciation... (92,700) (34,052) (82) (64,654) (49,902) (120)
---------- ---------- ------ ---------- ---------- ------
Operating loss...................... (2,329,802) (1,032,516) (2,491) (614,572) (971,717) (2,344)
NON-OPERATING RESULTS:
Financial income.......................... 909 3,969 10 -- 2,044 5
Financial expenses........................ (483,033) (587,189) (1,417) (434,935) (84,220) (203)
Other non-operating expenses.............. (8,654) (107,749) (260) (40,959) (219,662) (530)
Price-level restatement (Note 4).......... 240,350 217,977 526 169,902 45,661 110
---------- ---------- ------ ---------- ---------- ------
Non-operating income................ (250,428) (472,992) (1,141) (305,992) (256,177) (618)
---------- ---------- ------ ---------- ---------- ------
Loss before income taxes.................. (2,580,230) (1,505,508) (3,632) (920,564) (1,227,894) (2,963)
Income taxes.............................. -- -- -- -- -- --
---------- ---------- ------ ---------- ---------- ------
Net loss............................ (2,580,230) (1,505,508) (3,632) (920,564) (1,227,894) (2,963)
========== ========== ====== ========== ========== ======
</TABLE>
The accompanying notes 1 to 28 form an integral part of these financial
statements
F-30
<PAGE> 153
IUSATEL CHILE S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE NINE
MONTH PERIOD
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------
1995 1996 1996 1996
THCH$ THCH$ THUS$ THCH$
---------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS:
Net Loss....................................... (2,580,230) (1,505,508) (3,632) (920,564)
Depreciation................................... 162,203 223,279 539 169,229
Profit on sale of fixed assets................. (203) -- -- 6,179
Net price-level restatement of non-current
items........................................ (3,603) (3,536) (9) 20,058
---------- ---------- ------ ----------
Total funds from operations............. (2,421,833) (1,285,765) (3,102) (725,098)
---------- ---------- ------ ----------
OTHER SOURCES OF FUNDS:
Sale of fixed assets........................... 940 -- -- --
Increase in long-term liabilities.............. 180,503 244,749 591 256,172
Increase in long-term payable to related
companies.................................... 660,193 1,667,905 4,024 1,576,770
Others......................................... 7,605
---------- ---------- ------ ----------
Total funds from other sources.......... 841,636 1,912,654 4,615 1,840,547
---------- ---------- ------ ----------
Total sources of funds.................. (1,580,197) 626,889 1,513 1,115,449
---------- ---------- ------ ----------
APPLICATION OF FUNDS:
Additions to fixed assets...................... 549,955 575,279 1,388 590,877
Decrease in long-term liabilities.............. 9,272 67,211 162 60,330
Other.......................................... 32,627 3,046 7 3,311
---------- ---------- ------ ----------
Total applications of funds............. 591,854 645,536 1,557 654,518
---------- ---------- ------ ----------
Decrease in working capital........... (2,172,051) (18,647) (45) 460,931
========== ========== ====== ==========
CHANGES IN WORKING CAPITAL:
CURRENT ASSETS -- INCREASES (DECREASES):
Cash and time deposits....................... 71,378 (48,317) (117) (16,830)
Trade accounts receivable, notes receivable
and sundry accounts receivable............. 507,591 580,860 1,401 725,392
Inventories.................................. 627 4,691 11 5,902
Other........................................ 203,096 (44,611) (108) 24,559
---------- ---------- ------ ----------
Net changes in current assets........... 782,692 492,623 1,189 739,023
---------- ---------- ------ ----------
CURRENT LIABILITIES -- (DECREASES) INCREASES:
Short-term bank liabilities.................. (2,236,641) 31,284 75 (27,282)
Current portion of long-term liabilities..... (108,308) (6,078) (15) (30,158)
Accounts and notes payable................... (279,909) (513,923) (1,240) (255,379)
Amounts payable to related companies......... (39,697) (127,890) (309) (36,716)
Accruals and withholding taxes............... (298,889) 111,215 268 78,055
Other........................................ 8,701 (5,878) (14) (6,612)
---------- ---------- ------ ----------
Total changes in current liabilities.... (2,954,743) (511,270) (1,234) (278,092)
---------- ---------- ------ ----------
Decrease in working capital........... (2,172,051) (18,647) (45) 460,931
========== ========== ====== ==========
</TABLE>
The accompanying notes 1 to 28 form an integral part of these financial
statements
F-31
<PAGE> 154
IUSATEL CHILE S.A.
STATEMENTS OF CASH FLOWS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTH PERIOD
DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- ---------------------------------------
1996 1996 1996 1997 1997
THCH$ THUS$ THCH$ THCH$ THUS$
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.............................................. (1,505,508) (3,632) (920,564) (1,227,894) (2,963)
ITEMS NOT AFFECTING CASH:
Depreciation.......................................... 223,279 539 169,229 146,287 353
Write-offs and accrued liabilities.................... 421,997 1,018 72,047 370,587 894
Net price-level restatement........................... (217,977) (526) (169,902) (45,661) (110)
CHANGES IN ASSETS AFFECTING CASH FLOW:
Increase (Decrease) in accounts receivable............ (1,050,024) (2,533) (874,221) 421,582 1,017
Increase in inventories............................... (4,935) (12) -- -- --
CHANGE IN LIABILITIES AFFECTING CASH FLOW:
Increase in accounts payable relating to operating
results............................................. 435,978 1,052 510,173 212,090 512
Net increase in income taxes payable.................. 3,222 8 -- -- --
Decrease in interest payable.......................... 12,292 30 -- 31,037 75
Net increase in VAT and other similar payables........ 16,568 40 40,407 -- --
---------- ---------- ---------- ---------- ------
Net cash flow (used) provided by operating
activities.................................... (1,665,108) (4,017) (1,172,831) (91,972) (222)
---------- ---------- ---------- ---------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings from banks and others...................... 186,772 451 --
Other financing activities............................ 1,587,062 3,829 1,786,258 197,222 476
---------- ---------- ---------- ---------- ------
Net cash flow provided by financing
activities.................................... 1,773,834 4,280 1,786,258 197,222 476
---------- ---------- ---------- ---------- ------
CASH FLOW FROM INVESTING ACTIVITIES:
Fixed assets acquired................................. (159,169) (384) (628,780) (41,777) (101)
---------- ---------- ---------- ---------- ------
Net cash flow used by investing activities............ (159,169) (384) (628,780) (41,777) (101)
---------- ---------- ---------- ---------- ------
Total net (decrease) increase in cash and cash
equivalents................................... (50,443) (122) (15,353) 63,473 153
---------- ---------- ---------- ---------- ------
EFFECT OF INFLATION ON CASH AND CASH EQUIVALENTS........ 2,126 5 2,024 53 --
---------- ---------- ---------- ---------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS................. (48,317) (117) (13,329) 63,526 153
---------- ---------- ---------- ---------- ------
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR.......... 72,075 174 71,399 23,758 57
---------- ---------- ---------- ---------- ------
CASH AND CASH EQUIVALENTS -- END OF YEAR................ 23,758 57 58,070 87,284 211
========== ========== ========== ========== ======
</TABLE>
The accompanying notes 1 to 28 form an integral part of these financial
statements
F-32
<PAGE> 155
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
1. NATURE OF OPERATIONS AND BACKGROUND OF THE COMPANY:
(a) Name and registration in the Securities Register:
Iusatel Chile S.A. (the "Company") was originally incorporated under the
name of TDI S.A. under public deed dated March 3, 1992.
On May 19, 1994, the minutes of the first extraordinary shareholders
meeting held on May 5, 1994 were recorded under public deed. This meeting
approved the change of the Company's name to Telecomunicaciones Digitales
Internacionales S.A. and a capital increase, whereby Grupo Iusacell S.A. de
C.V. ("Iusacell") purchased 51% of the share capital.
On August 1, 1994, the minutes of the second extraordinary shareholders
meeting held on July 28, 1994 were recorded under public deed. This meeting
approved the change of the Company's name to Iusatel Chile S.A., the
expansion of the Company's objectives and the related change in its bylaws.
From that date, the Company began the final phase of its start-up,
principally characterized by investment in its infrastructure.
The Company is majority owned by Iusacell; however, its operations are
independently and separately managed. As a result, during the periods
presented Iusacell did not incur any general or corporate expenses on
behalf of the Company. It is management's belief that the financial results
presented herein would not have been materially different had the Company
operated as a separate entity for the periods presented.
The principle objective of the Company is to engage in business within the
telecommunications industry.
The Company is registered under No. 494 in the Securities Register and is
therefore subject to the regulatory authority of the Chilean
Superintendency of Securities and Insurance (the "Superintendency").
(b) Start-up period:
The Company began its normal operations on January 1, 1995, concluding its
development and start-up period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Presentation:
The financial statements have been prepared in accordance with generally
accepted accounting principles in Chile ("Chilean GAAP") and the
regulations established by the Superintendency. The Company is also subject
to specific provisions contained in Corporations Law 18,046 and its related
regulations.
(b) Comparative financial statements:
For comparative purposes, the financial statements and the amounts
disclosed in the related notes for the year ended December 31, 1995 have
been restated in terms of Chilean pesos of December 31, 1996 purchasing
power. In accordance with Chilean regulations and accounting practices, the
restatement was calculated based on the Official Consumer Price Index of
the National Institute of Statistics, which was 6.6% for the year ended
November 30, 1996. The index is based on the "prior month rule", pursuant
to which the inflation adjustments are based on the Consumer Price Index at
the close of the month
F-33
<PAGE> 156
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
(b) Comparative financial statements, continued:
preceding the close of the respective period or transaction. This index is
considered by the business community, the accounting profession and the
Chilean government to be the index which most closely complies with the
technical requirement to reflect the variation in the general level of
prices in the country and, consequently, is widely used for financial
reporting purposes in Chile.
The interim September 30, 1996 and 1997 financial statements have also been
restated for general price-level changes, but are expressed in constant
Chilean pesos of September 30, 1997. The effect of not updating the
December 31, 1995 and 1996 financial statements to September 30, 1997
constant pesos is not significant because the change in the inflation index
applicable for the restatement of financial statements for the nine month
period ended September 30, 1997 was only 3.9%. Additionally, if the
updating by the 3.9% increase had been made, it would have been applied to
all amounts and disclosures shown in the December 31, 1995 and 1996
financial statements and accordingly, there would be no changes in the
relationships among the amounts and disclosures in those financial
statements.
(c) Price-level restatement:
The financial statements, which are expressed in Chilean pesos, have been
restated to reflect the effects of variations in the purchasing power of
the local currency during each year. For this purpose, and in conformity
with current Chilean regulations, non-monetary assets and liabilities,
equity accounts and income and expense accounts have been restated each
year in terms of year-end constant pesos. The resulting net charge or
credit to income arises as a result of the gain or loss in purchasing power
from the holding of monetary assets and liabilities exposed to the effects
of inflation.
The above-mentioned price-level restatements do not purport to present
appraised or replacement values and are only intended to restate all
non-monetary financial statement components in terms of local currency of
similar purchasing power and to include in the net result for each year the
gain or loss in purchasing power arising from the holding of monetary
assets and liabilities exposed to the effects of inflation.
Certain assets and liabilities are denominated in U.F. units (Unidades de
Fomento). A U.F. is a Chilean inflation-indexed peso denominated monetary
unit which is set daily in advance based on changes in the Consumer Price
Index. The adjustments to the closing balance of U.F.-denominated assets
and liabilities are included in the Price-level restatement account in the
Statement of Income. Each U.F. was equivalent to Ch$ 12,482.81 and Ch$
13,280.43 at December 31, 1995 and 1996, respectively.
F-34
<PAGE> 157
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
(d) Assets and liabilities in US dollars:
Balances in foreign currency included in the balance sheet have been
translated into Chilean pesos at the "Observed Exchange Rate" determined by
the Central Bank of Chile in effect at each year end using the following
exchange rates:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
US Dollar ("observed" rate)............. 424.87 406.91
</TABLE>
(e) Fixed assets:
Fixed assets are shown at restated acquisition or import cost, including,
in the latter case, deferred customs duties. Assets received under lease
contracts are shown at the present value of the contract.
Depreciation is calculated using the straight-line method on the restated
value of the assets over the related useful lives. Depreciation expense
amounted to ThCh$ 162,203 and ThCh$ 223,279 for the years ended December
31, 1995 and 1996, respectively.
(f) Staff severance indemnities:
The Company has no obligation for the payment of staff severance
indemnities as employee severance benefits are neither legally required nor
included under the terms and conditions of employee contracts.
(g) Staff vacations:
The Company has recorded the cost of staff vacations on an accrued basis as
the vacations are earned by the employees in accordance with Technical
Bulletins Nos. 47 and 48 of the Chilean College of Accountants A.G.
(h) Income tax:
The Company has made no provision for first category income tax as it has
incurred tax losses. The Company has provided for Article 21 Tax under the
Income Tax Law.
(i) Allowance for doubtful accounts and long-distance revenue recognition
criteria
(i) The allowance for doubtful accounts is calculated based upon an
aging of account receivable balances using historical rates of
collection by type of account balance.
No provision has been recorded against un-billed traffic.
Given the significant collection risk associated with the
"audio-text" (data transmission) receivables, the Company has
recorded a 100% provision against the related receivable balance in
the amount of ThCh$ 298,642. As of December 31, 1996, these
services are no longer being provided by the Company.
F-35
<PAGE> 158
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
(ii) Long-distance traffic:
The Company recognizes long-distance traffic revenues during the
period in which the services are provided. Revenues are generated
through contracts with customers and through local telephone
companies that perform dialing services.
(j) Statement of cash flows:
Cash flows generated from operating activities include all core business
related cash flows, interest paid, investment income and all other cash
flows not included in investing or financing activities.
(k) Reclassifications:
Certain reclassifications have been made to the December 31, 1995 figures
to enhance the comparability of the financial statements as of December 31,
1996.
(l) Convenience translation to US dollars (unaudited):
The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The United States dollar amounts disclosed in
the accompanying financial statements as of December 31, 1996 and September
30, 1997 are presented solely for the convenience of the reader at the
September 30, 1997 exchange rate of Ch$ 414.47 per US$ 1. This translation
should not be construed as representing that the Chilean peso amounts
actually represent or have been, or could be, converted into United States
dollars.
(m) Interim financial data:
In management's opinion the accompanying interim amounts included in these
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results for
such interim periods. Certain interim information and note disclosures have
been omitted; however, the Company believes that the interim disclosures
made are adequate and that the information presented is not misleading.
3. ACCOUNTING CHANGES:
Effective January 1, 1996, Technical Bulletin No. 50 of the Chilean College
of Accountants A.G. requires the presentation of a statement of cash flows.
Superintendency Circular No. 00238 dated January 17, 1997, requires that
the Company continue to present the statement of changes in financial
position. Consequently, the financial statements for the year ended
December 31, 1996, include both of the above mentioned statements, however
for subsequent periods it will not be necessary to continue to present the
statement of changes in financial position.
F-36
<PAGE> 159
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
4. PRICE-LEVEL RESTATEMENT:
Price-level restatement is summarized as follows:
<TABLE>
<CAPTION>
(CHARGE)/CREDIT TO INCOME
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
THCH$ THCH$
--------- ---------
<S> <C> <C>
Current assets.............................................. 13,391 6,087
Fixed assets................................................ 92,438 98,144
Other assets................................................ (92) 240
Non-monetary assets......................................... 672 (89,966)
Shareholders' equity........................................ 9,487 167,503
------- -------
Balance of price-level restatements account................. 115,896 182,008
Income statement accounts (net)............................. 124,454 35,969
------- -------
Price-level restatement................................... 240,350 217,977
======= =======
</TABLE>
5. TRADE ACCOUNTANTS RECEIVABLE:
Net trade accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1996
THCH$ THCH$
------- ---------
<S> <C> <C>
Billed accounts receivable.................................. 279,319 896,058
Accrued accounts receivable................................. 245,150 485,495
------- ---------
Total trade receivables..................................... 524,469 1,381,553
Allowance for doubtful accounts............................. (45,422) (479,336)
------- ---------
Total..................................................... 479,047 902,217
======= =========
</TABLE>
6. SUNDRY ACCOUNTS RECEIVABLE:
Sundry accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1996
THCH$ THCH$
------- ---------
<S> <C> <C>
Current accounts............................................ 5,371 5,507
Advances to suppliers....................................... 31,998 2,882
Accounts receivable under Reciprocal carrier agreements..... -- 110,955
Other....................................................... -- 10,961
------- ---------
Totals.................................................... 37,369 130,305
======= =========
</TABLE>
7. TAXES RECOVERABLE:
Taxes recoverable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1996
THCH$ THCH$
------- ---------
<S> <C> <C>
VAT fiscal credit........................................... 218,191 201,614
Training expense credits.................................... 3,925 5,290
------- ---------
Total..................................................... 222,116 206,904
======= =========
</TABLE>
F-37
<PAGE> 160
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
8. PREPAID EXPENSES:
Prepaid expenses are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1996
THCH$ THCH$
------- ---------
<S> <C> <C>
Legal....................................................... 18,669 --
Insurance................................................... 5,616 4,479
Prepaid advertising......................................... 93,900 100,189
Deferred interest on leasing................................ 17,408 16,353
Prepaid interest............................................ -- 6,703
Prepaid taxes............................................... 9,325 6,448
Software.................................................... 9,784 --
Other....................................................... 8,194 2,833
Commissions................................................. 24,746 20,600
------- ---------
Total..................................................... 187,642 157,605
======= =========
</TABLE>
9. FIXED ASSETS:
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1995 1996
THCH$ THCH$
--------- ---------
<S> <C> <C>
Land:....................................................... 31,132 31,132
Machinery & equipment:
Earth station............................................. 675,458 681,001
Miscellaneous machinery & equipment....................... 11,264 12,530
International switch...................................... 290,779 406,967
Network................................................... 9,187 9,187
Internal communications equipment......................... 54,312 6,788
Call-back switch.......................................... -- 51,414
Furniture & installations................................. 160,389 180,542
Vehicles.................................................. 21,046 6,064
Office equipment.......................................... 118,975 170,577
Customer equipment........................................ 32,343 18,202
--------- ---------
Subtotal.......................................... 1,373,753 1,543,272
--------- ---------
Other fixed assets:
Leased assets............................................. 191,220 312,938
Telephone trunk lines..................................... 11,413 11,413
Imported equipment in transit............................. -- 282,026
Other..................................................... 718 2,733
--------- ---------
Subtotal.......................................... 203,351 609,110
--------- ---------
Total fixed assets (gross)........................ 1,608,236 2,183,514
--------- ---------
Less:
Accumulated depreciation for the period................... (161,343) (381,085)
--------- ---------
Total fixed assets (net).......................... 1,446,893 1,802,429
========= =========
</TABLE>
F-38
<PAGE> 161
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
10. OTHER ASSETS:
Other assets are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1996
THCH$ THCH$
------- -------
<S> <C> <C>
Telephone lines............................................. 746 4,010
Long-term deferred interest................................. 29,385 7,322
Long-term time deposits..................................... -- 21,720
Other....................................................... 8,363 8,488
------- -------
Total............................................. 38,494 41,540
======= =======
</TABLE>
11. SHORT-TERM BANK LIABILITIES:
Short-term bank liabilities are summarized as follows:
<TABLE>
<CAPTION>
MONTHLY
INTEREST ACCRUED TOTAL
RATE AMOUNT AMOUNT INTEREST 1996
BANK (%) IN U.F. IN THCH$ THCH$ THCH$
- ---- -------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sud Americano................................... 1.0655 249,361 3,311,621 12,292 3,323,913
Sud Americano................................... 1.0500 -- 30,000 -- 30,000
------- --------- ------ ---------
Total 249,361 3,341,621 12,292 3,353,913
======= ========= ====== =========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL
INTEREST ACCRUED TOTAL
RATE AMOUNT AMOUNT INTEREST 1995
BANK (%) IN U.F. IN THCH$ THCH$ THCH$
- ---- -------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sud Americano................................... 8.48 143,184 1,905,303 7,181 1,912,484
Citibank........................................ 8.56 106,169 1,412,756 6,383 1,419,139
Citibank........................................ 8.56 -- 53,300 274 53,574
------- --------- ------ ---------
Total 249,353 3,371,359 13,838 3,385,197
======= ========= ====== =========
</TABLE>
12. LEASING OBLIGATIONS:
At December 31, 1995 and 1996, the Company had fixed asset lease contracts
outstanding with financial institutions and others, whose installments have the
following maturities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1996
THCH$ THCH$
------- -------
<S> <C> <C>
Short term.................................................. 108,308 114,386
Long term................................................... 165,972 91,306
------- -------
Total....................................................... 274,280 205,692
======= =======
</TABLE>
F-39
<PAGE> 162
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
13. ACCOUNTS PAYABLE:
Accounts payable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1996
THCH$ THCH$
------- -------
<S> <C> <C>
Domestic suppliers.......................................... 226,945 550,073
Sundry accounts............................................. 4,974 10,548
Total domestic suppliers.................................... 231,919 560,621
Foreign suppliers........................................... 94,944 156,204
------- -------
Total accounts payable...................................... 326,863 716,825
======= =======
</TABLE>
14. NOTES PAYABLE:
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1996
THCH$ THCH$
------- -------
<S> <C> <C>
Short-term.................................................. 156,182 280,143
Long-term................................................... 1,212 245,961
------- -------
Total....................................................... 157,394 526,104
======= =======
</TABLE>
15. AMOUNTS PAYABLE TO RELATED COMPANIES:
(a) Short-term:
Short-term amounts payable to related companies at December 31, 1995 and
1996 represent amounts payable of ThCh$ 39,697 and ThCh$ 167,587,
respectively, to Satelitron S.A., Mexico, a company related to Iusacell,
for satellite space rentals.
(b) Long-term:
Long-term amounts payable to related parties represent capital
contributions of ThCh$ 660,193 and ThCh$ 2,328,098, at December 31, 1995
and 1996 respectively, from Iusacell S.A. These capital contributions were
legally formalized in January of 1997 upon approval by the Superintendency,
subsequent to the balance sheet date.
F-40
<PAGE> 163
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
16. ACCRUED LIABILITIES:
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1996
THCH$ THCH$
------- -------
<S> <C> <C>
Vacations (Note 2(g))....................................... 40,070 40,978
Pending Invoices............................................ 263,075 84,529
Other....................................................... 10,498 64,010
------- -------
Total..................................................... 313,643 189,517
======= =======
</TABLE>
17. WITHHOLDING TAXES:
Withholding taxes relate to remunerations, taxes and social security
deductions for the month of December, amounting to ThCh$ 25,380 and ThCh$
38,291 at December 31, 1995 and 1996, respectively.
18. OTHER LONG-TERM LIABILITIES:
As of December 31, 1995 and 1996, this account balance included deferred
customs duties, in accordance with Law 18,634, as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1995 1996
THCH$ THCH$
------ ------
<S> <C> <C>
Total deferred customs duties............................... 14,531 21,986
====== ======
</TABLE>
19. INCOME TAXES:
No provision was made for first category income tax at December 31, 1995
and 1996, as there were tax losses amounting to approximately Ch$ 3,451
million, and Ch$ 4,726 million, respectively. These losses may be applied
against future profits for an indefinite period of time.
F-41
<PAGE> 164
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
20. SHAREHOLDERS' EQUITY:
(a) The movements in shareholders' equity for the years ended December 31,
1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
FULLY PAID FULLY PAID
AND AND
OUTSTANDING OUTSTANDING
SERIES A SERIES B PAID-IN ACCUMULATED NET LOSS FOR
COMMON COMMON CAPITAL DEFICIT THE PERIOD TOTAL
SHARES SHARES THCH$ THCH$ THCH$ THCH$
----------- ----------- ------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1994....... 22,350 23,263 659,372 (767,913) -- (108,541)
Equity price-level restatement......... -- -- 54,070 (62,969) -- (8,899)
Loss for the year...................... -- -- -- -- (2,420,478) (2,420,478)
------ ------ ------- ---------- ---------- ----------
Balances as of December 31, 1995....... 22,350 23,263 713,442 (830,882) (2,420,478) (2,537,918)
------ ------ ------- ---------- ---------- ----------
Price-level restated balance as of
December 31, 1995.................... 22,350 23,263 760,529 (885,720) (2,580,230) (2,705,421)
------ ------ ------- ---------- ---------- ----------
Balances as of December 31, 1995....... 22,350 23,263 713,442 (830,882) (2,420,478) (2,537,918)
Transfer of previous year's results.... -- -- -- (2,420,478) 2,420,478 --
Equity price-level restatement......... -- -- 47,087 (214,590) -- (167,503)
Loss for the year...................... -- -- -- -- (1,505,508) (1,505,508)
------ ------ ------- ---------- ---------- ----------
Balances at December 31, 1996.......... 22,350 23,263 760,529 (3,465,950) (1,505,508) (4,210,929)
====== ====== ======= ========== ========== ==========
</TABLE>
(b) Shareholders' Equity:
The Company's subscribed and paid-in capital at December 31, 1996, amounts
to ThCh$ 760,529, (price-level restated) comprised of 22,350 Series A and
23,263 Series B shares, neither of which have par value.
(c) Share ownership:
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
NO. NO.
TYPE OF SHAREHOLDER SHAREHOLDERS PERCENTAGE SHAREHOLDERS PERCENTAGE
------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Holding of 10% or more........................... 3 100 3 100
Less than 10% holding but investment of U.F. 200
or more........................................ -- -- -- --
Less than 10% holding but investment less than
U.F. 200....................................... -- -- -- --
--------- --------- --------- ---------
Total............................................ 3 100 3 100
========= ========= ========= =========
Control of the Company........................... 1 51 1 51
========= ========= ========= =========
</TABLE>
On December 27, 1996 Iusacell contractually agreed with Inversiones Druma
to increase its interest in Iusatel from 51% to 99.9% of all outstanding
shares in order to sell, cede or transfer these shares to Inversiones Druma
free of any liens or pledges.
F-42
<PAGE> 165
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
20. SHAREHOLDERS' EQUITY, CONTINUED:
(d) The "UNAUDITED" movements in shareholders' equity for the nine months
ended September 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
FULLY PAID FULLY PAID
AND AND
OUTSTANDING OUTSTANDING NET LOSS
SERIES A SERIES B NEW PAID-IN ACCUMULATED FOR THE
COMMON COMMON SHARE CAPITAL DEFICIT PERIOD TOTAL
SHARES SHARES ISSUANCE THCH$ THCH$ THCH$ THCH$
----------- ----------- ----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 22,350 23,263 -- 659,373 (3,188,391) -- (2,529,018)
Equity price-level restatement...... -- -- -- 88,633 (216,004) -- (127,371)
Loss for the nine month period...... -- -- -- -- -- (871,746) (871,746)
------- ------- ----------- --------- ---------- ---------- ----------
Balance as of September 30, 1996.... 22,350 22,350 -- 748,006 (3,404,395) (871,746) (3,528,135)
======= ======= =========== ========= ========== ========== ==========
Price-level restated balance as of
September 30, 1997................ -- -- -- 789,894 (3,595,041) (920,564) (3,725,711)
======= ======= =========== ========= ========== ========== ==========
Balance as of December 31, 1996..... 22,350 23,263 -- 760,529 (4,971,458) -- (4,210,929)
Capital increase January 24, 1997... (22,350) (23,263) 574,060,412 5,739,915 -- -- 5,739,915
Equity price-level restatement...... -- -- -- 230,558 (193,887) -- 36,671
Loss for the nine month period...... -- -- -- -- -- (1,227,894) (1,227,894)
------- ------- ----------- --------- ---------- ---------- ----------
Balance as of September 30, 1997.... -- -- 574,060,412 6,731,002 (5,165,345) (1,227,894) 337,763
======= ======= =========== ========= ========== ========== ==========
</TABLE>
21. INTERMEDIATE SERVICE CONCESSION:
The Company carries out its business on the basis of Decree Law No. 188 of
the Undersecretary of Telecommunications dated September 17, 1993, whereby
TDI S.A. was granted a concession for intermediate telecommunications
services.
Under public deed dated September 24, 1994, the name TDI S.A. was changed
to Telecomunicaciones Digitales Internacionales S.A. with a capital
increase to permit Iusacell to purchase a controlling interest in the
Company. On August 3, 1994, the bylaws of the Company were amended and its
name was changed to Iusatel Chile S.A.
22. DIRECTORS' REMUNERATION:
No payments were made to directors for attending meetings during the years
ended December 31, 1995 and 1996.
23. GUARANTEES:
(a) Domestic:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1995 1996
THCH$ THCH$
------- ------
<S> <C> <C>
Guarantee in favor of VTR Telecomunicaciones................ -- 21,244
Performance bond D No. 176588 in favor of Santiago Fourth
Civil Court............................................... 15,000 --
Promissory note in favor of Banco Sud Americano to cover a
current account overdraft contract for an amount at
December 31, 1995......................................... 160,000 --
------- ------
Total domestic guarantees................................... 175,000 21,244
======= ======
</TABLE>
F-43
<PAGE> 166
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
23. GUARANTEES, CONTINUED:
(b) International:
Stand-by letter of credit in the amount of ThUS$ 8,000 at December 31, 1995
and 1996, given by its majority shareholder, Iusacell, in favor of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1995 1996
THUS$ THUS$
------ ------
<S> <C> <C>
Banco Sud Americano (Bank of Nova Scotia N.Y.).............. 4,500 8,000
Citibank N.A. (N.Y.)........................................ 3,500 --
----- -----
8,000 8,000
===== =====
</TABLE>
24. CONTINGENCIES AND COMMITMENTS:
The Company is unaware of any significant contingencies or commitments
affecting the financial statements.
25. RELEVANT FACTS:
1. On November 29, 1995, the minority shareholders, Inversiones y Servicios
Santa Teresa Ltda. and Sergio Munoz ("Minority Shareholders"), filed a
claim for compensatory damages against Iusacell, in an attempt to
prevent Iusacell from increasing its ownership interest in the Company,
through the capitalization of the amounts advanced to Iusatel, as
described in Note 15(b). This decision was appealed and on May 20, 1996,
and was subsequently rejected by the Chilean Supreme Court.
2. An extraordinary meeting of the board of directors held on June 27,
1996, agreed to accept the resignation of then, general manager of the
Company, Gaston Pereira, and appointed Luis Alberto Reyes as interim
general manager and Alberto Herrerias as executive director of the
Company.
26. STATEMENT OF CASH FLOWS:
(a) Other sources of financing for the year ended December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1996
THCH$
---------
<S> <C>
Iusacell capital contribution (Note 15(b)).................. 1,708,780
=========
</TABLE>
(b) The following financing activities did not result in cash outflows
during the current year but commit future cash flows:
<TABLE>
<CAPTION>
1996
THCH$
-------
<S> <C>
Purchase of Switch (Siemens)................................ 282,611
PCS call processing platform machine........................ 51,414
-------
Total....................................................... 334,025
=======
</TABLE>
F-44
<PAGE> 167
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
27. SUBSEQUENT EVENTS:
At the extraordinary shareholders meeting held on January 24, 1997, the
following resolutions, among others were adopted:
(a) The 45,613 Series A and B shares were eliminated and were replaced by a
single series of shares.
(b) The paid-in capital, amounting to Ch$ 713,441,959 at December 31, 1996,
and being subscribed and paid, was agreed to be increased to a total
amount of Ch$ 11,968,177,959, representing 1,125,519,213 shares with no
par value, through the issuance of 1,125,473,600 new shares.
(c) Iusacell subscribed and paid for 573,991,536 shares, representing 51%
of the agreed capital increase, in the following manner:
* Ch$ 3,411,817,157 representing the Company's bank liability to
Banco Sud Americano which Iusacell paid on behalf of the Company
on January 4, 1997.
* Ch$ 2,328,098,143 representing the capitalization of long-term
amounts payable to related companies restated at December 31,
1996, comprising contributions made previously by Iusacell for
future capital increases.
The remaining 49% of the above mentioned agreed capital increase was
left available for subscription for a period of three years. These
capital increases are subject to the approval of the Superintendency.
In addition to the above share issuance that has substantially improved
liquidity, the Company has been involved in continuous efforts to formulate
a restructuring plan to improve future operations. Such efforts have
resulted in the development of a new business plan and strategy to address
the Company's current financial situation and disappointing recent
financial performance.
28. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
Chilean GAAP varies in certain important respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Such
differences involve methods for measuring the amounts shown in the
financial statements, as well as additional disclosures required by U.S.
GAAP.
(a) Differences in Measurement Methods
The principal methods applied in the preparation of the accompanying
financial statements which have resulted in amounts that differ from those
that would have otherwise been determined under U.S. GAAP are as follows:
(i) Inflation accounting:
Chilean GAAP requires that the financial statements be restated to reflect
the full effects of loss in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The
method, described in Note 2(c), is based on a model which enables
calculation of net inflation gains or losses caused by monetary assets and
liabilities exposed to changes in the purchasing
F-45
<PAGE> 168
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
28. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONTINUED:
(a) Differences in Measurement Methods, continued:
power of local currency. The model prescribes that the historical cost of
all non-monetary accounts be restated for general price-level changes
between the date of origin of each item and the year-end, but allows direct
utilization of latest cost values for the restatement of inventories, as an
alternative to the price-level restatement of those assets only if the
resulting variation is not material.
The inclusion of price-level adjustments in the accompanying financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Chilean economy. Accordingly, the effect of
price-level changes is not eliminated in the reconciliation to U.S. GAAP
included under paragraph (a)(v) below.
(ii) Income taxes:
The accounting treatment of income taxes under Chilean GAAP and U.S. GAAP
differs in respect to accounting for deferred income taxes. Under U.S.
GAAP, prescribed by Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes", all temporary differences arising
as a result of transactions that have different accounting and tax
treatments are recognized as deferred tax assets and liabilities as of the
balance sheet date. A valuation allowance is provided against deferred tax
assets that are not recoverable on a more-likely-than-not basis. Under
Chilean GAAP, only deferred tax assets and liabilities that are
non-recurring are recognized in the financial statements. Chilean GAAP also
permits not providing for deferred income taxes where a deferred tax asset
or liability is not expected to be realized.
The Company has deferred tax assets relating to tax loss carryforwards
amounting to ThCh$ 481,241 and ThCh$ 709,008, at December 31, 1995 and
1996, respectively, for which the Company has recorded a full valuation
allowance due to the uncertainty of the realization of such tax loss
carryforwards.
The Company's management considers that the net effect of applying SFAS No.
109 for all periods presented in paragraph (a)(v) below to be immaterial.
(iii) Impairment of Long-Lived Assets:
Under U.S. GAAP, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of ", requires that assets
to be disposed of be valued at the lower of carrying amount or fair value
less cost to sell. Furthermore, companies are required to review long-lived
assets and certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized. Measurement of
an impairment loss for long-lived assets and identifiable intangibles that
an entity expects to hold and use should be based on the fair value of the
asset. Under Chilean GAAP, the
F-46
<PAGE> 169
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
28. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONTINUED:
(iii) Impairment of Long-Lived Assets, continued:
impairment loss related to the Company's long-lived assets was recorded in
the period that the Company's management decided to dispose of such assets.
The effect of the application of SFAS No. 121 is presented in paragraph
(a)(v) below.
Under U.S. GAAP, such adjustments would be included in the operating costs
of the Company.
(iv) Allowance for doubtful accounts
Based upon information available subsequent to the release date of the
Chilean financial statements, the Company reduced its estimate of
recoverable amounts related to certain accounts receivable which existed as
of December 31, 1996. As a result of this change in estimate, an additional
allowance for doubtful accounts has been recorded for U.S. GAAP purposes.
The effect of the above adjustment is presented in paragraph (a)(v) below.
(v) Effects of conforming to U.S. GAAP:
The adjustments to reported Net income required to conform with U.S. GAAP
are as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTH PERIOD
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1996 1997
THCH$ THCH$ THCH$
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net loss as shown in the Chilean GAAP
financial statements........................ (2,580,230) (1,505,508) (1,227,894)
Impairment of long-lived assets (paragraph
a(iii))..................................... -- (199,829) 199,829
Allowance for doubtful accounts (paragraph
a(iv))...................................... -- (293,998) 293,998
---------- ---------- -----------
Subtotal...................................... -- (493,827) 493,827
Deferred tax effect of the above
adjustments................................. -- 74,074 (74,074)
---------- ---------- -----------
Net loss in accordance with U.S. GAAP......... (2,580,230) (1,925,261) (808,141)
========== ========== ===========
U.S. GAAP loss per share...................... (56.57) (42.21) 0.0015
========== ========== ===========
Weighted average number of common stock
outstanding (Note 20)....................... 45,613 45,613 533,059,355
========== ========== ===========
</TABLE>
F-47
<PAGE> 170
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
28. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONTINUED:
(vi) Effects of conforming to U.S. GAAP:
The adjustments required to conform to shareholders' equity amounts with
U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE
NINE MONTH
FOR THE YEARS ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1995 1996 1997
THCH$ THCH$ THCH$
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Shareholders' equity as shown in the Chilean GAAP
financial statements............................ (2,705,421) (4,210,929) 337,764
Impairment of long-lived assets (paragraph
a(iii))......................................... -- (199,829) --
Allowance for doubtful accounts (paragraph
a(iv)).......................................... -- (293,998) --
---------- ---------- --------
Subtotal.......................................... -- (493,827) --
Deferred tax effect of the above adjustments...... -- 74,074 --
---------- ---------- --------
Shareholders' equity in accordance with U.S.
GAAP............................................ (2,705,421) (4,630,682) 337,764
========== ========== ========
</TABLE>
F-48
<PAGE> 171
IUSATEL CHILE S.A.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
28. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONTINUED:
(b) Additional Disclosure:
(i) Statements of Cash Flows:
Information for inclusion in the statement of cash flows presented in U.S.
GAAP format is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ --------------
1995 1996 1997
THCH$ THCH$ THCH$
---------- ---------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. (2,580,230) (1,505,508) (1,227,894)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 162,203 223,279 146,287
Provision for losses on accounts receivable............. 45,422 433,914 264,504
Gain on sale of fixed assets............................ 203 --
Write-off of fixed assets............................... -- -- 221,623
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............ (553,014) (1,014,774) 194,297
---------- ---------- ----------
Decrease in inventories............................... (627) (4,691) (95)
(Increase) decrease in taxes recoverable.............. (55,946) 15,212 79,029
(Increase) decrease in prepaid expenses............... (150,341) 30,037 132,997
(Increase) decrease in other assets................... (29,352) (3,684) 27,770
Increase (decrease) in accounts payable............... 146,427 107,936 (169,162)
Increase (decrease) in accrued liabilities and
other............................................... 300,625 (101,419) 161,125
---------- ---------- ----------
Net cash used by operating activities....................... (2,714,630) (1,819,698) (169,519)
---------- ---------- ----------
Cash flow from investing activities:
Acquisition of fixed assets............................... (274,734) (171,534) (41,777)
---------- ---------- ----------
Net cash (used) provided by investing activities............ (274,734) (171,534) (41,777)
---------- ---------- ----------
Cash flow from financing activities:
Net decrease in short-term bank liabilities............... 2,236,641 (31,284) 14,202
Payments on capital lease obligations..................... -- (68,588) (87,165)
Net increase (decrease) in notes payable.................. 124,211 246,992 87,843
Increase in amounts payable to related parties............ 699,890 1,795,795 259,676
---------- ---------- ----------
Net cash provided (used) by financing activities............ 3,060,742 1,942,915 274,556
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........ 71,378 (48,317) 63,260
---------- ---------- ----------
Cash and cash equivalents at beginning of period............ 697 72,075 24,685
========== ========== ==========
Cash and cash equivalents at end of period.................. 72,075 23,758 87,945
========== ========== ==========
Supplemental Cash Flow Information:
Interest paid............................................. 99,099 220,340
Supplemental Non-cash Investing and Financing Activities:
a. During the two years ended December 31, 1995 and 1996,
Iusatel financed certain capital expenditures totaling ThCh$
274,280 and ThCh$ 205,692, respectively, by entering into
capital leasing arrangements.
b. During the two years ended December 31, 1995 and 1996,
Iusatel acquired assets and assumed a corresponding
liability with related parties totaling ThCh$ 51,204 and
ThCh$ 385,774, respectively.
</TABLE>
F-49
<PAGE> 172
=========================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE MAKING OF THE
EXCHANGE OFFER PURSUANT TO THIS PROSPECTUS NOR THE ACCEPTANCE OF THE EXISTING
NOTES FOR SURRENDER FOR EXCHANGE PURSUANT THERETO SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice to New Hampshire Residents.... 2
Exchange Rate Data................... 3
Available Information................ 4
Prospectus Summary................... 5
Risk Factors......................... 13
Convertible Debentures............... 23
Use of Proceeds...................... 24
Capitalization....................... 25
Unaudited Pro Forma Condensed
Combined Financial Information..... 26
Selected Historical Financial Data... 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 36
Business............................. 44
Management........................... 67
Certain Relationships and Related
Party Transactions................. 72
Selling Stockholders................. 74
Description of Senior Notes.......... 79
Description of Capital Stock......... 110
Shares Eligible for Future Sale...... 114
Plan of Distribution................. 115
Legal Matters........................ 115
Experts.............................. 116
Glossary of Defined Terms............ 117
Index to Financial Statements........ F-1
</TABLE>
=========================================================
=========================================================
[INTERAMERICAS COMMUNICATIONS LOGO]
------------------------
COMMON STOCK
------------------------
------------------------
, 1997
=========================================================
<PAGE> 173
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering, all of which are to be paid by the
Registrant, in connection with the issuance and distribution of the securities
registered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Miscellaneous Expenses...................................... *
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ICCA's Articles of Incorporation and By-laws contain certain provisions
that eliminate the liability of its director and officers to the fullest extent
permitted by the Texas Business Corporation Act, except that they do not
eliminate liability for: (i) any breach of the duty of loyalty to the Company or
its shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act or omission
for which the liability of a director is expressly provided by an applicable
statute; or (iv) any transaction from which the director derived an improper
personal benefit. The Texas Business Corporation Act provides that Texas
corporations may indemnify any director, officer or employee made or threatened
to be made a party to a proceeding, by reason of the former or present official
capacity of such person, if such person (i) conducted himself in good faith and
(ii) reasonably believed that his conduct was not unlawful and opposed to the
corporation's best interests. The indemnification provision does not permit
indemnification of officers, directors and employees (i) when such persons are
found liable to the corporation or (ii) for any transaction from which such
person derive improper personal benefits. The foregoing provisions may reduce
the likelihood of derivative litigation against directors, officers and
employees of the Company and may discourage or deter shareholders or management
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties, even though such an action, if successful, might otherwise
have benefited the Company and its shareholders.
The Company has entered into an indemnification agreement with each
director (an "Indemnitee"). Pursuant to the indemnification agreement, the
Company will indemnify an Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by the
agreement, ICCA's Articles of Incorporation and By-laws, or statute. In
addition, the Company will indemnify each Indemnitee against any and all
expenses incurred in connection with claims relating to the fact that such
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company or any subsidiary of the Company, and the Company will advance all such
expenses. The Company maintains directors' and officers' liability insurance.
II-1
<PAGE> 174
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
3.1 -- Articles of Incorporation of InterAmericas Communications
Corporation previously filed as an Exhibit to the
Registrant's Form 8-A Registration Statement, filed with the
Commission on November 29, 1994 and incorporated herein by
reference.
3.2 -- By-laws of InterAmericas Communications Corporation
previously filed as an Exhibit to the Registrant's Form 8-A
Registration Statement, filed with the Commission on
November 29, 1994 and incorporated herein by reference.
4.1 -- Purchase Agreement, dated as of October 21, 1997 by and
among InterAmericas Communications Corporation, Hewster
Chile S.A. Red de Servicios Empresariales de
Telecomunicaciones S.A. and UBS Securities LLC previously
filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997
and incorporated herein by reference.
4.2 -- Form of Existing Note previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein
by reference.
4.3 -- Indenture, dated as of October 27, 1997 between
InterAmericas Communications Corporation and State Street
Bank & Trust Company, N.A. previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein
by reference.
4.4 -- A/B Exchange Registration Rights Agreement, dated as of
October 27, 1997, between InterAmericas Communications
Corporation and UBS Securities LLC previously filed as an
exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and
incorporated herein by reference.
4.5 -- Warrant Agreement, dated as of October 27, 1997, between the
Company and State Street Bank & Trust Company, N.A.
previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December
10, 1997 and incorporated herein by reference.
4.6 -- Warrant Registration Rights Agreement, dated as of October
27, 1997 between InterAmericas Communications Corporation
and UBS Securities LLC previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein
by reference.
4.7 -- Specimen of InterAmericas Communications Corporation 14%
Senior Note due October 27, 2007 previously filed as an
exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and
incorporated herein by reference.
4.8 -- Proceeds Pledge and Escrow Agreement, dated as of October
27, 1997 between InterAmericas Communications Corporation
and State Street Bank and Trust Company, N.A. previously
filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997
and incorporated herein by reference.
5.1 -- Opinion and Consent of Baker & McKenzie regarding validity
of the Senior Notes (to be filed by amendment).
8.1 -- Opinion re tax matters (to be filed by amendment).
10.1 -- Stock Purchase Agreement, dated as of September 9, 1997,
between InterAmericas Communications Corporation and
Inversiones Druma S.A. for the acquisition of 99.9% of the
outstanding shares of capital of Iusatel Chile S.A.,
previously filed as an exhibit to Registrant's Current
Report on Form 8-K, filed with the Commission on September
24, 1997 and incorporated herein by reference.
10.2 -- Employment and Severance Agreement, dated as of October 7,
1997, between InterAmericas Communications Corporation and
Patricio E. Northland, previously filed as an exhibit to
Registrant's Current Report on Form 8-K filed with the
Commission on October 16, 1997 and incorporated herein by
reference.
</TABLE>
II-2
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
10.3 -- Settlement Agreement, dated as of October 4, 1997, between
InterAmericas Communications Corporation and each of Maroon
Bells Capital Partners, Inc., Theodore Swindells, Paul A.
Moore and Philip Magiera, previously filed as an exhibit to
Registrant's Current Report on Form 8-K filed with the
Commission on October 16, 1997 and incorporated herein by
reference.
10.4 -- Settlement Agreement, dated as of October 3, 1997, between
InterAmericas Communications Corporation and Eleazar Donoso,
previously filed as an exhibit to Registrant's Current
Report on Form 8-K filed with the Commission on October 16,
1997 and incorporated herein by reference.
15.1 -- Letter re Interim Unaudited Financial Statements (to be
filed by amendment).
21.1 -- Subsidiaries of the Company previously filed as an exhibit
to Registrant's Registration Statement on Form S-4, filed
with the Commission on December 10, 1997 and incorporated
herein by reference.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Coopers & Lybrand/Langton Clarke y Cia.
23.3 -- Consent of Baker & Mckenzie (included in Exhibit 5.1).
25.1 -- Statement of Eligibility of State Street Bank and Trust
Company, N.A. previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by
reference.
27.1 -- Financial Data Schedule previously filed as an exhibit to
Registrant's Quarterly Report on Form 10-QSB, filed with the
Commission on November 13, 1997.
99.1 -- Form of Letter of Transmittal previously filed as an exhibit
to Registrant's Registration Statement on Form S-4, filed
with the Commission on December 10, 1997 and incorporated
herein by reference.
99.2 -- Form of Notice of Guaranteed Delivery previously filed as an
exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and
incorporated herein by reference.
99.3 -- Form of Exchange Agent Agreement previously filed as an
exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and
incorporated herein by reference.
99.4 -- Form of Information Agent Agreement previously filed as an
exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and
incorporated herein by reference.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-3
<PAGE> 176
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions of its Articles of Incorporation and
By-Laws, of the Texas Business Corporation Act, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the issuer of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida on December 10, 1997.
INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ DOUGLAS G. GEIB II
--------------------------------------
Name: Douglas G. Geib II
Title: Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes each of
Patricio E. Northland and Douglas G. Geib II as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PATRICIO E. NORTHLAND Chairman of the Board of December 10, 1997
- ----------------------------------------------------- Directors, President and
Patricio E. Northland Chief Executive Officer
(Principal Executive
Officer)
/s/ DOUGLAS G. GEIB II Chief Financial Officer December 10, 1997
- ----------------------------------------------------- and Director (Principal
Douglas G. Geib II Financial and Accounting
Officer)
/s/ DAVID C. KLEINMAN Director December 10, 1997
- -----------------------------------------------------
David C. Kleinman
/s/ GEORGE A. CARGILL Director December 10, 1997
- -----------------------------------------------------
George A. Cargill
/s/ PATRICIO SILVA ECHENIQUE Director December 10, 1997
- -----------------------------------------------------
Patricio Silva Echenique
</TABLE>
II-5
<PAGE> 178
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Coopers & Lybrand/Langton Clarke y Cia.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of InterAmericas Communications Corporation
of our report dated April 11, 1997 (except for Note 15, for which the date is
October 27, 1997) relating to the financial statements of InterAmericas
Communications Corporation, which appears in such Prospectus. We also consent to
the references to us under the headings "Experts", "Summary Condensed
Consolidated Historical and Pro Forma Combined Financial Data" and "Selected
Historical Financial Data" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Summary Condensed
Consolidated Historical and Pro Forma Combined Financial Data" and "Selected
Historical Financial Data."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Miami, Florida
December 9, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of
our report dated February 7, 1997 (except for Notes 27 and 28 for which the date
is August 11, 1997) on our audits of the financial statements of Iusatel Chile
S.A. at December 31, 1995 and 1996 and for the two years in the period ended
December 31, 1996. We also consent to the reference to our firm under the
caption "Experts."
/s/ JUAN PABLO HESS
- ------------------------------------------------------
Santiago Chile, December 9, 1997
LANGTON CLARKE
COOPERS & LYBRAND
