AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998
REGISTRATION NO. 333-41843
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTERAMERICAS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 4813 87-0464860
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
2600 DOUGLAS ROAD, SUITE 501
CORAL GABLES, FLORIDA 33134
TELEPHONE: (305) 448-4422
(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
2600 DOUGLAS ROAD, SUITE 501
CORAL GABLES, FLORIDA 33134
TELEPHONE: (305) 448-4422
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies of Communications to:
ANDREW HULSH, ESQ.
BAKER & MCKENZIE
701 BRICKELL AVENUE, SUITE 1600
MIAMI, FLORIDA 33131
TELEPHONE: (305) 789-8900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and read the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENTBECOMES
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 MARCH 18, 1998
PROSPECTUS
[INTERAMERICAS COMMUNICATIONS LOGO]
OFFER TO EXCHANGE
14% SENIOR NOTES DUE OCTOBER 27, 2007,
FOR ALL OUTSTANDING 14% SENIOR NOTES DUE OCTOBER 27, 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998 UNLESS EXTENDED.
InterAmericas Communications Corporation, a Texas corporation ("ICCA"
and, together with its subsidiaries, the "Company") hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 14% Senior Notes due
October 27, 2007 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its issued and outstanding
14% Senior Notes due October 27, 2007 (the "Existing Notes" or "Senior
Notes"), of which $150.0 million in aggregate principal amount are outstanding
as of the date hereof. The Existing Notes were originally issued and sold by
ICCA in a transaction that was exempt from the registration requirements of
The Securities Act, as part of an offering by ICCA (the "Initial Offering" or
"Senior Note Offering") of 150,000 Units (the "Units"). The Initial Offering
was consummated on October 27, 1997 (the "Closing Date"). Each Unit issued in
the Initial Offering consisted of (i) $1,000 principal amount of Existing
Notes and (ii) 35 warrants (collectively, the "Warrants"), each Warrant
representing the right to purchase one share of Common Stock, .001 par value,
of ICCA (the "Common Stock), at an exercise price of $4.40 per share. The
Existing Notes and Warrants will be separately tradable upon the effectiveness
of this Registration Statement. The Existing Notes and Warrants are sometimes
referred to herein as the "Private Securities".
The form and terms of the New Notes are the same as the form and terms of
the Existing 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 New Notes will evidence the same indebtedness as the
Existing Notes (which they replace) and will be entitled to the benefits of an
indenture dated as of October 27, 1997 governing the Existing Notes and the
New Notes (the "Indenture"). Interest on the New Notes will be payable
semi-annually on April 27 and October 27 of each year commencing on April 27,
1998. The New Notes will bear interest from and including October 27, 1997.
Holders (as defined herein) whose Existing Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on the
Existing Notes. The Existing Notes and the New Notes are sometimes referred to
herein collectively as the "Senior Notes." See "The Exchange Offer" and
"Description of New Notes."
---------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT
IN THE NEW NOTES.
---------------------
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.
---------------------
The date of this Prospectus is , 1998
<PAGE>
The Senior Notes will be redeemable at the option of ICCA, in whole or in
part, at any time on or after October 27, 2002, at the redemption prices set
forth herein plus accrued and unpaid interest and Liquidated Damages (as
defined herein), if any, to the date of redemption. In addition, at the option
of ICCA, up to 33 1/3% of the aggregate principal amount of Senior Notes may
be redeemed at any time on or prior to October 27, 2000 at a redemption price
of 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 ICCA after the date of the Indenture from the issuance
and sale of its Qualified Capital Stock (as defined herein) to the public in a
registered public offering or one or more Strategic Equity Investors (as
defined herein) to the extent that such cash proceeds have been, and continue
to be, designated as Designated Equity Proceeds (as defined herein) 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 occurs within 45 days of the date of
the closing of any such public offering or sale to such Strategic Equity
Investors. In the event of a Change of Control, Holders of the Senior Notes
will have the right to require ICCA to purchase their Senior Notes, in whole
or in part, at a price 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. There can be no assurance that ICCA will have the
financial resources necessary to repurchase the Senior Notes upon a Change of
Control. See "Risk Factors -- Risks Related to Change of Control Provision."
The New Notes will rank senior in right of payment to all subordinated
indebtedness of ICCA incurred in the future, if any. The New Notes will rank
pari passu in right of payment of all senior indebtedness of ICCA incurred in
the future, if any. The New Notes will be secured by a first priority pledge
pursuant to the Proceeds Pledge and Escrow Agreement (as defined herein). See
"Description of New Notes -- Proceeds Pledge and Escrow Agreement." All of the
operations of ICCA are conducted through its subsidiaries and, therefore, ICCA
is dependent upon the cash flow of its subsidiaries to meet its obligations,
including its obligations under the New Notes. The obligations under the New
Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations)
of ICCA's subsidiaries. Any right of ICCA to receive assets of any of its
subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of the New Notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that ICCA is itself recognized as a creditor
of such subsidiary and any indebtedness of such subsidiary senior to that held
by ICCA. As of December 31, 1997, ICCA's subsidiaries had approximately
$679,000 of indebtedness and $5.0 million of trade payables and other
liabilities outstanding. In addition, under the Indenture, ICCA's subsidiaries
are permitted to incur certain additional indebtedness (as defined herein),
the terms of which may restrict the ability of its subsidiaries to pay
dividends to ICCA. See "Description of New Notes -- Certain Covenants -
Incurrence of Indebtedness and Issuance of Preferred Stock" and "Risk Factors
- -- Holding Company Structure; Inability to Access Cash Flow."
The Company will accept for exchange any and all validly tendered
Existing Notes not withdrawn prior to 5:00 p.m., New York City time, on
, 1998 unless extended by the Company, in its sole discretion (the "Expiration
Date"). Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer -- Conditions." Existing Notes may be
tendered only in integral multiples of $1,000.
Holders of Existing Notes whose Existing Notes are not tendered and
accepted in the Exchange Offer will continue to hold such Existing Notes and
will be entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Existing Notes will continue to be subject
to the existing restrictions upon transfer thereof and the Company will have
no further obligation to such holders to provide for the registration under
the Securities Act of the Existing Notes held by them; provided, however,
that, if any Holder of the Existing Notes notifies ICCA within 20 days of the
consummation of the Exchange Offer: (A) that such
(i)
<PAGE>
Holder is prohibited by applicable law or Commission policy from participating
in the Exchange Offer, or (B) that such Holder may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement (as defined herein) is not appropriate or available for
such resales by such Holder, or (C) that such Holder is a broker- dealer and
holds Existing Notes acquired directly from the Company or one of its
affiliates, then the Company shall: cause to be filed a Shelf Registration
Statement (as defined herein) pursuant to Rule 415 under the Securities Act,
which may be an amendment to the Exchange Offer Registration Statement on or
prior to the Shelf Filing Deadline (as defined herein), which Shelf
Registration Statement shall provide for resales of all Existing Notes. In the
event of a Registration Default (as defined in the Registration Rights
Agreement), the Company is required to pay Liquidated Damages. See "The
Exchange Offer -- Liquidated Damages" and "Description of New Notes --
Registration Rights; Liquidated Damages."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the A/B Exchange Registration Rights
Agreement dated as of October 27, 1997 (the "Registration Rights Agreement")
between the Company and the Initial Purchaser (as defined herein). ICCA makes
the Exchange Offer in reliance on the position of the Staff of the Securities
and Exchange Commission (the "Commission") as set forth in certain no-action
letters issued to other parties in other transactions. However, the Company
has not sought its own no-action letter and there can be no assurance that the
Staff of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Based on these interpretations
of the Staff of the Commission, the Company believes that the New Notes issued
pursuant to this Exchange Offer in exchange for Existing Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any such holder which is (i) a broker-dealer who acquired such Existing Notes
directly from the Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that the holder is acquiring the
New Notes in the ordinary course of its business and is not participating,
does not intend to participate, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Holders of
Existing Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer that receives the New Notes for
its own account in exchange for the Existing Notes, where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has
indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any
such resale for a period of 120 days after the Expiration Date. See "Plan of
Distribution." The Company believes that none of the registered holders of the
Existing Notes is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company.
The Private Securities have been designated eligible for trading in the
Private Initial Offerings, Resales and Trading through Automated Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc. (the
"NASD"). The Company does not intend to list the New Notes on any national
securities exchange or to seek the trading thereof through any automated
quotation system. The Company has been advised by UBS Securities LLC, the
Initial Purchaser (the "Initial Purchaser") of the Units in the Initial
Offering, that it currently intends to make a market in the New Notes.
However, the Initial Purchaser is not obligated to do so and any market-making
activities with respect to the New Notes may be discontinued at any time
without notice. In addition, such market making activity will be subject to
certain limitations
(ii)
<PAGE>
imposed by the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Accordingly, no assurance can be given regarding the future development
of a market for the New Notes, or the ability of holders of the New Notes to
sell their New Notes or the price at which such holders may be able to sell
their New Notes. If such a market were to develop, the New Notes could trade
at prices that may be higher or lower than the initial public offering price
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. See "Risk Factors --
Lack of Public Market."
The Company will not receive any proceeds from, and has agreed to bear
all registration expenses of, the Exchange Offer. See "Use of Proceeds." No
dealer-manager is being used in connection with this Exchange Offer. See "Plan
of Distribution" and "The Exchange Offer -- Resale of New Notes."
The Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "ICCA." On February 25, 1998, the last sale price for the Common
Stock as reported by Nasdaq was $2.31 per share.
(iii)
<PAGE>
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 OR THE ACCOMPANYING LETTER OF TRANSMITTAL 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 OR THE ACCOMPANYING LETTER OF TRANSMITTAL 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 AND THE ACCOMPANYING LETTER OF
TRANSMITTAL DO 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.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS EXCHANGE
OFFER), ALL DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of one or more fully registered global notes which will
be deposited with, or on behalf of, the Depositary (as defined herein) and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the global note representing the New Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary and its participants. After the initial issuance of such global
note, New Notes in certificated form will be issued in exchange for the global
note only as set forth in the Indenture. See "Description of Senior Notes --
Book Entry."
---------------------
1
<PAGE>
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>
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
Year ended December 31, 1997 2.73 2.61 2.66 2.72
<FN>
- ---------------
Source: Extel Pricing Database.
(1) Average daily exchange rate.
</TABLE>
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
Year ended September 30, 1997 439.81 411.85 419.31 439.81
<FN>
- ---------------
Source: Extel Pricing Database and Chilean Central Bank.
(1) Average daily exchange rate.
</TABLE>
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>
AVAILABLE INFORMATION
ICCA has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the New Notes 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 New Notes
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.
Pursuant to the Indenture, the Company has agreed to furnish to the
Trustee and to registered holders of the Senior Notes, without cost to the
Trustee or such registered holders, copies of all reports and other
information that would be required to be filed by the Company with the
Commission under the Exchange Act, whether or not ICCA is then required to
file reports with the Commission. In the event that ICCA ceases to be subject
to the informational requirements of the Exchange Act, ICCA has agreed that,
so long as any Senior Notes remain outstanding, it will file with the
Commission (but only if the Commission at such time is accepting such
voluntary filings) and distribute to holders of the Senior Notes, as
applicable, copies of the financial information that would have been contained
in such annual reports and quarterly reports, including management's
discussion and analysis of financial condition and results of operations, that
would have been required to be filed with the Commission pursuant to the
Exchange Act. ICCA will also furnish such other reports as it may determine or
as may be required by law.
4
<PAGE>
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 a new management team, the Company has
focused on the development and operation of high capacity fiber optic networks
in Lima, Peru and Santiago, Chile.
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 90 kilometer
digital fiber optic network in Lima, Peru, which the Company intends to expand
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 concessions to provide (i) voice
and data transmission services and value added services on a private line
basis and (ii) public switched domestic 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
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 services offerings and significantly
increase its revenues in Chile.
In December 1997, the Company acquired FirstCom Long Distance, S.A.
("FirstCom Long Distance"), formerly Iusatel Chile, S.A., an operating
company in Santiago, Chile, which provides domestic and international long
distance services. FirstCom Long Distance's long distance traffic is switched
and transported, in part, 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 FirstCom Long Distance
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.
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 ATM 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 Internet users throughout Latin America.
5
<PAGE>
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 -- Peru --
Country Strategy," and " -- Chile -- 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 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, LAN to LAN interconnections, PBX and
private telephone networks.
UNIFY MARKETING IDENTITY
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.
In this regard, the Company has filed an application to register the name
"FirstCom" in Chile, Peru and the United States. 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 Company was incorporated in Nevada in April 1989 and reincorporated in
Texas in July 1994. The Company's principal executive offices are located at
2600 Douglas Road,Suite 501, Coral Gables, Florida 33134, and its telephone
number at such offices is (305) 448-4422.
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
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The Exchange Offer
<S> <C>
THE EXCHANGE OFFER: . . . . . . . . . . The Company is hereby offering to exchange $1,000
principal amount of New Notes for each $1,000 principal
amount of Existing Notes that are properly tendered and
accepted. The Company will issue New Notes on or
promptly after the Expiration Date. There is $150.0
million aggregate principal amount of Existing Notes
outstanding. See "The Exchange Offer."
ICCA makes this Exchange Offer in reliance on the position of the
Staff of the Commission as set forth in certain no-action
letters issued to other parties in other transactions. However,
the Company has not sought its own no-action
letter and there can be no assurance that the Staff of the
Commission would make a similar determination with
respect to the Exchange Offer as in such other
circumstances. Based on these interpretations of the
Staff of the Commission, the Company believes that the
New Notes issued pursuant to this Exchange Offer in
exchange for Existing Notes may be offered for resale,
resold and otherwise transferred by holders thereof
(other than any such holder which is (i) a broker-dealer
who acquired the Existing Notes directly from the
Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder
is acquiring the New Notes in the ordinary course of its
business and is not participating, does not intend to
participate, and has no arrangement or understanding
with any person to participate, in the distribution of the
New Notes. Each broker-dealer that receives the New
Notes for its own account in exchange for the Existing
Notes, where such Existing Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any
resale of such New Notes.
7
<PAGE>
REGISTRATION RIGHTS
AGREEMENT:. . . . . . . . . . . . . . The Existing Notes and Warrants were sold by the
Company on October 27, 1997 to the Initial Purchaser
pursuant to a Purchase Agreement dated October 21,
1997 by and between the Company and the Initial
Purchaser (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, ICCA and the Initial Purchaser
entered into the Registration Rights Agreement, which
grants the holders of the Existing Notes certain
exchange and registration rights. See "The Exchange
Offer -- Termination of Certain Rights." This Exchange
Offer is intended to satisfy such rights, which terminate
upon the consummation of the Exchange Offer. The
holders of the New Notes are not entitled to any
exchange or registration rights with respect to the New
Notes.
EXPIRATION DATE:. . . . . . . . . . . . The Exchange Offer will expire at 5:00 p.m., New York
City time, on, , 1998 unless the Exchange Offer
is extended by the Company in its sole discretion, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE NEW
NOTES AND EXISTING NOTES: . . . . . . The New Notes will bear interest from and including
October 27, 1997. Holders whose Existing Notes are
accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the Existing
Notes.
CONDITIONS TO THE EXCHANGE
OFFER:. . . . . . . . . . . . . . . . The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration Date
upon the occurrence of any such condition. See "The
Exchange Offer -- Conditions." The Exchange Offer is
not conditioned upon any minimum aggregate principal
amount of Existing Notes being tendered for exchange.
PROCEDURES FOR TENDERING
EXISTING NOTES: . . . . . . . . . . . Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Existing Notes and any
other required documentation to State Street Bank &
Trust Company, N.A. as Exchange Agent, at the
address set forth therein. By executing the Letter of
Transmittal, each holder will represent to the Company
that, among other things, (i) the New Notes to be
acquired by the holder of the Existing Notes in
connection with the Exchange Offer are being acquired
by the holder in the ordinary course of business of the
holder; (ii) the holder has no arrangement or
understanding with any person to participate in the
distribution of New Notes; (iii) the holder acknowledges
and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in
the Exchange Offer for the purposes of distributing the
New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the
New Notes acquired by such person and cannot rely on
the position of the Staff of the Commission set forth in
no-action letters (See "The Exchange Offer -- Resale of
New Notes"); (iv) the holder understands that a
secondary resale transaction described in clause (iii)
above and any resales of New Notes obtained by such
holder in exchange for Existing Notes acquired by such
holder directly from ICCA should be covered by an
effective registration statement containing the selling
securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the
Commission; and (v) the holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will
receive New Notes for its own account in exchange for
Existing Notes that were acquired as a result of market-
making activities or other trading activities, the holder is
required to acknowledge in the Letter of Transmittal that
it will deliver a prospectus in connection with any resale
of such New Notes; however, by so acknowledging and
by delivering a prospectus, the holder will not be
deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange Offer
-- Procedure for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS:. . . . . . . . . . Any beneficial owner whose Existing Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes
to tender such Existing Notes in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. See "The Exchange Offer -
Procedures for Tendering." If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter
of Transmittal and delivering his Existing Notes, either
make appropriate arrangements to register ownership of
the Existing Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date.
8
<PAGE>
GUARANTEED DELIVERY
PROCEDURES: . . . . . . . . . . . . . Holders of Existing Notes who wish to tender their
Existing Notes and whose Existing Notes are not
immediately available or who cannot deliver their
Existing Notes, the Letter of Transmittal or any other
Street Bank & Trust Company, as Exchange Agent, prior
to the Expiration Date, must tender their Existing Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
ACCEPTANCE OF THE EXISTING
NOTES AND DELIVERY OF THE
NEW NOTES:. . . . . . . . . . . . . . Subject to the satisfaction or waiver of the conditions to
the Exchange Offer, the Company will accept for
exchange any and all Existing Notes which are properly
tendered in the Exchange Offer prior to the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered on or promptly after the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
WITHDRAWAL RIGHTS:. . . . . . . . . . . Tenders of Existing Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange Offer -
Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS: . . . . . . . . . . . For a discussion of certain federal income tax
considerations relating to the exchange of the New
Notes for the Existing Notes, see "Certain Federal
Income Tax Considerations."
EXCHANGE AGENT: . . . . . . . . . . . . State Street Bank & Trust Company, N.A. is serving as
the exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
INFORMATION AGENT:. . . . . . . . . . . Kissell Blake, Inc. is serving as the information agent
(the "Information Agent") in connection with the
Exchange Offer. See "The Exchange Offer - Information
Agent."
REMAINING EXISTING NOTES: . . . . . . . Holders of Existing Notes who do not tender their
Existing Notes in the Exchange Offer or whose Existing
Notes are not accepted for exchange will continue to
hold such Existing Notes and will be entitled to all the
rights and preferences, and will be subject to the
limitations applicable thereto under the Indenture. All
untendered and tendered but unaccepted Existing Notes
(collectively, the "Remaining Existing Notes") will
continue to bear legends restricting their transfer. In
general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. To the extent that the Exchange Offer is
effected, the trading market, if any for Remaining
Existing Notes could be adversely affected. See "Risk
Factors -- Failure to Exchange Existing Notes" and "The
Exchange Offer."
</TABLE>
9
<PAGE>
THE NEW NOTES
The Exchange Offer applies to $150.0 million aggregate principal amount
of the Existing Notes. The form and terms of the New Notes are the same as the
form and terms of the Existing 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, therefore, the New Notes will not bear legends
restricting transfer thereof. The New Notes will evidence the same debt as the
Existing Notes (which they replace) and will be entitled to the benefits of
the Indenture. See "Description of New Notes" for further information and for
definitions of certain capitalized terms used below.
<TABLE>
<CAPTION>
<S> <C>
MATURITY . . . . . . . . . October 27, 2007
INTEREST . . . . . . . . . Interest on the New Notes will be payable semi-annually
in cash at a rate of 14% per annum, on April 27 and
October 27 of each year, commencing on April 27, 1998.
PROCEEDS PLEDGE AND ESCROW
AGREEMENT. . . . . . . . ICCA has used approximately $57.3 million of the net
proceeds of the Initial Offering to purchase a portfolio of
securities that are pledged and escrowed in an account
under the Trustee's exclusive dominion and control for
the 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.
$69.3 million of the net proceeds of the Initial Offering
has been pledged and escrowed as security for all
obligations of ICCA under the Senior Notes and the
Indenture and has been deposited in an account under
the Trustee's exclusive dominion and control pending
application of such funds by ICCA 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.
10
<PAGE>
In the event that on or after October 27, 2000 Collateral
Funds remain in the Collateral Account, each Holder of
New Notes will have the right to require ICCA to
repurchase all or any part of such Holder's New 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 and Liquidated
Damages, if any, thereon to the date of purchase;
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, ICCA 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. See
"Description of New Notes -- Proceeds Pledge and
Escrow Agreement."
OPTIONAL REDEMPTION. . . . The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
October 27, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. In addition,
at the option of ICCA, up to 33 1/3% of the aggregate
principal amount of New Notes may be redeemed at any
time on or prior to October 27, 2000 at a redemption
price of 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 ICCA 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 occurs within 45 days of the date of the
closing of any such public offering or sale to such
Strategic Equity investors.
CHANGE OF CONTROL. . . . . In the event of a Change of Control, Holders of the New
Notes will have the right to require ICCA to purchase
their New Notes, in whole or in part, at a price 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. See "Risk
Factors -- Risks Related to Change of Control
Provision."
RANKING. . . . . . . . . . The New Notes will rank senior in right of payment to all
subordinated indebtedness of ICCA incurred in the
future, if any. The New Notes will rank pari passu in right
of payment to all senior indebtedness of ICCA incurred
in the future, if any. The New Notes will be secured by a
first
11
<PAGE>
priority pledge pursuant to the Proceeds Pledge and
Escrow Agreement. All of the operations of ICCA are
conducted through its subsidiaries and, therefore, ICCA
is dependent upon the cash flow of its subsidiaries to
meet its obligations, including its obligations under the
New Notes. The obligations under the New Notes will be
effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables
and lease obligations) of ICCA's subsidiaries. Any right
of ICCA 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 ICCA is itself recognized as a
creditor of such subsidiary, in which case the claims of
ICCA would still be subordinate to any security in the
assets of such subsidiary and to any indebtedness of
such subsidiary senior to that held by ICCA. 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, as of
September 30, 1997, ICCA's subsidiaries would have
had approximately $1.5 million of indebtedness and $5.3
million of trade payable and other liabilities outstanding.
In addition, under the Indenture, ICCA's subsidiaries are
permitted to incur certain additional Indebtedness, the
terms of which may restrict the ability of its subsidiaries
to pay dividends to ICCA. See "Description of New
Notes -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and
"Risk Factors -- Holding Company Structure; Inability to
Access Cash Flow."
COVENANTS. . . . . . . . . The Indenture pursuant to which the New Notes will be
issued will contain certain covenants that, among other
things, limit the ability of ICCA and its subsidiaries to
incur additional Indebtedness and issue preferred stock,
pay dividends or make other distributions, repurchase
Equity Interests (as defined herein) or subordinated
Indebtedness, engage in sale or leaseback transactions,
create certain liens, enter into certain transactions with
affiliates, sell assets of ICCA or its subsidiaries, issue or
sell Equity Interests of ICCA or its subsidiaries or enter
into certain mergers and consolidations. In addition,
under certain circumstances, Holders of the New Notes
will have the right to require ICCA to offer to purchase
New Notes at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase,
with the proceeds of certain Asset Sales. See
"Description of New Notes."
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<PAGE>
NO CASH PROCEEDS TO THE COMPANY
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby and has agreed
to pay the expenses of the Exchange Offer. In consideration for issuing the
New Notes as contemplated in this Prospectus, the Company will receive, in
exchange, the Existing Notes representing an equal aggregate principal amount
at maturity. The form and terms of the New Notes are identical in all material
respects to the form and terms of the Existing Notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer."
The Existing Notes surrendered in exchange for New Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the New Notes will
not result in any increase in the outstanding indebtedness of the Company. See
"Use of Proceeds."
RISK FACTORS
An investment in the New Notes involves a high degree of risk.
Prospective investors of the New Notes should consider all of the information
contained in this Prospectus before exchanging their Existing Notes pursuant
to the Exchange Offer. In particular, prospective investors should consider
the factors set forth herein under "Risk Factors."
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.
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, 1996 and 1997 were derived from the consolidated
financial statements of the Company which were audited by Price Waterhouse
LLP, independent certified accountants.
The summary condensed unaudited pro forma combined statements of
operations for the year ended December 31, 1997 gives effect to the FirstCom
Long Distance Acquisition as if it had occurred at the beginning of 1997.
The FirstCom Long Distance Acquisition is accounted for under the purchase
method of accounting.
The information contained in this table should be read in conjunction
with "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>
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YEAR ENDED DECEMBER 31,
------------------------------------------------------
PRO FORMA
1994 1995 1996(1) 1997(1) 1997
-------- -------- ----------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales. . . . . . . . . . . . . $ 34 $ 224 $ 652 1,130 $ 10,927
Operating expenses . . . . . . (2,207) (2,722) (5,009) (12,075) (23,396)
-------- -------- ----------- --------- ---------
Loss from operations . . . . . (2,173) (2,498) (4,357) (10,915) (12,469)
Other income (expense) . . . . (45) (56) (23) 1,247 780
Interest expense . . . . . . . (313) (319) (246) (5,934) (24,409)
-------- -------- ----------- --------- ---------
Net loss . . . . . $(2,531) $(2,873) $ (4,626) $(15,632) $(36,098)
======== ======== =========== ========= =========
Net basic and diluted
loss per share . . . . . . . . $ (1.30) $ (0.31) $ (0.31) $ (0.94) $ (2.17)
Weighted average shares
Outstanding. . . . . . . . . 1,952 9,407 14,796 16,668 16,668
OTHER FINANCIAL DATA:
EBITDA(2). . . . . . . . . . . $(2,097) $(2,102) $(3,651) $ (9,948) $(10,535)
Depreciation and amortization. 76 396 706 967 1,934
Capital expenditures . . . . . 1,849 720 1,453 763
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . $ 13,705
Restricted cash and investments(3) . . 117,551
Total assets
Current portion of lease obligations,. 70,031
net of original issue discounts. . . 313
Long-term debt and lease obligations . 131,982
Total stockholders equity. . . . . . . 27,622
<FN>
____________________
(1) Historical financial data includes the operations of Resetel and FirstCom
(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) Restricted cash and investments 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."
</TABLE>
14
<PAGE>
RISK FACTORS
Prospective purchasers of the New Notes offered hereby should consider
carefully the following risk factors, as well as the other information
contained in this Prospectus, before purchasing the New Notes 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 December 31, 1997, the Company has approximately $132.0
million of total long-term Indebtedness and the Company has stockholders'
equity of $ 27.6 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 $16.8 million, respectively, for the years ended
December 31, 1996 and 1997. On a pro forma basis after giving effect to the
consummation of the FirstCom Long Distance Acquisition, for the year ended
December 31, 1997 the Company's earnings would have been inadequate to cover
its fixed charges by $36.9 million. The Company's annual interest obligations
under the Senior Notes substantially exceeds the Company's sales for the
year ended December 31, 1997.
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 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."
The Company's high level of indebtedness imposes substantial risks to
Holders of the New Notes, including the following: (i) the ability of the
Company to pay interest and Liquidated Damages, if any, on, and the redemption
price of or the principal amount at maturity of, the Senior Notes when due may
be impaired; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (iii) a substantial portion of the
Company's cash flow from operations must be dedicated to service its
indebtedness and will not be available for capital expenditures and other
purposes in furtherance of the Company's strategic growth objectives, and the
failure of the Company to generate sufficient cash flow to service such
indebtedness could result in a default under such indebtedness; (iv) the
Indenture contains restrictions on the Company's ability to pay dividends or
to repurchase securities and imposes numerous other operating and financing
restrictions, the failure to comply with which may result in a default under
the Indenture; (v) the Company is more highly leveraged than many of its
competitors which may place it at a competitive disadvantage; (vi) the
Company's high degree of leverage could make it more vulnerable to adverse
changes in its business and in general economic conditions; and (vii) the
ability of the Company to satisfy its obligations under its indebtedness will
be dependent upon risks, uncertainties, contingencies and other factors
affecting the business and operations of the Company, many of which are beyond
the control of the Company. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by ICCA and its subsidiaries. See
"Description of New Notes -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock" and "-- Dividend and Other Payment
Restrictions Affecting Subsidiaries."
15
<PAGE>
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 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 otherwise, to make any funds available to ICCA for
payment of the principal of, and interest and Liquidated Damages, if any, on
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 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 including its ability to make payments on the New Notes.
RANKING
The obligations under the New Notes will be effectively subordinated to
all indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of ICCA's subsidiaries. Any right of ICCA to
receive assets of any of its subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the New Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that ICCA is itself
recognized as a creditor of such subsidiary, in which case the claims of ICCA
would still be subordinate to any security in the assets of such subsidiary
held by any creditor and any indebtedness of such subsidiary senior to that
held by ICCA. As of December 31, 1997, ICCA's subsidiaries had approximately
million of indebtedness and million of trade payables and other liabilities
outstanding. In addition, under the Indenture, ICCA's subsidiaries will be
permitted to incur certain additional indebtedness, the terms of which may
restrict the ability of such subsidiaries to pay dividends to ICCA. See
"Description of New Notes -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock" and "-- Dividend and Other Payment
Restrictions Affecting Subsidiaries."
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 December 31, 1997, the Company had an
accumulated deficit of $25.8 million. Since inception through December 31,
1997, the Company's operations have resulted in losses before interest, other
income (loss), taxes, depreciation and amortization ("EBITDA") of $17.8
million. On a pro forma basis, after giving effect to the consummation of the
FirstCom Long Distance Acquisition, the Company would have had EBITDA of
($10.5) million for the year ended December 31, 1997. For the years ended
December 31, 1996 and 1997, the Company incurred a net loss of $4.6 million
and $15.6 million, respectively, and generated negative cash flow from
operations of $3.9 million and $5.9 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.
16
<PAGE>
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 Initial
Offering to meet its capital expenditure requirements. See "Use of Proceeds."
Although the Company believes that the proceeds of the Initial 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 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 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 New Notes.
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 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,
including the New Notes, will be materially and adversely affected.
17
<PAGE>
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 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.
FAILURE TO EXCHANGE EXISTING NOTES
The New Notes will be issued in exchange for Existing Notes only after
timely receipt by the Exchange Agent of such Existing Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Existing Notes desiring to tender such
Existing Notes in exchange for New Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Existing Notes for exchange. Existing Notes that are not tendered
or are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Existing Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes will
be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Existing Notes, where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or any other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." To the extent that Existing Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Existing Notes could be adversely
affected. See "The Exchange Offer."
DISCRETIONARY USE OF FUNDS
The Company expects to use the proceeds from the Initial Offering as
follows: (i) $62.0 million to expand and operate the Company's fiber optic
network 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; and (vi) the remaining amounts for general corporate
purposes. The Indenture requires the Company to allocate at least 60% of the
aggregate amount of Collateral Funds released from the Collateral Account for
Permitted Expenditures in connection with Acquisition Costs or Systems Costs
directly related to Telecommunication Businesses in Peru. The Company cannot
predict in which, if any, of its existing or future development opportunities
it will ultimately invest. While the Company currently expects to use the
proceeds of the Initial Offering as set forth above, if the Company does not
invest in these projects or invests a different amount than currently
anticipated, subject to the terms of the Indenture and the Proceeds Pledge and
Escrow Agreement, the Company would use any remaining cash to fund other
development projects and/or acquisitions and for general corporate purposes.
See "Use of Proceeds."
18
<PAGE>
Pursuant to the Proceeds Pledge and Escrow Agreement, the Company
deposited $69.3 million of the net proceeds in an account under the Trustee's
exclusive dominion and control pending application of such funds by the
Company for the payment of (i) Permitted Expenditures; (ii) in the event of a
Change of Control, the Change of Control Payment and (iii) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith. In the event that on or after
October 27, 2000, Collateral Funds remain in the Collateral Account, each
Holder of Senior Notes will have the right to require the ICCA to repurchase
all or any part of such Holder's Senior Notes at an offer 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;
provided that, if after the Special Offer to Purchase is consummated at least
$20.0 million in aggregate principal amount of the Senior Notes does not
remain outstanding, ICCA will be required by the terms of the Indenture to
redeem all of the Senior Notes 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. See "Description
of New Notes -- Proceeds Pledge and Escrow Agreement."
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, making of a capital expenditure or acquisition of other
assets, in each case, in a Permitted Business or to the reduction of senior
Indebtedness of ICCA or Indebtedness of any of its Restricted Subsidiaries (as
defined herein).
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.
19
<PAGE>
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.
YEAR 2000 CONCERNS
The Company believes that it has prepared its computer systems and
related software to accommodate data sensitive information relating to the
Year 2000. The Company expects that any additional costs related to ensuring
such systems and software to be Year 2000-compliant will not be material to
the financial condition or results of operations of the Company. In addition,
the Company is discussing with its vendors and customers the possibility of
any difficulties which may affect the Company as a result of its vendors and
customers ensuring that their computer systems and software are Year
2000-compliant. To date, no significant concerns have been identified.
However, there can be no assurance that no Year 2000 related computer
operating problems or expenses will arise with the Company's computer systems
and software or in the computer systems and software of the Company's vendors
and customers.
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 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.
20
<PAGE>
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 Units, Senior
Notes, Warrants and/or Warrant Shares. 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 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.
21
<PAGE>
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
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, the value of the Units, the Senior Notes, the Warrants and/or the
Warrant Shares or the Company's ability to pay principal of or interest and
Liquidated Damages, if any, on the Senior Notes.
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 New 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.
22
<PAGE>
ORIGINAL ISSUE DISCOUNT
Because a portion of the purchase price for each Unit issued and sold in
the Initial Offering was allocable to the Warrants included therein for
federal income tax purposes, the Senior Notes may be treated as issued with
original issue discount unless such original issue discount is considered de
minimus. The New Notes should be treated as a continuation of the Existing
Notes. If original issue discount exists, purchasers of the New Notes
therefore generally will be required to include amounts in gross income for
Federal income tax purposes in advance of receipt of the cash interest
payments on the New Notes to which the income is attributable. See "Certain
Federal Income Tax Considerations" for a more detailed discussion of the
federal income tax consequences to the purchasers of the New Notes resulting
from the purchase, ownership or disposition thereof.
If a bankruptcy case is commenced by or against the Company under Title
11 of the United States Code, as amended (the "Bankruptcy Code"), after the
Initial Offering, the claims of a Holder of the Senior Notes with respect to
the principal amount thereof may be limited to an amount equal to the sum of
(i) the initial offering price of the Senior Notes and (ii) that portion of
the original issue discount that is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Any original issue discount
that was not accrued as of such bankruptcy filing may be deemed to constitute
"unmatured interest." A Holder of a Senior Note may not have any claim with
respect to that portion of the issue price of a Unit allocated to the Warrant
issued as part of such Unit.
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 New Notes --
Certain Covenants -- Restricted Payments."
SHARES ELIGIBLE FOR FUTURE SALE
As of February 28, 1998, ICCA had outstanding 19,084,300 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.
All of the executive officers and directors and certain shareholders of
ICCA were deemed to beneficially own 8,922,083 shares of Common Stock
(including options to purchase 3,643,333 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").
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 New Notes. 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 New Notes. The Indenture limits
the ability of the Company to issue Preferred Stock. See "Description of New
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
RISKS RELATING TO CHANGE OF CONTROL PROVISION
In the event of a Change of Control, the holders of the Senior Notes will
have the right to require ICCA to repurchase all or any portion of their
Senior Notes at a price 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. There can be no assurance that ICCA will
have the financial resources to effect any such repurchase. If ICCA has the
resources to repurchase the Senior Notes upon a Change in Control, such
payment may have a material adverse effect on ICCA's liquidity, results of
operations and financial condition. Moreover, ICCA's repurchase obligation
could have the effect of delaying, deferring or preventing a Change of Control
of ICCA and could limit the price that certain investors might be willing to
pay in the future for ICCA's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of the New Notes -- Repurchase at the
Option of Holders -- Change of Control." In addition, ICCA is a holding
company and substantially all of its assets are held by its subsidiaries and
all of ICCA's revenues are derived from the operations of such subsidiaries.
Accordingly, ICCA's ability to pay the principal of, and interest and
Liquidated Damages, if any, on the Senior Notes upon a Change of Control is
dependent upon earnings of its subsidiaries and the distribution of funds from
its subsidiaries. See "-- Holding Company Structure; Inability to Access Cash
Flow."
23
<PAGE>
Indebtedness of ICCA's subsidiaries and the applicable laws of the
jurisdictions under which ICCA's subsidiaries are organized may restrict
ICCA's current and future subsidiaries from paying any dividends or making any
other distributions to ICCA. Thus, in the event a Change of Control occurs,
ICCA could seek the consent of its subsidiaries' lenders under such
Indebtedness to the purchase of the Senior Notes or could attempt to refinance
the borrowings that contain such restrictions. If ICCA did not obtain such a
consent or repay such borrowings or if the applicable laws of the
jurisdictions under which ICCA's subsidiaries are organized restrict such
subsidiaries' ability to pay dividends or make other distributions to ICCA,
ICCA would likely not have the financial resources to purchase Senior Notes
and its subsidiaries would be restricted individends to ICCA for the purpose
of such purchase. In addition, any such Indebtedness may prohibit ICCA from
purchasing any Senior Notes prior to their maturity, and may also provide that
certain change of control events with respect to ICCA would constitute a
default thereunder. In the event a Change of Control occurs at a time when
ICCA is prohibited from purchasing Senior Notes, ICCA could seek the consent
of its lenders to the purchase of Senior Notes or could attempt to refinance
the borrowings that contain such prohibition. If ICCA did not obtain such
consent or repay such borrowings, ICCA would remain prohibited from purchasing
Senior Notes. In such event, ICCA would be required to seek to refinance the
Senior Notes or such other borrowings, and there can be no assurance that ICCA
would be able to consummate any such refinancing. See "Description of New
Notes -- Repurchase at the Option of Holders -- Change of Control" and
"--Substantial Leverage; Ability to Service Indebtedness."
ABSENCE OF A PUBLIC MARKET FOR THE NEW NOTES
The New Notes are new securities for which there is currently no market.
Although the Initial Purchaser has informed the Company that it currently
intends to make a market in the New Notes, it is not obligated to do so and
any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the New Notes. The Senior Notes are expected to be eligible for
trading in the PORTAL market. The Company does not intend to apply for listing
of the New Notes on any securities exchange or for quotation through NASDAQ.
If a market for the New Notes were to develop, the New Notes could trade at
prices that may be higher or lower than their initial offering price depending
upon many factors, including prevailing interest rates, the Company's
operating results and the markets for similar securities.
POSSIBLE SUBORDINATION OR RECOVERY OF PAYMENTS UNDER FRAUDULENT CONVEYANCE
LAWS
Under applicable provisions of the Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance law, if the Company, at
the time it issued the Senior Notes, (a) incurred such obligation with an
intent to hinder, delay or defraud creditors, or (b)(i) received less than
reasonably equivalent value or fair
consideration in respect thereof and (ii)(A) was insolvent at the time of
incurrence, (B) was rendered insolvent by reason of such incurrence (and the
application of the proceeds thereof), (C) was engaged or was about to engage
in a business or transaction for which the assets remaining with the Company
constituted unreasonably small capital to carry on its business, or (D)
intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature, then, in each such case, a court of
competent jurisdiction could avoid, in whole or in part, the Senior Notes or,
in the alternative, subordinate the Senior Notes to existing or future
indebtedness of the Company. The measure of insolvency for purposes of the
foregoing will vary depending upon the law applied in such case. Generally,
however, the Company would be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than all of its assets at fair
valuation or if the present fair saleable value of its assets was less than
the amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become absolute and
matured.
Management believes that, for purposes of the Bankruptcy Code and state
fraudulent transfer or conveyance laws, the Senior Notes are being issued
without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith, that the Company will receive reasonably
equivalent value or fair consideration in respect thereof and that the
Company, after the issuance of the Senior Notes and the application of the
proceeds thereof, will be solvent, will have sufficient capital for carrying
on its business and will be able to pay its debts as they mature. There can be
no assurance, however, that a court passing on such questions would agree with
management's view.
24
<PAGE>
EFFECT OF BANKRUPTCY ON ABILITY TO REALIZE UPON SECURITY
In order to secure its obligations under the Senior Notes, the Company
executed and delivered the Proceeds Pledge and Escrow Agreement. The Company
granted a first priority security interest to the Trustee, for the benefit of
the Holders of the Senior Notes, in the Pledged Securities, the Pledge
Account, the Collateral Funds and the Collateral Account. See "Description of
New Notes."
The proceeds of the Initial Offering constitute "cash collateral" within
the meaning of Section 363(a) of the Bankruptcy Code. If the Company becomes
the debtor in a proceeding under the Bankruptcy Code, the Company could
petition the Bankruptcy Court for permission to use this cash collateral to
finance its operations during the pendency of its bankruptcy case. Bankruptcy
courts are authorized by Section 363 of the Bankruptcy Code to permit such use
of cash collateral if the secured party consents or if the interests of the
secured party are "adequately protected," which may be accomplished by giving
the secured party a perfected lien on substitute collateral of equal value.
There can be no assurance that the bankruptcy court would not approve such a
petition and permit a substitution of collateral. See "Description of New
Notes."
25
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby and has agreed
to pay the expenses of the Exchange Offer. In consideration for issuing the
New Notes as contemplated in this Prospectus, the Company will receive, in
exchange, Existing Notes representing an equal aggregate principal amount at
maturity. The form and terms of the New Notes are identical in all material
respects as the form and terms of the Existing Notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer."
The Existing Notes surrendered in the exchange for New Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the New Notes
will not result in any increase in the outstanding indebtedness of the
Company.
27
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of December 31, 1997.
The information contained in this table should be read in conjunction
with "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
December
31, 1997
(DOLLARS IN
THOUSANDS)
<S> <C>
CASH, RESTRICTED BANK DEPOSITS AND ESCROWS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 13,705
Restricted cash and investments. . . . . . . . . . . . . . . 117,551
----------
Total cash and restricted cash and investments. $ 131,256
==========
Short-term debt:
Lease obligations. . . . . . . . . . . . . . . . . . . . . . 313
----------
Total short-term debt . . . . . . . . . . . . . $ 313
==========
Long-term debt:
Senior Notes, net of original issue discount . . . . . . . . $ 131,626
Capital lease obligations. . . . . . . . . . . . . . . . . . 356
Total long-term debt. . . . . . . . . . . . . . $ 131,982
==========
Stockholders' equity:
Preferred Stock, $.001 par value, authorized 10,000,000
shares, none issued . . . . . . . . . . . . . . . . . . --
Common Stock, $.001 par value, authorized 50,000,000
shares, 19,084,300 shares issued and outstanding. . . . $ 19
Additional paid in capital . . . . . . . . . . . . . . . . . 26,887
Outstanding warrants . . . . . . . . . . . . . . . . . . . . 26,737
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . (25,783)
Cumulative translation adjustments . . . . . . . . . . . . . (238)
----------
Total stockholders' equity. . . . . . . . . . . . . . $ 27,622
==========
Total Capitalization. . . . . . . . . . . . . . . . . $ 159,917
==========
</TABLE>
28
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company on October 27, 1997 (the
"Closing Date") to the Initial Purchaser pursuant to the Purchase Agreement.
The Initial Purchaser subsequently placed the Existing Notes with qualified
institutional buyers in reliance on Rule 144A and Regulation S under the
Securities Act. As a condition to the sale of the Existing Notes, the Company
and the Initial Purchaser entered into the Registration Rights Agreement on
October 27, 1997. Pursuant to the Registration Rights Agreement, the Company
agreed that, unless the Exchange Offer is not permitted by applicable law or
Commission policy, it would (i) file with the Commission a Registration
Statement under the Securities Act with respect to the New Notes within 45
days after the Closing Date; (ii) use its reasonable best efforts to cause
such Registration Statement to become effective under the Securities Act at
the earliest possible time, but in no event later than 120 days after the
Closing Date; (iii) in connection with the foregoing, file (A) all
pre-effective amendments to the Registration Statement as may be necessary in
order to cause the Registration Statement to become effective, (B) if
applicable, a post-effective amendment to the Registration Statement pursuant
to Rule 430A under the Securities Act and (C) cause all necessary filings in
connection with the registration and qualification of the New Notes to be made
under the Blue Sky laws as are necessary to meet the consummation of the
Exchange Offer; and (iv) upon effectiveness of the Registration Statement, to
commence the Exchange Offer, maintain the effectiveness of the Registration
Statement for at least 20 business days (or a longer period if required by
law) and deliver to the Exchange Agent New Notes in the same aggregate
principal amount as the Existing Notes that were tendered by holders thereof
pursuant to the Exchange Offer. Further, the Company is expected to use its
reasonable best efforts to cause the Exchange Offer to be consummated on the
earliest practicable date after the Registration Statement becomes effective,
but in no event later than 30 business days thereafter. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement of
which this Prospectus is a part is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE NEW NOTES
ICCA makes the Exchange Offer in reliance on the position of the Staff of
the Commission as set forth in certain no-action letters issued to other
parties in other transactions. However, the Company has not sought its own
no-action letter and there can be no assurance that the Staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations of the
Staff of the Commission, the Company believes that the New Notes issued
pursuant to this Exchange Offer in exchange for Existing Notes may be offered
for resale, sold or otherwise transferred by holders thereof (other than any
such holder which is (i) a broker-dealer who acquired such Existing Notes
directly from the Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the
New Notes in the ordinary course of its business and is not participating,
does not intend to participate, and has no arrangement with any person to
participate, in the distribution of the New Notes. However, if any holder
acquires the New Notes in the Exchange Offer for the purpose of distributing
or participating in the distribution of the New Notes or is a broker-dealer,
such holder cannot rely on the position of the Staff of the Commission
enumerated in certain no-action letters issued to third parties and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Each broker-dealer that receives New
Notes for its own account in exchange for Existing Notes, where such Existing
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers for use
in connection with any resale for a period of 120 days after the Expiration
Date. See "Plan of Distribution."
29
<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Existing Notes surrendered pursuant to
the Exchange Offer. Existing Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Existing Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the New Notes will be registered under the Securities Act
and hence the New Notes will not bear legends restricting their transfer
thereof. The New Notes will evidence the same indebtedness as the Existing
Notes (which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture, which also authorized the issuance of the Existing
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $150.0 million aggregate principal
amount of the Existing Notes are outstanding and registered in the name of
Cede & Co., as nominee for the Depository Trust Company (the "Depositary"), in
the case of Existing Notes sold pursuant to Rule 144A, and CEDEL, S.A., in the
case of Existing Notes sold pursuant to Regulation S. Only a registered holder
of the Existing Notes (or such holder's legal representative or
attorney-in-fact), as reflected on the records of the Trustee under the
Indenture, may participate in the Exchange Offer. There will be no fixed
record date for determining registered holders of the Existing Notes entitled
to participate in the Exchange Offer.
Holders of the Existing Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Existing
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Existing Notes for the purposes of receiving the New Notes from the
Company.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998 unless the Company, in its sole discretion, extends the Exchange Offer,
in which cash the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) will mail to
the registered holders an announcement thereof, (iii) will issue a press
release or other public announcement which shall include disclosure of the
approximate number of Existing Notes deposited to date, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company
may choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Existing Notes, (ii) to extend the Exchange Offer, or (iii) if
any conditions set forth below under "-- Conditions" shall not have been
satisfied, to terminate the Exchange Offer by giving oral or written notice of
such delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to 10 business days depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to 10 business day
period.
30
<PAGE>
INTEREST ON THE NEW NOTES
The New Notes bear interest at a rate equal to 14% per annum. Interest on
the New Notes is payable semi-annually on each April 27 and October 27,
commencing on the first such date following their date of issuance. Holders of
New Notes will receive interest on April 27, 1998 from the date of initial
issuance of the New Notes, plus an amount equal to the accrued interest on the
Existing Notes from the date of initial delivery to the date of exchange
thereof for New Notes. Holders of Existing Notes that are accepted for
exchange will be deemed to have waived the right to receive any interest
accrued on the Existing Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Existing Notes may tender such Existing Notes
in the Exchange Offer. To tender in the Exchange Offer a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Existing Notes must be received by the Exchange Agent along with the
Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of such Existing Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
The tender by a holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth in herein
and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) of the Existing Notes whose Existing Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Existing Notes, either make
appropriate arrangements to register ownership of the Existing Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "The Exchange Offer -- Withdrawal of Tenders"), as the case may be,
must be guaranteed by an Eligible Institution (as defined below) unless the
Existing Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Delivery Instructions"
on the Letter of Transmittal or (ii) for the account of an Eligible
Institution, as defined below. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Existing Notes listed therein, such Existing Notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such
Existing Notes.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Existing Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Existing Notes not properly tendered or any Existing Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Existing Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Existing Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
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<PAGE>
While the Company has no present plan to acquire any Existing Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Existing Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Existing Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--
Conditions," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Existing Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes to be acquired by the holder of the Existing Notes
in connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement
or understanding with any person to participate in the distribution of New
Notes, (iii) the holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the Staff of the Commission set
forth in certain no-action letters, (iv) the holder understands that secondary
resale transaction described in clause (iii) above and any resales of New
Notes obtained by such holder in exchange for Existing Notes acquired by such
holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405
of the Securities Act, of the Company. If the holder is a broker-dealer that
will receive New Notes for its own account in exchange for Existing Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
RETURN OF EXISTING NOTES
If any tendered Existing Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Existing Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Existing Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Existing Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Existing Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Existing Notes at the Depositary for purposes of the Exchange
Offer within two business days after the date of this Prospectus, and any
financial institution that is a participant in the Depositary's systems may
make book-entry delivery of Existing Notes by causing the Depositary to
transfer such Existing Notes into the Exchange Agent's account at the
Depositary in accordance with the Depositary's procedures for transfer.
However, although delivery of Existing Notes may be effected through
book-entry transfer at the Depositary, the Letter of Transmittal or facsimile
thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "The Exchange -- Exchange Agent" on
or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Existing Notes and (i) whose Existing
Notes are not immediately available or (ii) who cannot deliver their Existing
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Existing Notes and
the principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Exchange Date, the Letter of Transmittal (or a
facsimile thereof) together with the certificate(s) representing the Existing
Notes in proper form for transfer or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
32
<PAGE>
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Existing Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Existing Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Existing Notes to be withdrawn (the "Depositor"), (ii) identify
the Existing Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Existing Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company
in its sole discretion, whose determination shall be final and binding on all
parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no New Notes will be
issued with respect thereto unless the Existing Notes so withdrawn are validly
retendered. Properly withdrawn Existing Notes may be retendered by following
one of the procedures described above under "-- Procedures for Tendering" at
any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange the New Notes for, any
Existing Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Existing Notes, if the Exchange Offer violates
applicable law, rule or regulation or an applicable interpretation of the
Staff of the Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any
Existing Notes and return all tendered Existing Notes to the tendering
holders, (ii) extend the Exchange Offer and retain all Existing Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of holders to withdraw such Existing Notes (see "The Exchange Offer --
Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Existing Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of
a prospectus supplement that will be distributed to the registered holders of
the Existing Notes, and the Company will extend the Exchange Offer for a
period of five to 10 business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five to 10 business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including
registration rights) of holders of the Existing Notes eligible to participate
in this Exchange Offer will terminate upon consummation of the Exchange Offer
except with respect to the Company's continuing obligations (i) to indemnify
the holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Existing Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Existing Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Existing Notes by broker-dealers for a period
of 120 days from the date on which the Registration Statement is declared
effective and (iv) to provide copies of the latest version of the Prospectus
to broker-dealers upon their request for a period of 120 days from the date on
which the Registration Statement is declared effective; provided, however,
that, if any Holder of the Existing Notes notifies ICCA within 20 days of the
consummation of the Exchange Offer: (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer,
or (B) that such Holder may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement (as defined
herein) is not appropriate or available for such resales by such Holder, or
(C) that such Holder is a broker-dealer and holds Existing Notes acquired
directly from the Company or one of its affiliates, then the Company shall:
cause to be filed a Shelf Registration Statement (as defined herein) pursuant
to Rule 415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement on or prior to the Shelf Filing Deadline (as defined
herein), which Shelf Registration Statement shall provide for resales of all
Existing Notes. In the event of a Registration Default (as defined herein),
the Company is required to pay Liquidated Damages. See "-- Liquidated Damages"
and "Description of New Notes -- Registration Rights; Liquidated Damages."
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<PAGE>
LIQUIDATED DAMAGES
In the event of a Registration Default under and as defined in the
Registration Rights Agreement, the Company is required to pay liquidated
damages to each holder of Transfer Restricted Securities (as defined below),
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Senior Notes constituting Transfer Restricted Securities held by
such holder for each week or portion thereof that the Registration Default
continues. Transfer Restricted Securities shall mean each Senior Note until
the earlier to occur of: (i) the date on which such Senior Note has been
exchanged for a New Note in the Exchange Offer and to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) 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 (as defined in the
Registration Rights Agreement) and (iii) the date on which such Senior Note is
distributed to the public pursuant to Rule 144 under the Securities Act or by
a broker-dealer pursuant to the "Plan of Distribution" contemplated by the
Registration Statement. The amount of the liquidated damages will increase by
an additional $0.05 per week per $1,000 principal amount of Senior Notes
constituting Transfer Restricted Securities for each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $0.50 per week per $1,000 principal amount of Senior
Notes constituting Transfer Restricted Securities. All accrued liquidated
damages shall be paid to Record Holders by wire transfer of immediately
available funds or by federal funds check or on each Damages Payment Date as
set forth under the Indenture. Following the cure of all Registration
Defaults, the payment of liquidated damages will cease. The filing and
effectiveness of the Registration Statement of which this Prospectus is a part
and the consummation of the Exchange Offer will eliminate all rights of the
holders of Existing Notes eligible to participate in the Exchange Offer to
receive damages that would have been payable if such actions had not occurred.
EXCHANGE AGENT
State Street Bank & Trust has been appointed as Exchange Agent in
connection with the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
By Mail: By Hand Delivery:
State Street Bank & Trust Company
State Street Bank & Trust Company Corporate Trust Department
P.O. Box 778 4th Floor
Boston, Massachusetts 02102-0078 Two International Place
Attention: Sandra Szczsponik Boston, Massachusetts 02102-0078
Attention: Sandra Szczsponik
By Overnight Delivery:. By Facsimile:
Corporate Trust Department. . . . State Street Bank & Trust Company
State Street Bank & Trust Company (617) 664-5232
4th Floor
Two International Place Confirm by Telephone:
Attention: Sandra Szczsponik
(617) 664-5314
State Street Bank & Trust Company is an affiliate of the Trustee under
the Indenture.
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<PAGE>
INFORMATION AGENT
Kissel Blake, Inc. has been appointed as Information Agent in connection
with the Exchange Offer. The Information Agent may contact the Holders of
Existing Notes by mail, telephone, telegraph, facsimile and personal interview
and may request brokers, dealers and other nominees for Existing Noteholders
to forward material relating to the Exchange Offer to beneficial owners of
Existing Notes. ICCA will pay the Information Agent reasonable and customary
compensation for all such services in addition to reimbursing the Information
Agent for reasonable out-of-pocket expenses in connection therewith. ICCA has
agreed to indemnify the Information Agent against certain liabilities and
expenses in connection with the Exchange Offer, including, without limitation,
certain liabilities under the federal securities laws. Questions and requests
for assistance may be requested from the Information Agent at the following
address: Kissel-Blake, Inc., 110 Wall Street, New York, New York 10005, Toll
Free Number (800) 554-7733.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company and are estimated in the aggregate to be
approximately $250,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, Exchange Information Agent,
accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Existing Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of the Existing
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Existing Notes which are not exchanged for the New Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Existing Notes may be resold only (i) to a person whom the seller reasonably
believes is a qualified institutional buyer (as defined in rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act or (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
ICCA
The selected historical financial data presented below as of December 31,
1995, 1996 and 1997 and for the years ended December 31, 1994, 1995, 1996 and
1997 have been derived from the consolidated financial statements of the
Company which were audited by Price Waterhouse LLP, independent certified
public accountants. 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.
SELECTED HISTORICAL FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997
-------- -------- -------- ---------
AMOUNTS IN THOUSANDS OF DOLLARS,
EXCEPT NET LOSS PER COMMON SHARE
<S> <C> <C> <C> <C>
Historical Operating Data(1):
Sales. . . . . . . . . . . . . . . . . $ 34 $ 224 $ 652 $ 1,130
Operating expenses . . . . . . . . . . (2,207) (2,722) (5,009) (12,075)
-------- -------- -------- ---------
Loss from operations . . . . . . . . . (2,173) (2,498) (4,357) (10,915)
Other expense. . . . . . . . . . . . . (45) (56) (23) (68)
Interest expense . . . . . . . . . . . (313) (319) (246) (96)
-------- -------- -------- ---------
Net loss. . . . . . . . . . . . . . . $(2,531) $(2,873) $(4,626) $(15,632)
======== ======== ======== =========
Net basic and diluted loss per share . $ (1.30) $ (0.31) $ (0.31) $ (0.94)
Weighted average shares outstanding. . 1,952 9,407 14,796 16,668
Cash Flows:
Cash used in operating activities. . . $ (489) $(2,150) $(3,934) $ (5,939)
Cash used in investing activities. . . (2,049) (1,170) (2,968) (8,562)
Cash provided by financing activities. 2,649 3,263 7,570 27,483
Other Financial Data:
EBITDA(2). . . . . . . . . . . . . . . $(2,097) $(2,102) $(3,651) $ (9,948)
Depreciation and amortization. . . . . 76 396 706 967
Capital expenditures.. . . . . . . . . 1,849 720 1,453 2,763
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents . . . . . $ 57 $ 723 $ 13,705
Restricted cash and investments (3) -- -- 117,551
Total assets. . . . . . . . . . . . 4,347 10,354 170,031
Current debt:
Lease obligations . . . . . . . . 11 114 313
Long-term liabilities:
Lease obligations . . . . . . . . 210 248 356
Senior Notes, net . . . . . . . . 131,626
Stockholders' equity. . . . . . . 670 8,280 27,622
<FN>
1) Historical financial data includes the operations of Resetel and
FirstCom Networks from their respective dates of acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) "EBITDA" represents 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.
(3) Restricted cash and investments represents proceeds of the Senior Note
Offering that are to be used for the purchase of telecommunications equipment
in Peru and Chile and for payment of interest on the Senior Notes.
</TABLE>
37
<PAGE>
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 document.
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 December
31, 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 90
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 December 17, 1997
</TABLE>
FirstCom Networks (HSI and HSA were combined to operate under the name of
Hewster Chile, S.A. and subsequently FirstCom Networks, S.A.) 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, FirstCom Networks provides its customers with local and wide area
network design, engineering, installation, systems integration and support
services. 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. FirstCom
Long Distance (formerly Iusatel) is a Chilean corporation which provides
domestic and international long distance services. FirstCom Long Distance's
long distance traffic is switched and transported, in part, through its own
gateway switch and satellite earth station, as well as through
interconnections with other Chilean long distance carriers. FirstCom
Networks, Visat, Resetel and FirstCom Long Distance are wholly-owned
subsidiaries of the Company.
To date, the majority of the Company's revenues have been generated
through systems integration and consulting fees provided by the Company's
FirstCom Networks operations. With the proceeds of the Company's Senior Note
Offering completed in October 1997, the Company anticipates that it will have
the capital necessary to complete and leverage its networks to provide
significant, sustainable network-based telecommunications revenues. 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.
Sales
Today, the Company derives its sales primarily from long distance
services provided by FirstCom Long Distance and services provided by FirstCom
Networks including voice and data communications services on a private line
basis, and 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 recent acquisition of
FirstCom Long Distance and 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.
38
<PAGE>
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 the Company'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.
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 FirstCom Long Distance,
FirstCom Networks and Visat are being amortized over ten years. The
concessions purchased in the acquisitions of Resetel and FirstCom Long
Distance are being amortized over their estimated useful lives 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 the outstanding Senior
Notes, capital leases and also incurred interest and related expenses
attributable to convertible debentures and bridge notes that were issued
during the year ended December 31, 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 (ii) original
issue discounts related to detachable warrants. The value attributable to the
beneficial conversion features has 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 year ended December 31, 1997 the Company
incurred noncash interest cost of $466,000 related to the fair value of the
beneficial conversion features.
Interest expense for the year ended December 31, 1997 also includes
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 interest payable on the Senior Notes.
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
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales. The Company's sales were $1,130,000 for the year ended December
31, 1997 as compared to $652,000 for the year ended December 31, 1996. This
increase of approximately $478,000, was attributable to the inclusion of a
full year of FirstCom Networks' operations, as compared to five months in
1996.
39
<PAGE>
Cost of Revenues. The Company's cost of revenues, relating principally
to the Company's operations in Chile, was $1,203,000 for the year ended
December 31, 1997 as compared to $958,000 for the year ended December 31,
1996. This increase of approximately $245,000, was attributable to services
provided by FirstCom Networks.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses were $5,265,000 for the year ended
December 31, 1997 as compared to $3,272,000 for the year ended December 31,
1996. This increase of approximately $1,993,000, was primarily attributable to
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 FirstCom Networks subsidiaries which
were acquired by the Company in May and July 1996, respectively.
Common Stock and Stock Option Compensation. This expense is directly
attributable to the value of shares of Common Stock and stock options issued
to certain officers and former directors of the Company during 1997.
Depreciation and Amortization. The Company's depreciation and
amortization expenses were $967,000 for the year ended December 31, 1997 as
compared to $706,000 for the year ended December 31, 1996. This increase of
$261,000 was primarily attributable to an increase in amortization expense
related to the intangible assets purchased in the acquisitions of Resetel and
FirstCom Networks.
Interest Expense. The Company's interest expense was $5,934,000 for the
year ended December 31, 1997 as compared to $246,000 for the year ended
December 31, 1996. This increase of approximately $5,688,000 was due to
additional financing costs related to the Senior Notes, 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 shares of common stock issued to an
individual for certain financial assistance provided to the Company. Of the
total interest costs incurred by the Company for the year ended December 31,
1997, $712,000 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 $3,272,000 for the year ended
December 31, 1996 as compared to $1,906,000 for the year ended December 31,
1995. This increase of approximately $1,366,000, 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 HSA, as
well as additional depreciation expense related to the 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.
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 $2.5
million, $4.4 million and $10.9 million for the years ended December 31, 1995,
1996 and 1997, respectively. In addition, the Company has reported cash used
in investing activities of approximately $1.2 million, $3.0 million and $8.6
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Cash used in investing activities related primarily to the purchase of
property and equipment and the acquisitions of Visat, FirstCom Networks and
FirstCom Long Distance. 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 consummated the Senior Note Offering 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 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
offering expenses. 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.
During November and December of 1997 the Company used the net proceeds of the
Offering as follows: (i) $5.9 million for the acquisition of FirstCom Long
Distance; (ii) $4.3 million for the purchase of telecommunications equipment
and the repayment of its subsidiaries liabilities; (iii) $2.6 million to
settle all of the Company's outstanding obligations related to convertible
debentures and (iv) $975,000 to repay certain bridge notes. The Company
expects to use the remaining proceeds primarily to expand and operate the
Company's telecommunications businesses in Peru and Chile.
A summary of the Company's value of Common Stock issued and Common Stock
and Common Stock equivalents outstanding as of December 31, 1997 and the pro
forma effect of the exercise of such Common Stock equivalents and the
concurrent inflows of capital follows:
40
<PAGE>
<TABLE>
<CAPTION>
ACTUAL AT STOCK OPTIONS AND WARRANTS OUTSTANDING INCREMENTAL
DECEMBER 31, MANAGEMENT SENIOR NOTE OTHER OPTIONS AS
1997 AND DIRECTORS(4) WARRANTS (5) AND WARRANTS (6) ADJUSTED(7)
------------- ----------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
SHARES OF COMMON STOCK. 19,084,300 4,995,000 7,500,000 3,195,171 15,690,171
VALUE OF COMMON STOCK . $ 26,906,000 $ 15,211,514 $ 33,000,000 $ 6,927,362 $ 55,142,071
ISSUED (1)(2)
PER SHARE(3). . . . . . $ 1.41 $ 3.05 $ 4.40 $ 2.17 $ 3.51
<FN>
(1) The closing price of the Common Stock on December 31, 1997 was $1.94. The exercise of stock
options and warrants as shown above assumes (i) that the fair value of the Common Stock is equal to or
above the exercise price of the respective stock options and warrants and (ii) full vesting of all stock
options and warrants.
(2) Represents the proceeds from the Company's issuance of Common Stock and Common Stock equivalents,
and is comprised of par value and additional paid in capital.
(3) Represents the amount in (2) per share of Common Stock.
(4) Represents the incremental impact on the Company's value of Common Stock issued upon the exercise
of all stock options (vested and not vested) held by the Company's management and directors as of
December 31, 1997.
(5) Represents the incremental impact on the Company's value of Common Stock issued upon the exercise
of all warrants (vested and not vested) that were issued in connection with the Senior Notes and are
outstanding as of December 31, 1997.
(6) Represents the incremental impact on the Company's value of Common Stock issued upon the exercise
of all other stock options and warrants (vested and not vested) outstanding as of December 31, 1997
(includes 1,865,000 stock options issued to former officers and directors).
(7) Represents the combined incremental impact of (4), (5) and (6) above.
</TABLE>
<PAGE>
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. The Company continues to
consider potential acquisitions from time to time. 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.
As a result of the Senior Note Offering , the Company has become highly
leveraged and has substantial debt service requirements. 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. The Company's
annual interest obligations under the Senior Notes substantially exceeds the
Company's net income.
The ability of the Company to make scheduled payments with respect to its
indebtedness, including interest on the Senior Notes after October 27, 2000,
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 the Company's
subsidiaries to remit cash to the Company in a timely manner and (iii) the
future operating performance of the Company 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. The Company has deposited in escrow funds
representing interest payments with respect to the Senior Notes through
October 2000. However, 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 the
Senior Notes after such time, or with respect to its other indebtedness. 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 the Company's assets are held by its subsidiaries
and substantially all of the Company's sales are derived from operations of
such subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company'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. the Company's
subsidiaries will have no obligation, contingent or otherwise, to make funds
available to the Company for payment of the principal of, and interest and
liquidated damages on, if any, the Senior Notes. In addition, the ability of
the Company's subsidiaries to make such funds available to the Company 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, the Company'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 the Company. The failure of the Company's subsidiaries to pay
dividends or otherwise make funds available to the Company could have a
material adverse effect upon the Company's ability to satisfy its debt service
requirements including its ability to make payments on the Senior Notes.
41
<PAGE>
In addition to the deposit of a portion of the proceeds from the Senior
Note Offering to fund interest payments on the Senior Notes through October
2000, the Company deposited $62 million of the proceeds from the Senior Note
Offering in a separate account under a trustee's control pending application
of such funds by the Company for the payment of, as such terms are defined in
the Indenture: (a) Permitted Expenditures; (b) in the event of a Change in
Control of the Company, the Change in 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.
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 that the
Company or any of its subsidiaries issues debt, its leverage and debt service
obligations will increase. There can be 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 the Company
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 had significant foreign currency exposure 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, a portion of
sales to customers of the Company will be 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."
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, the Company had net operating loss carry forwards
("NOLs") of approximately $16.1 million for U.S. income tax purposes and
approximately $21.3 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 2012. The
foreign net operating loss carryforwards related to (1) Peru, $665,000, expire
in the years 2000 through 2001 and (2) to Chile, $20.6 million, do not expire.
EFFECTS OF NEW ACCOUNTING STANDARDS
During June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information" effective for fiscal years beginning after December 1997.
Management does not expect Statements No. 130 and 131 to have a significant
impact on the Company's reporting and disclosure requirements in 1998.
Statement No. 130 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. Statement No. 131
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.
42
<PAGE>
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 a new management team, the Company has
focused on the development and operation of high capacity fiber optic networks
in Lima, Peru and Santiago, Chile.
In May 1996, the Company acquired an operating company in Lima, 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 90 kilometer digital
fiber optic network in Lima, Peru, which the Company intends to expand 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 concessions to provide (i) voice
and data transmission services and value-added services on a private line
basis and (ii) public switched domestic 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 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.
In December 1997, the Company acquired FirstCom Long Distance, formerly
Iusatel Chile, S.A., an operating company in Santiago, Chile, which provides
domestic and international long distance services. FirstCom Long Distance's
long distance traffic is switched and transported, in part, 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 FirstCom Long Distance 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.
Local and long distance telecommunications revenues in Peru were
approximately $885.5million in 1996 and are estimated by 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 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 ATM 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.
43
<PAGE>
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 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 -- Peru - Country Strategy" and "-- Chile - 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, Peru 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 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.
44
<PAGE>
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, LAN to LAN interconnections, PBX and
private telephone networks.
Unify Marketing Identity
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.
In this regard, the Company has filed an application to register the name
"FirstCom" in Chile, Peru and the United States. 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.
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 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.
45
<PAGE>
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:
<TABLE>
<CAPTION>
PERU
1993 1994 1995 1996 1997 1998 1999 2000
------ ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ECONOMIC DATA*
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
CHILE
1993 1994 1995 1996 1997 1998 1999 2000
------ ------ ------- ------- ------- ------- ------- -------
ECONOMIC DATA*
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
<FN>
- ---------------
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.
</TABLE>
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
ATM 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.
46
<PAGE>
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 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 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 re-balancing 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 $373.6 million
are domestic and international long distance revenues. The Company believes
that Peru's telecommunications market offers an excellent environment for
telecommunications business growth. The Company believes that the Peruvian
economy is also a source of growing demand for telecommunication services with
growing domestic and multinational businesses attracting significant foreign
investment. The following chart presents certain historical and projected
information with respect to the telecommunications market in Peru for the
periods indicated:
47
<PAGE>
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA -- PERU*
1993 1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TELEPHONE
Minutes (in millions)
Local Services 3,600.0(1) 4,240.0(1) 4,954.0(1) 7,806.2(2) 4,193.4(3) n/a n/a
Long Distance Domestic 388.0(1) 394.0(1) 461.0(1) 577.0(2) 326.4(3) n/a n/a
Long Distance International 179.2(1) 232.4(1) 262.1(1) 294.5(2) 164.6(3) n/a n/a
MAIN LINES IN SERVICE (IN THOUSANDS) 673.0(2) 772.4(2) 1,109.2(2) 1,435.1(2) 1,595.5(1) 1,850.8(1) 2,093.6(1)
PENETRATION RATE
(main lines per 100 pop) 2.9(4) 3.4(4) 4.7(4) 5.9(2) 6.6(1) 7.5(1) 8.3(1)
SERVICE REVENUES
Local Services (US$millions) 190.7(1) 251.4(4) 459.1(4) 506.9(3) 676.0(1) 784.2(1) 887.1(1)
Toll Services (US$millions) 235.2(1) 123.2(4) 130.9(4) 143.15(3) 192.8(1) 223.6(1) 253.0(1)
International Services (US$millions) 229.9(1) 216.1(4) 235.9(4) 230.5(3) 347.4(1) 403.0(1) 455.8(1)
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)
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)
2000
----------
<S> <C>
TELEPHONE
Minutes (in millions)
Local Services n/a
Long Distance Domestic n/a
Long Distance International n/a
MAIN LINES IN SERVICE (IN THOUSANDS) 2,437.7(1)
PENETRATION RATE
(main lines per 100 pop) 9.4(1)
SERVICE REVENUES
Local Services (US$millions) 1,032.9(1)
Toll Services (US$millions) 294.5(1)
International Services (US$millions) 530.8(1)
DATA
X-25/Frame Relay Ports (in thousands) 46.6(1)
ISP Host Penetration
(main lines per 100 pop) 0.515(5)
<FN>
- ---------------
(1) Source: Pyramid Research Report.
(2) Source: Telefonica del Peru, S.A. 1996 Annual Report.
(3) Source: Telefonica del Peru S.A., 2nd Quarter Report: July 31, 1997. Translations from 6/30/97 Peruvian Nuevo Sol
into US$ 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.
</TABLE>
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 to 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 90 kilometers of its fiber optic network, and plans to expand its
network 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 network presence that will
enable it to rapidly enter the local telephony and long distance markets upon
deregulation.
48
<PAGE>
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 Lima 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 90 kilometer fiber optic digital switched network, which is
expected to expand 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 will be implemented using
self-healing rings equipped with fully redundant ATM technology.
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 30 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 will vary in accordance with the customer's requirements
based on the number of locations, type of services, transmission rates and
length of service contracts.
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
small fiber optic loop which may be utilized to compete directly with the
Company.
49
<PAGE>
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 other companies have filed
applications for local concessions, including COMSAT whose license was
recently granted.
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 $178.2 million in
1996, representing a compound annual growth rate of 21.0%. Chile's
telecommunications markets continue to be dominated by the former PTTs,
although new entrants have begun to reduce the former PTTs' market share. In
the long distance market, Entel, the former long distance PTT, faces
competition from eight other carriers, and its market share has been reduced
to approximately 40.4% for domestic long distance and 37.5% for international
long-distance. As a result of its open telecommunications market, Chilean
subscribers enjoy some of the lowest prices in the world for long distance
telephony services. In the local telephony market, CTC, the former local
services PTT, controls approximately 96% of the local telephony market. The
Company believes that the full implementation of its business strategy will
enable it to penetrate this market and further develop its customer base.
The following table provides some general information on the historical
size and estimated growth of Chile's telecommunications market.
50
<PAGE>
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA -- CHILE
1993 1994 1995 1996 1997 1998 1999 2000
-------- -------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TELEPHONE MINUTES
Local Service -- -- -- -- -- -- -- --
Long Distance Domestic (millions) n/a n/a 1,847.2(1) 2,259.0(2) n/a n/a n/a n/a
Long Distance International
(millions) n/a n/a 136.9(3) 172.9(2) n/a n/a n/a n/a
MAIN LINES IN SERVICE
(in thousands) 1,513(4) 1,626(4) 1,846(4) 2,157(4) 2,623(4) 3,032(4) 3,474(4) 3,920(4)
PENETRATION RATE
(main lines per 100 pop) 11.0(4) 11.6(4) 13.0(4) 14.9(4) 17.8(4) 20.3(4) 22.9(4) 25.4(4)
SERVICE REVENUES
(US$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)
<FN>
- ---------------
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.
</TABLE>
Operating Company Overview. The Company conducts its business in
Santiago through its wholly-owned subsidiaries, FirstCom Networks, S.A.
("FirstCom Networks"), formerly Hewster Chile, S.A., and FirstCom Long
Distance. FirstCom Networks 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, FirstCom Networks provides its customers with local and
wide area network design, engineering, installation, systems integration and
support services. FirstCom Long Distance provides domestic and international
long distance services in Santiago. FirstCom Long Distance's long distance
traffic is switched and transported, in part, through its own gateway switch
and satellite earth station as well as through interconnection with other
Chilean long distance carriers. 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, responsive customer service
and domestic and international long distance services 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.
The Company is in the process of filing an application to obtain a
license for local telephony. However, there can be no assurance that the
Company will secure such license, be able to make the necessary network
enhancements to provide such services or successfully market such services to
potential customers.
Country Strategy. The Company's new management team intends to leverage
FirstCom Networks' and FirstCom Long Distance's existing customer base, its
cost efficient state-of-the-art infrastructure and its 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 high quality voice and data services on a
private line basis as well as long distance telephony and (iv) pursuing a
sales and marketing strategy that includes a combination of direct sales
calls, telemarketing and direct mail campaigns and an increased advertising
budget.
51
<PAGE>
Concessions. In 1991, Hewster Servicios Intermedios, S.A., FirstCom
Networks' predecessor, was granted a concession with an unlimited duration to
provide intermediate telecommunications services (the "FirstCom Networks
Concession"). The FirstCom Networks Concession authorized the installation and
operation of the Company's fiber optic cable local network in metropolitan
Santiago. Pursuant to the FirstCom Networks Concession, FirstCom Networks is
authorized to provide voice and data transmission services and certain
value-added services on a private line basis. The FirstCom Networks Concession
may not be transferred, assigned or leased, nor may control of FirstCom
Networks be transferred or assigned, without the prior approval of SUBTEL. The
Company, through a wholly-owned subsidiary, Visat, also holds a concession
with an 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. FirstCom Long Distance holds a concession
with an unlimited duration to provide public, switched national and
international long distance services in Chile. FirstCom Long Distance's
concession was issued by the Chilean Ministry of Transport and Communications
in 1993.
Network Infrastructure. FirstCom Networks 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. FirstCom Long
Distance provides domestic and international long distance services in
Santiago through its own gateway switch and satellite earth station and
through interconnections with other Chilean long distance carriers.
The Company is in the process of upgrading its fiber optic network in
Chile by replacing the existing PDH and SDH nodes with ATM node equipment (the
"ATM Upgrade"). The planned ATM Upgrade is expected to be completed by
December 1998.
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.
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.
The Company intends to invest in FirstCom Long Distance to improve the
quality of its service through the continuing upgrade of FirstCom Long
Distance's switching infrastructure and customer service platforms. In
addition, the Company plans to acquire or install an additional satellite
antenna which will enable FirstCom Long Distance to interconnect with
additional international long distance carriers, subject to regulatory
approval. Such additional satellite capability is expected to enable FirstCom
Long Distance to obtain lower prices for international transmission services.
FirstCom Long Distance obtains local access services through
interconnection agreements with the following operators or their subsidiaries:
CTC Mundo, 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, FirstCom Long Distance 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. FirstCom Long Distance 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. FirstCom Long Distance's satellite earth station is
linked with its gateway switch via a 18-19 GHz microwave link. FirstCom Long
Distance currently operates a 24-hour network control and operator service
center in Santiago to monitor its network and handle customer service calls.
52
<PAGE>
Customers. FirstCom Networks currently services approximately 43
customers in Santiago, including Xerox de Chile S.A., Iberia Airlines,
Autorentas del Pacifico (Hertz) Ltda., Nike de Chile S.A. and The Aetna Life
Insurance Company. FirstCom Networks charges a monthly fee for its services
based on the length of the contract and the type and quantity of services
provided. FirstCom Long Distance 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, FirstCom
Long Distance provided casual dialing services to approximately 20,000
non-subscriber users. FirstCom Long Distance 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 long distance 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
local services 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 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 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 ATM 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 FirstCom Networks and FirstCom Long Distance 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.
53
<PAGE>
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 May 1999, at which time the exclusivity provisions in 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 Stability
Agreement") with the Peruvian government to guarantee certain rights with
respect to their foreign investment in Peruvian companies.
Legal Stability 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 Stability 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.
54
<PAGE>
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.
<TABLE>
<CAPTION>
MAXIMUM MARKET SHARE CAPS
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 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.
55
<PAGE>
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.
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.
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<PAGE>
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.
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 an income tax at a rate of 30% on the net income realized
by the company during the fiscal year. There is no departmental, regional 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.
Extraordinary Asset Tax. Peruvian corporations are subject to an annual
extraordinary asset tax calculated at a rate of 0.5% over the value of the net
assets of the corporation. The amount of the net extraordinary 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.
57
<PAGE>
Withholding tax is also imposed on most other payments made abroad. For
example:
1. 30% for royalty payments and patents, license and similar fees;
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 February 25, 1998, the Company had 128 full-time employees, of whom
approximately 32 are in Resetel, 34 are in FirstCom Networks, 57 are in
FirstCom Long Distance and five are in the Company's headquarters. 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 2600 Douglas Road Suite 501,
Coral Gables, Florida. These offices are occupied under a lease that expires
on November 30, 1998 (the "ICCA Lease") at a rent of approximately $3,000 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 expire through
September 2006, at a rent of approximately $14,000 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 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
The Company is not a party to any material legal proceedings.
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<PAGE>
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
Andrew Hulsh. . . . . 37 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.
Mr. Hulsh has been a director of ICCA since December 1997. Mr. Hulsh has
been a partner with the law firm of Baker & McKenzie since January 1997. For
more than five years prior thereto, Mr. Hulsh was an attorney with the law
firm of Greenberg, Trauig, Hoffman, Lipoff, Rosen & Quentel, P.A., most
recently as a shareholder.
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.
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<PAGE>
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 Telecommunicaciones 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. 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.
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. Kleinman and _________________,
each of whom is a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act.
DIRECTORS COMPENSATION
Each non-employee director of ICCA, or of any of its subsidiaries, is
entitled to be paid such compensation for his 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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation earned by the Chief Executive Officer of ICCA, and the other most
highly compensated executive officer of ICCA during 1997 (such persons are
hereinafter referred to as the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS`
---------------------------------------- ------------------------- --------
LONG-TERM
OTHER RESTRICTED NUMBER OF INCENTIVE ALL OTHER
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS PLAN COMPEN-
POSITION(S) YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARDS($) (#) PAYOUTS($) SATION($)(1)
- -------------------------- ---- --------- -------- ------------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patricio E. Northland 1997 300,000 630,000 -- -- 1,614,000(2) -- --
Chairman of the Board, 1996 50,000 -- -- -- 1,000,000 -- --
President and CEO(2) 1995 -- -- -- -- -- -- --
Douglas G. Geib II(3) 1997 166,667 170,000 -- -- 1,036,000 -- --
Chief Financial Officer 1996 -- -- -- -- -- -- --
1995 -- -- -- -- -- -- --
<FN>
_________
(1) Perquisites to each officer did not exceed the lesser of $50,000 or 10% of the total salary and bonus for any officer.
(2) Effective as of November 23, 1996.
(3) Mr. Geib commenced employment with the Company on May 1, 1997. See "-- Employment and Consultants Agreements."
</TABLE>
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted in 1997 to ICCA's Named Executive Officers. The Company has no
outstanding stock appreciation rights. None of the Named Executive Officers
exercised options during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM($)
--------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICES EXPIRATION
NAME GRANTED FISCAL 1997 PER SHARE($) DATE 5% 10%
- --------------------- ------------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patricio E. Northland 1,614,000 57% $ 3.85 Oct. 2007 3,907,000 9,903.000
Douglas G. Geib II 1,036,000 36% $ 2.90 Oct. 2007 1,889,000 4,788,000
</TABLE>
OPTION EXERCISES IN FISCAL 1997 AND
OPTION VALUES AT THE END OF FISCAL 1997
The following table sets forth information with respect to ICCA's Named
Executive Officers concerning the exercise of options during 1997 and
unexercised options held as of the end of 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997($)
--------------------- --------------------
NUMBER OF
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------- ----------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Patricio E. Northland -- -- 1,538,000 / 1,076,000 --/--
Douglas G. Geib, II . -- -- 345,000 / 691,000 --/--
</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.
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<PAGE>
STOCK OPTIONS
As of December 31, 1997 ICCA has outstanding options to purchase
7,295,000 shares of Common Stock.
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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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS0
TELECTRONIC S.A.
During the three years ended December 31, 1997, the Company entered into
certain transactions with Telectronic S.A. and its founders, Mr. George A.
Cargill and Mr. Eleazar Donaso. Mr. Cargill and Mr. Donoso are both Company
shareholders. Mr. Cargill is also a current director of the Company.
From 1994 to 1996, the Company granted Mr. Cargill 290,000 stock options
with a weighted average exercise price of $2.09.
The Company purchased approximatedly $205,000, $172,000 and $77,000 of
certain telecommunication equipment in 1995, 1996 and 1997, respectively, from
Teletronic, S.A. In October 1997 the Company issued 300,000 shares of Common
Stock to Mr. Donoso for certain financial assistance provided to the Company
during its development stage. The Company recognized interest expense of
$852,000 related to the aggregate fair value of such shares of Common Stock.
During 1997 the Company issued and redeemed $200,000 of bridge notes from Mr.
Cargill. In connection with such bridge notes Mr. Cargill received 20,000
warrants to purchase the Company's common stock at an exercise price of $2.56
per warrant.
MR. HERNAN STREETER
During the three years ended December 31, 1997, the Company entered into
several transactions with Mr. Herman Streeter. Mr. Streeter formerly served
the Company as its Chief Executive Officer and its Chairman of the Board. In
addition, he is a principal shareholder of the Company. The Company paid
salaries to Mr. Streeter of $120,000 and $110,000 during 1995 and 1996,
respectively.
From 1994 to 1996, the Company granted Mr. Streeter 510,000 stock options
with a weighted average exercise price of $1.91, respectively.
From 1995 and 1996, approximately $1.6 million was loaned to the Company
by Laura Investments, Ltd., a company owned by Mr. Streeter. On March 31, 1996
the loans, plus accrued interest, were converted into 839,235 shares of
Company Common Stock.
Mr. Streeter was the founder and Chief Executive Officer of Hewster,
which was acquired by the Company during 1996. Prior to its acquisition,
Hewster provided approximately $237,000 of telecommunications services to the
Company. Mr. Streeter also was the primary shareholder and General Manager of
FirstCom Long Distance, which was acquired by the Company during 1997.
Prior to this acquisition, the Company made sales of $162,000 to FirstCom Long
Distance. Pursuant to provisions of the FirstCom Long Distance purchase
agreement, the Company agreed to pay Mr. Streeter a consulting fee of $120,000
during 1998. The Company believes that each of the foregoing transaction was
an arm's-length transaction entered into under normal market conditions and in
the ordinary course of business.
MAROON BELLS CAPITAL PARTNERS ("MBCP")
During the three years ended December 31, 1997 the Company entered into
certain transactions with MBCP. Two former directors of the Company, Paul
Moore and Phillip Magiera, are principals in MBCP. MBCP has provided certain
consulting and financial advisory services to the Company during the past
three years.
From 1994 to 1996, the Company granted MBCP and its principals 1,015,000
stock options with a weighted average exercise price of $2.12.
During 1995, the Company recognized $100,000 as a financial advisory fee
to MBCP. During 1996, the Company purchased $493,000 in equipment whereby
MBCP acted as a broker.
During 1996 and 1997, the Company converted $316,000 and $240,000,
respectively, of outstanding liabilities to MBCP into 172,506 and 80,000
shares, respectively, of the Company's Common Stock.
During October 1997, the Company entered into an agreement with MBCP and
its principals, Theodore Swindells, Paul Moore and Phillip Magiera, to
compensate them for services rendered to the Company. Pursuant to such
agreement, the Company made a cash payment to MBCP of $500,000 at the closing
of the Senior Note offering and issued 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. The Company recognized non-cash
consulting expense related to the Common Stock and Stock Options of
approximately $1.8 million. Messrs. Moore and Magiera resigned from the
Company's board of Directors effective as of the date of the agreement.
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<PAGE>
OTHER RELATED PARTY TRANSACTIONS
The Company paid approximately $865,000 in legal fees in 1997 to a firm
having a Senior Partner who is also a current director of the Company.
In connection with the FirstCom Long Distance Acquisition, the Company
issued to Mr. Silva, a former 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 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.
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<PAGE>
DESCRIPTION OF NEW NOTES
The Existing Notes were, and the New Notes will be, 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 Existing Notes were, and the New Notes will be, 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 New
Notes," the term "Company" refers only to InterAmericas Communications
Corporation and not to any of its Subsidiaries.
RANKING
The New Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company incurred in the future, if any. The New Notes will
rank pari passu in right of payment to all senior Indebtedness of the Company
incurred in the future, if any. The New 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 New 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 New 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.
The Obligations under the New Notes will be effectively subordinated to
all Indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of the Company's Subsidiaries.
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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 December 31, 1997, the
Company's Subsidiaries have approximately $5,049,000 of Indebtedness and
$679,000 of trade payables and other liabilities outstanding. In addition,
under the Indenture, the Company's Subsidiaries will be 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 "Risk Factors
- -- Limitations on Access to Cash Flow of Subsidiaries; Holding Company
Structure" and " -- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
PRINCIPAL MATURITY AND INTEREST
The New Notes will be limited to $150.0 million in aggregate principal
amount and will mature on October 27, 2007. Interest on the New 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 New 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 will be 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 Initial 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 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.
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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 Initial 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
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. See "Risk Factors -- Effect of
Bankruptcy on Ability to Realize Upon Security."
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OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to
October 27, 2002. Thereafter, the New 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 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 New 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 New 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 transactions that constitute the Change of
Control and offering to repurchase New 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 New Notes as a result of a Change of Control.
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On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all New 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 New
Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the New Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of New Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of New Notes so tendered the Change of Control Payment for such
New 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 New 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 New Notes to require that
the Company repurchase or redeem the New 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 New Notes to require the Company to repurchase such New
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 New 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 New
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 New 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 Change of
Control occurs at a time when the Company is prohibited from purchasing New
Notes, the Company could seek the consent of its lenders to the purchase of
New 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
New Notes. In such event, the Company would be required to seek to refinance
the New 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.
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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.
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.
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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, 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 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.
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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 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;
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(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 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
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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.
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 caption " -- Certain Covenants --
Restricted Payments," in each case, shall not be deemed Affiliate
Transactions.
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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 " -- 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.
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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 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.
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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.
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.
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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, 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 New 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 New Notes to be redeemed.
The registered Holder of a New 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 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 New Notes held by a non-consenting Holder): (i)
reduce the principal amount of New 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 New 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 New Notes (except a rescission of acceleration of the Senior
Notes by the Holders of at least a majority in aggregate principal amount of
the New 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 New Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of New Notes to
receive payments of principal of or premium, if any, or interest or Liquidated
Damages, if any, on the New Notes, (vii) waive a redemption payment with
respect to any New Note (other than a payment required by one of the covenants
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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.
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 New 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 New
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
Existing Note until (i) the date on which such Existing Note has been
exchanged by a person other than a broker-dealer for a New Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of an existing 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 Existing 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 Existing Note is distributed to the public pursuant to Rule 144 under the
Act.
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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 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 Existing 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 Existing 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
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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 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 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'
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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 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.
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"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
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.
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"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 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."
"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).
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"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 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.
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"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 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.
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"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).
"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 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
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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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PROVISIONS GENERALLY APPLICABLE TO THE SENIOR NOTES
BOOK-ENTRY, DELIVERY AND FORM
All of the Existing Notes were initially issued in the form of one Global
Note (the "Existing Global Note") The Existing Global Note was deposited upon
issuance with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee (such nominee being referred to herein as the "Global Note Holder"),
in each case for credit to an account of a direct or indirect participant in
DTC as described below. The New Notes which will be issued in exchange for the
Existing Notes will be issued in the form of one Global Note (the "New Global
Note") and deposited upon issuance with, or on behalf of, the DTC and
registered in the name of the Global Note Holder.
Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the Global Note may not be exchanged for
New Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Securities for Certificated Securities."
DEPOSITORY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the "Indirect Participants"). Persons
who are not Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of each actual
purchaser of each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
The Company expects that, pursuant to procedures established by the DTC,
(i) upon deposit of the New Global Note, the DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the New Global Note and (ii) ownership of the New Notes evidenced by
the New Global Note will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the DTC (with respect to
the interests of the Participants), the Participants and the Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer New Notes
evidenced by the New Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Notes evidenced by the Existing Global Note and the New
Global Note. Beneficial owners of Senior Notes evidenced by the Existing
Global Note and the New Global Note will not be considered the owners or
Holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee has any responsibility or
liability for any aspect of the records of the DTC or for maintaining,
supervising or reviewing any records of the DTC relating to the Senior Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Senior Notes, including the
Global Senior Note, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Senior Notes. The Company believes, however, that it
is currently the policy of the DTC to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown
on the records of the DTC. Payments by the DTC's Participants and the DTC's
Indirect Participants to the beneficial owners of Senior Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the DTC's Participants or the DTC's Indirect Participants.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL
NOT HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of, premium if any, interest and
Liquidated Damages, if any, on any Senior Notes, registered in the name of DTC
or its nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture the
Company and the Trustee will treat the persons in whose names the New Notes,
including the New Global Note, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interest in the New Global Note, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the New Global Note or (ii) any other matter relating
to the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities, is to credit the accounts of
the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Securities will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee
or the Company. Neither the Company nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners
of the New Notes, and the Company and the Trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee for all
purposes.
Interests in the New Global Note are expected to be eligible to trade in
DTC's Same-Day Funds Settlement System, and secondary market trading activity
in such interests will therefore settle in immediately available funds,
subject in all cases to the rules and procedures of DTC and its participants.
See "-- Same-Day Settlement and Payment."
Subject to the transfer restrictions set forth under "Notice to
Investors," transfers between Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of New Notes only at the direction of one or more
Participants to whose account with DTC interests in the New Global Note are
credited and only in respect of such porion of the aggregate principal amount
of the New Notes as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the New
Notes, DTC reserves the right to exchange the New Notes for legended New Notes
in certificated form, and to distribute such New Notes to its Participants.
The information in this section concerning DTC, and its book-entry
systems has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the New Global Note among Participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations.
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EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A New Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the New Global Note and the Company
thereupon fails to appoint a successor depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of the New Notes in certificated form or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default with respect to the New Notes. In
addition, beneficial interests in a New Global Note may be exchanged for
certificated New Notes upon request but only upon at least 20 days prior
written notice given to the Trustee by or on behalf of DTC in accordance with
its customary procedures. In all cases, certificated New Notes delivered in
exchange for any New Global Note or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless the Company determines otherwise in compliance
with applicable law.
EXCHANGE OF CERTIFICATED SECURITIES FOR BOOK-ENTRY SECURITIES
New Notes issued in certificated form may not be exchanged for beneficial
interests in any New Global Note unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such New Notes as described under "Notice to
Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the New Global Note be made by wire transfer of immediately
available funds to the accounts specified by the New Global Note Holder. With
respect to New Notes in certificated form, the Company will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to
each such Holder's registered address.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is the opinion of Baker & McKenzie, counsel to the Company, that the
material federal income tax considerations to holders whose Existing Notes are
exchanged for New Notes are as described herein, subject to the limitations
and conditions set forth below. Except as specifically discussed below with
regard to Non-U.S. Holders (as defined below), this description applies only
to initial investors who hold the Existing Notes and New Notes as capital
assets and who, for United States federal income tax purposes, are (i)
individual citizens or residents of the United States, (ii) corporations,
partnerships or other entities created or organized in or under the laws of
the United States or of any political subdivision thereof (unless, in the case
of a partnership, Treasury Regulations otherwise provide), (iii) estates, the
income of which are subject to United States federal income taxation
regardless of the source of such income or (iv) trusts subject to the primary
supervision of a United States court and the control of one or more United
States persons ("U.S. Holders"). Persons other than U.S. Holders ("Non-U.S.
Holders") are subject to special federal income and estate tax considerations
that are discussed below. There can be no assurance that the Internal Revenue
Service will agree with the following discussion. Further, the discussion does
not address all aspects of taxation that may be relevant to particular
purchasers in light of their personal circumstances (including the effect of
any foreign, state or local tax laws) or to certain types of purchasers
(including dealers in securities, insurance companies, foreign persons,
financial institutions, tax-exempt entities and persons holding the Senior
Notes as part of a straddle, hedge or conversion transaction) subject to
special treatment under the federal income tax laws. Moreover, the effect of
any applicable state, local or foreign tax laws is not discussed.
The discussion of the federal income tax consequences set forth below is
based upon currently existing provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), judicial decisions, and administrative
interpretations including, but not limited to, Treasury regulations relating
to original issue discount ("OID Regulations"), all of which are subject to
change, possibly with retroactive effect. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY
DIFFER, EACH PROSPECTIVE PURCHASER OF NEW NOTES IS STRONGLY URGED TO CONSULT
HIS OWN TAX ADVISOR WITH RESPECT TO HIS PARTICULAR TAX SITUATION AND THE
PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND
POSSIBLE CHANGES IN THE TAX LAWS.
TAX CONSEQUENCES FOR U.S. HOLDERS
EXCHANGE OF EXISTING NOTES FOR NEW NOTES
Because the New Notes should not be considered to differ materially
either in kind or in extent from the Existing Notes, the exchange of New Notes
for Existing Notes pursuant to the Exchange Offer should not be treated as an
"exchange" for federal income tax purposes pursuant to Section 1001 of the
Code and Treasury Regulation Section 1.1001-3. As a result, no material
federal income tax consequences should result to holders exchanging Existing
Notes for New Notes. If, however, the exchange of Existing Notes for New Notes
were treated as a taxable event, such transaction should constitute a
recapitalization for federal income tax purposes and holders would not
recognize a gain or loss upon such exchange.
INTEREST AND ORIGINAL ISSUE DISCOUNT
Stated interest on the Senior Notes will be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is paid in accordance with
such holder's method of accounting for tax purposes.
In addition, the Senior Notes will be treated, for federal income tax
purposes, as having been issued with original issue discount ("OID") unless
the amount of the OID is considered de minimus. A U.S. Holder of a Senior Note
will be required to include such OID (other than de minimus OID) in income (as
interest) as it accrues, regardless of the holder's method of accounting for
federal income tax purposes. Accordingly, a U.S. Holder will be required to
include amounts in gross income in advance of the receipt of the cash to which
such income is attributable.
The amount of OID with respect to a Senior Note will be an amount equal
to the excess of the stated redemption price at maturity of such Senior Note
over the issue price of such Senior Note. The stated redemption price at
maturity of each Senior Note will include all cash payments, including
principal and interest, required to be made thereunder until maturity other
than qualified stated interest. Stated interest on the Senior Note will
qualify as qualified stated interest. The issue price of a Senior Note will be
equal to that portion of the issue price of the Unit allocable to the Senior
Note based on the relative fair market values of the Senior Notes and Warrants
forming part of a Unit at the time of issuance. The OID will be considered de
minimus, and thus no current accrual would be required, if the OID is less
than .25% of the stated redemption price at maturity, multiplied by the number
of complete years to maturity.
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The amount of OID accruing with respect to any Senior Note will be the
sum of the "daily portions" of OID with respect to such Senior Note for each
day during the taxable year in which a holder owns a Senior Note ("accrued
OID"). The daily portion is determined by allocating to each day in any
"accrual period" a pro rata portion of the OID allocable to that accrual
period. An accrual period may be of any length and may vary in length over the
term of a Senior Note provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs either on the
final day or on the first day of an accrual period. The amount of OID accruing
during any full accrual period with respect to a Senior Note will be equal to
the following amount: (i) the "adjusted issue price" of such Senior Note at
the beginning of that accrual period, multiplied by (ii) the yield to maturity
of such Senior Note. OID allocable to a final accrual period is the difference
between the amount payable at maturity and the adjusted issue price at the
beginning of the final accrual period. If all accrual periods are of equal
length, except for an initial short accrual period, the amount of OID
allocable to the initial short accrual period may be computed under any
reasonable method. The adjusted issue price of a Senior Note at the beginning
of its first accrual period will be equal to its issue price. The adjusted
issue price at the beginning of any subsequent accrual period will be equal to
(i) the adjusted issue price at the beginning of the preceding accrual period,
plus (ii) the amount of OID accrued during the preceding accrual period, minus
(iii) any payments other than qualified stated interest made during the
preceding accrual period and on the first day of such subsequent accrual
period.
In the event of a Change of Control, the holders of the Senior Notes will
have the right to require the Company to purchase their Senior Notes. The OID
Regulations provide that the right of holders of the Senior Notes to require
redemption of the Senior Notes upon the occurrence of a Change of Control will
not affect the yield or maturity date of the Senior Notes unless, based on all
the facts and circumstances as of the issue date, it is more likely than not
that a Change of Control giving rise to the redemption right will occur. The
Company has no present intention of treating the redemption provisions of the
Senior Notes as affecting the computation of the yield to maturity of any
Senior Note.
The Company may redeem the Senior Notes at any time on or after October
27, 2002, and, in certain circumstances, may redeem or repurchase all or a
portion of the Senior Notes prior to October 27, 2000 with the proceeds of a
sale of its Qualified Capital Stock to the public in a registered public
offering or to one or more Strategic Equity Investors. Under the OID
Regulations, the Company is deemed to exercise any option to redeem if the
exercise of such option would lower the yield of the debt instrument. The
Company believes that it will not be treated as having exercised an option to
redeem under these rules.
If the Company meets the Foreign Active Business Requirement described
below, interest (and original issue discount, if any) paid on the Senior Notes
may be treated as foreign source interest. Due to the factual nature of the
issue, however, it is not certain that the Company will meet such requirement.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION
Generally, any sale, redemption or other taxable disposition of Senior
Notes by a U.S. Holder will result in taxable gain or loss equal to the
difference between (1) the sum of the amount of cash and the fair market value
of any property received upon such sale, redemption or disposition (except to
the extent that cash received is attributable to accrued interest or OID) and
(2) the holder's adjusted tax basis in such Senior Notes. The adjusted tax
basis of a holder in such Senior Notes will equal the issue price of such
Senior Notes, increased by any OID on the Senior Notes previously included in
such holder's income, and reduced by any payments (other than payments of
qualified stated interest) previously made on the Senior Notes. Such gain or
loss will be capital gain or loss, and will be long-term capital gain or loss
if the Senior Notes had been held by the holder for more than one year at the
time of the sale, redemption or disposition. Long-term capital gain realized
by an individual U.S. Holder is generally subject to a maximum tax rate of 28%
in respect of property held for more than one year and to a maximum rate of
20% in respect of property held in excess of 18 months.
U.S. Holders should be aware that the resale of a Senior Note may be
affected by the "market discount" rules of the Code under which a subsequent
purchaser of a Senior Note acquiring the Senior Note at a market discount
generally would be required to include as ordinary income a portion of the
gain realized upon the disposition or retirement of such Senior Note to the
extent of the market discount that has accrued while the debt instrument was
held by such holder.
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TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
INTEREST
Interest (including OID) paid by the Company to a Non-U.S. Holder will
not be subject to U.S. federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
U.S. by such Non-U.S. Holder and either (a) at least 80% of the gross income
of the Company and its direct or indirect subsidiaries during a certain
testing period as described in the Code is non-U.S. source income attributable
to the active conduct of a trade or business outside the U.S. ("Foreign Active
Business Requirement") or (b) the Non-U.S. Holder (i) does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company, (ii) is not a controlled foreign corporation
with respect to which the Company is a "related person" within the meaning of
the Code and (iii) certifies, under penalties of perjury, that such owner is
not a U.S. person and provides such owner's name and address. It is possible
that the Company will meet the Foreign Active Business Requirement described
above; because of the factual nature of this determination, however, it cannot
be stated with certainty that such requirement will be met, and therefore it
is recommended that persons who are able to qualify under the alternative test
for exemption from withholding tax described in (b) above provide the
certification described in (b)(ii) in order to obtain the exemption.
The certification described under the exemption from withholding tax
described in (b)(iii) above is generally required to be made on Form W-8 (or
permitted substitute form) prior to payment. Regulations dealing with
withholding tax on amounts paid to foreign persons and related matters (the
"New Withholding Regulations") were recently issued by the Treasury
Department. In general, the New Withholding Regulations do not significantly
alter the substantive withholding and information reporting requirements, but
unify current certification procedures and forms, clarify reliance standards
and provide certain special procedures for payments made to qualified
intermediaries. The New Withholding Regulations will generally be effective
for payments made after December 31, 1998, subject to certain transition
rules. Accordingly, payments made on or before December 31, 1998 will continue
to be subject to the regulations that existed before the New Withholding
Regulations were issued.
Interest paid to a Non-U.S. Holder that is effectively connected with a
United States trade or business conducted by such Non-U.S. Holder will be
taxed at the graduated rates applicable to United States citizens, resident
aliens and domestic corporations, and will not be subject to withholding tax
if the Non-U.S. Holder gives an appropriate statement to the Company or its
paying agent in advance of the interest payment. In addition to the graduate
tax described above, effectively connected interest received by a Non-U.S.
Holder that is a corporation may also be subject to an additional branch
profits tax at a rate of 30% ( or such lower rate as may be specified by an
applicable income tax treaty).
GAIN ON DISPOSITION OF SENIOR NOTES
A Non-U.S. Holder will generally not be subject to U.S. federal income
tax on gain recognized on a sale, redemption or other disposition of a Senior
Note unless (i) the gain is effectively connected with the conduct of a trade
or business within the U.S. by the Non-U.S. Holder or (ii) in the case of a
Non-U.S. Holder who is a non-resident alien individual and holds the Senior
Note as a capital assets, such holder is present in the U.S. for 183 or more
days in the taxable year and certain other requirements are met.
FEDERAL ESTATE TAXES
If interest on the Senior Notes is exempt from withholding of U.S.
federal income tax under the rules described above, the Senior Notes will not
be included in the estate of a deceased Non-U.S. Holder for U.S. federal
estate tax purposes.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
For each year in which the Senior Notes are outstanding, the Company will
generally be required to provide the Internal Revenue Service with certain
information, including the holder's name, address and taxpayer identification
number (either such holder's social security number or its employer
identification number, as the case may be), and the aggregate amount of
interest (including OID) and principal paid to such holder during the year.
These reporting requirements, however, do not apply with respect to certain
holders, including United States corporations, securities dealers, other
financial institutions, tax-exempt organizations, qualified pension and profit
sharing trusts, and individual retirement accounts.
In the event that a holder fails to establish its exemption from such
information reporting requirements or is otherwise subject to the reporting
requirements described above and fails to supply its correct taxpayer
identification number in the manner required by applicable law, or
underreports its tax liability, the paying agent making payments in respect of
a Senior Note may be required to withhold an amount equal to 31% from any
payment of interest or principal pursuant to the terms of the Senior Notes, or
any payment of proceeds of a redemption of Senior Notes, as the case may be,
to a holder. The New Withholding Regulations provide that to the extent a
Non-U.S. Holder certifies on Form W-8 (or a permitted substitute form) as to
such holder's status as a foreign person, the backup withholding provisions
and the information reporting provisions will generally not apply. If a
Non-U.S. Holder fails to provide such certification, such holder may be
subject to certain information reporting and the 31% backup withholding tax.
Amounts paid as backup withholding do not constitute an additional tax and
will be credited against the holder's federal income tax liabilities, so long
as the required information is provided to the Internal Revenue Service. The
Company will report to the holders of Senior Notes the amount of any
"reportable payments" for each calendar year and the amount of tax withheld,
if any, with respect to payment on the securities.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resales of New Notes received in exchange for Existing
Notes where such Existing Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a
period of 120 days after the date on which the Registration Statement is
declared effective, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer that requests such documents in the Letter of
Transmittal for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties
related to the holders against certain liabilities, including liabilities
under the Securities Act.
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LEGAL MATTERS
Legal matters with respect to the New Notes offered hereby will be passed
upon for the Company by Baker & McKenzie, Miami, Florida.
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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, 1997, included in this
Prospectus, have been so included in reliance on the report (which contain an
explanatory paragraph relating to the terms of transactions and relationships
with related parties as described in Note 4 to the Consolidated Financial
Statements) of Price Waterhouse LLP, independent certified public accountants,
given on the authority of said firm as experts in accounting and auditing.
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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).
99
<PAGE>
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.
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.
100
<PAGE>
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 plesiochronous operation has led to the adoption of the term
plesiochronous 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.
TELEPORT: Refers to a facility capable of transmitting and receiving
satellite signals for other users.
101
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
INTERAMERICAS COMMUNICATIONS CORPORATION
Report of Independent Certified Public
Accountants. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 . . . . . . F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . F-7
</TABLE>
F-1
<PAGE>
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,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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 4, during 1996 and 1995, the Company had
significant 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
March 2, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 723 $ 13,705
Restricted cash . . . . . . . . . . . . . . . . . . . . - 59,659
Restricted investments. . . . . . . . . . . . . . . . . - 20,404
Accounts receivable, net of allowance of $168 in 1997 . 113 2,367
Prepaid expenses and other current assets . . . . . . . 491 1,208
--------- ---------
Total current assets. . . . . . . . . . . . . . 1,327 97,343
Restricted investments. . . . . . . . . . . . . . . . . . - 37,488
Telecommunications networks, net. . . . . . . . . . . . . 3,956 9,348
Intangible assets, net. . . . . . . . . . . . . . . . . . 5,029 10,881
Deferred financing costs. . . . . . . . . . . . . . . . . 42 14,971
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . $ 10,354 $170,031
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 299 $ 4,023
Accrued interest. . . . . . . . . . . . . . . . . . . . 83 3,797
Other accrued expenses. . . . . . . . . . . . . . . . . 591 1,709
Due to related parties. . . . . . . . . . . . . . . . . 416 263
Lease obligations, current. . . . . . . . . . . . . . . 114 313
Other current liabilities . . . . . . . . . . . . . . . 323 322
--------- ---------
Total current liabilities . . . . . . . . . . . 1,826 10,427
Senior notes, net . . . . . . . . . . . . . . . . . . . . - 131,626
Lease obligations, less current portion . . . . . . . . . 248 356
--------- ---------
Total liabilities . . . . . . . . . . . . . . . 2,074 142,409
--------- ---------
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,
1996 and 1997 16,152,518 and
19,084,300 shares, respectively. . . . . . . . . . . 16 19
Additional paid in capital. . . . . . . . . . . . . . . 18,493 26,887
Warrants. . . . . . . . . . . . . . . . . . . . . . . . - 26,737
Accumulated deficit . . . . . . . . . . . . . . . . . . (10,151) (25,783)
Cumulative translation adjustments . . . . . . . . . . . (78) (238)
--------- ---------
Total stockholders' equity. . . . . . . . . . . 8,280 27,622
--------- ---------
Total liabilities and stockholders' equity. . . $ 10,354 $170,031
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenues $ 224 $ 652 $ 1,130
----------- ------------ ------------
Operating expenses:
Cost of revenues 408 958 1,203
Selling, general and administrative . 1,906 3,272 5,265
Non-cash compensation and consulting
12 73 4,640
Depreciation and amortization 396 706 967
----------- ------------ ------------
2,722 5,009 12,075
----------- ------------ ------------
Loss from operations (2,498) (4,357) (10,945)
Interest expense (319) (246) (5,934)
Interest income 10 80 1,315
Other expense, net (66) (103) (68)
----------- ------------ ------------
Net loss $ (2,873) $ (4,626) $ (15,632)
=========== ============ ============
Net basic and diluted loss per share $ (.31) $ (.31) $ (.94)
=========== ============ ============
Weighted average common shares outstanding .
9,407,000 14,795,660 16,667,719
=========== ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
ADDITIONAL ACCRUED CUMULATIVE
COMMON STOCK PAID-IN DISTRIBUTIONS ACCUMULATED TRANSLATION
---------------
SHARES AMOUNTS CAPITAL AND WARRANT DEFICIT ADJUSTMENT TOTAL
---------- -------- -------- ------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 . . . . . . 6,316,024 $ 6 $ 2,637 $ (6,088) $ (2,652) $ (14) $ (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
Conversion of debt. . . . . . . . . . . . 1,101,782 1 2,459 - - - 2,459
Stock issued to certain officers, related
parties and former directors . . . . . . 1,830,000 2 5,935 - - - 5,937
Warrants to purchase common stock .. . . - - - 26,737 - - 26,737
Currency translation adjustment . . . . . - - - - - (160) (160)
Net loss. . . . . . . . . . . . . . . . . - - - - (15,632) - (15,632)
---------- -------- -------- ------------- --------- ------------ ---------
Balances at December 31, 1997. . . . . . 19,084,300 $ 19 $ 26,887 $ 26,737 $(25,783) $ (238) $ 27,622
========== ======== ======== ============= ========= ============ =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- -------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . $ (2,873) $(4,626) (15,632)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense. . . . . . 396 706 967
Amortization of deferred financing costs and
original issue discounts . . . . . . . . . . . - - 518
Beneficial conversion features on convertible
debentures . . . . . . . . . . . . . . . . . . - - 466
Capitalized interest related to network
construction . . . . . . . . . . . . . . . . . - - (712)
Services exchanged for common stock. . . . . . . 12 73 852
Non-cash compensation and consulting expense . . - - 4,640
Interest converted to equity . . . . . . . . . . 183 49 45
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . (70) (105) (29)
Prepaid expenses and other current assets. . . 202 (197) (258)
Other assets . . . . . . . . . . . . . . . . . 76 (53) (64)
Accounts payable and accrued expenses. . . . . (4) 299 3,552
Due to related parties . . . . . . . . . . . . (66) (251) (179)
Other current liabilities. . . . . . . . . . . - 171 (105)
Deferred taxes . . . . . . . . . . . . . . . . (6) - -
--------- -------- ----------
Cash used in operating activities . . . . . (2,150) (3,934) (5,939)
--------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network . . . . . . (720) (1,453) (2,763)
Acquisition of FirstCom Long Distance. . . . . . . - - (5,799)
Acquisition of Visat . . . . . . . . . . . . . . . (450) - -
Acquisition of FirstCom Networks . . . . . . . . . - (1,515) -
--------- -------- ----------
Cash used in investing activities . . . . . (1,170) (2,968) (8,562)
--------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Senior Notes . . . . . . . . . . . . . - - 150,000
Deferred financing costs . . . . . . . . . . . . . - - (7,000)
Restricted cash and investments. . . . . . . . . . - - (117,551)
Net proceeds from convertible debentures . . . . . - - 1,950
Issuance of common stock . . . . . . . . . . . . . 1,963 7,430 -
Net proceeds from issuance of (repayments to)
notes payable and Bridge Notes . . . . . . . . . 893 (1,061) -
Additions to notes payable to related party. . . . 407 1,232 -
(Payments under) proceeds from leasing
obligations. . . . . . . . . . . . . . . . . . . - (31) 84
--------- -------- ----------
Cash provided by financing activities, net. 3, 263 7,570 27,483
--------- -------- ----------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . (57) 668 12,982
Effect of exchange rate changes on cash. . . . . . . - (2) -
Cash and cash equivalents at beginning of year . . . 114 57 723
--------- -------- ----------
Cash and cash equivalents at end of year . . . . . . $ 57 $ 723 $ 13,705
========= ======== ==========
Supplemental cash flow information
Cash paid for interest. . . . . . . . . . . . . . . $ 2 $ 153 $ 545
========= ======== ==========
<FN>
Capital lease obligations of $221 and $172 were incurred in 1995 and 1996
respectively.
During 1997, the Company capitalized $712 of interest costs related to the
construction of a fiber optic network.
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-6
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
1. ORGANIZATION AND BUSINESS FORMATION
InterAmericas Communications Corporation ("the Company") is a provider of
telecommunications services in Chile and Peru. 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
Company operates in Chile as Visat, S.A. ("Visat"), FirstCom Networks, S.A.
("FirstCom Networks"), formerly Hewster Chile, S.A., and FirstCom Long
Distance, S.A. ("FirstCom Long Distance"), formerly Iusatel Chile, S.A., and
in Peru as Red de Servicios de Telecomunicaciones, S.A. ("Resetel").
Visat 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. FirstCom Networks is engaged in
the development of a fiber optic network and provides various network
installation and systems integration services in Santiago, Chile. FirstCom
Long Distance provides domestic and international long distance services in
Chile. FirstCom Long Distance's long distance traffic switched and
transported, in part, through its own gateway switch and satellite earth
station, as well as through interconnections with other long distance
carriers. Resetel is building a fiber optic telecommunications network in Lima
and Callao, Peru.
During the three years ended December 31, 1997, the Company made the following
acquisitions, each of which was accounted for as a purchase. The consolidated
financial statements include the operating results from the effective date of
acquisition.
ACQUISITION OF RESETEL
On May 7, 1996, the Company acquired 100% of Resetel's outstanding stock
in exchange for 1,250,000 shares of Common Stock of the Company. The purchase
price of approximately $2,800 has been substantially allocated to a local
carrier concession. A fair value of $2.25 was assigned to each share issued
to the shareholders of Resetel based on the net proceeds per share of the
Company's March 1996 private placement.
ACQUISITION OF FIRSTCOM NETWORKS
On July 31 and September 2, 1996 the Company acquired 99% and 1%,
respectively, of FirstCom Networks' outstanding stock for $1,500 in cash.
Goodwill of approximately $1,300 was recorded representing the excess cost
over the fair value of net assets acquired in the transaction.
ACQUISITION OF FIRSTCOM LONG DISTANCE
On December 17, 1997, the Company acquired 100% of FirstCom Long
Distance's outstanding stock for $5,900 million in cash. In addition, the
Company incurred other direct acquisition costs totaling approximately $300,
which includes the fair market value of 100,000 shares of Company Common Stock
paid to a former director for his services in facilitating the transaction.
The purchase agreement provides for an additional payment of up to $850 if
FirstCom Long Distance achieves certain operating results for the year ending
December 31, 1998.
F-7
<PAGE>
The excess purchase price, of approximately $6,200, over the fair value
of the net assets acquired has been allocated to FirstCom Long Distance's
telephone carrier concession. The Company has accounted for the acquisition of
FirstCom Long Distance as if it occurred on December 31, 1997, since FirstCom
Long Distance's estimated operating results for the period from December 17,
1997 to December 31, 1997 were not material.
OTHER RELATED ACQUISITION DISCLOSURES
The results of operations of Resetel and FirstCom Networks for the period
from January 1, 1996 to the respective date of acquisition were not
significant. The following unaudited pro forma summary presents the
consolidated results of operations as if the acquisition of FirstCom Long
Distance had occurred at the beginning of the periods presented, and do not
purport to be indicative of the results that actually would have occurred if
the acquisition had been consummated as of those dates or of results which may
occur in the future:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31,
--------------
1996 1997
--------- ---------
<S> <C> <C>
Revenue. . . . . . $ 8,474 $ 10,927
Net loss . . . . . (31,630) (39,895)
Net loss per share $ (2.14) $ (2.40)
</TABLE>
The Company assesses the carrying amount of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Measurement of any impairment would
include a comparison of estimated future cash flows to be generated during the
remaining life of each intangible asset to its net carrying value. Following
is a summary of the intangible assets resulting from the Company's
acquisitions:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, USEFUL
-------------
1996 1997 LIFE
------- -------- --------
<S> <C> <C> <C>
Satellite transmission rights . $1,166 $ 1,166 10 years
Concessions . . . . . . . . . . 2,819 9,095 20 years
Goodwill. . . . . . . . . . . . 1,289 1,289 10 years
------- --------
5,274 11,550
Less: accumulated amortization (245) (669)
------- --------
$5,029 $10,881
======= ========
</TABLE>
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS
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.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated at end-of-period exchange rates.
Income, expense and cash flows are translated at weighted average exchange
rates for the period. The resulting currency translation adjustments are
accumulated and reported as a component of stockholders' equity.
Primarily as a result of the Company's U.S. dollar denominated senior note
financing during October 1997, effective January 1, 1998 the Company's
subsidiaries will use the U.S. dollar as their functional currency. Management
does not expect this change to have a significant impact on the Company's
results of operations.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 consolidated financial statements
were reclassified to conform with the 1997 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, restricted cash,
accounts receivable and accounts payable approximated fair value based on the
short maturity of these financial instruments. The carrying amount of debt
and capital leases approximated fair value based on the prevailing market
rates currently available to the Company for similar financial instruments.
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.
RESTRICTED CASH AND INVESTMENTS
Restricted cash represents proceeds from the senior note offering (see
Note 3) to be used, in accordance with the terms of the related indenture
agreement, primarily for the purchase of the telecommunications equipment in
Peru and Chile. Restricted investments are U.S. Treasury Notes that are
restricted for the repayment of interest on the senior notes, and are stated
at amortized cost, which approximated fair value at December 31, 1997. These
investments mature at various dates through October 2000. Management
designated these investments as held-to-maturity.
TELECOMMUNICATIONS NETWORKS
Telecommunications networks are recorded at cost and are depreciated on a
straight-line method over the estimated useful lives of the related assets.
Construction, engineering, interest and labor costs directly related to the
development of the Company's networks are capitalized. The Company begins
depreciating these costs when the networks become commercially operational.
F-9
<PAGE>
Telecommunications networks consists of:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, USEFUL
-------------
1996 1997 LIFE
------- -------- --------
<S> <C> <C> <C>
Telecommunications equipment. . . . . . . . . . . . . $2,868 $ 6,547 10 to 20
Telecommunications equipment pending installation and
construction in progress. . . . . . . . . . . . . . . 1,021 2,627 -
Office equipment and furniture. . . . . . . . . . . . 1,007 1,663 3 to 7
------- --------
4,896 10,837
Less: accumulated depreciation
(940) (1,489)
------- --------
$3,956 $ 9,348
======= ========
</TABLE>
ACCOUNTING ESTIMATES
The preparation of financial statements require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- ------
<S> <C> <C>
Purchases of telecommunication equipment $ 376 $ -
Professional fees. . . . . . . . . . . . 63 622
Payroll. . . . . . . . . . . . . . . . . 14 447
Other. . . . . . . . . . . . . . . . . . 138 640
----- ------
$ 591 $1,709
===== ======
</TABLE>
COMMON STOCK EXCHANGED FOR OTHER THAN CASH
Common stock exchanged for services and as inducements to make loans have
been recorded as consulting, compensation or interest expense and additional
paid in capital at the fair value of the common stock.
REVENUE RECOGNITION
Revenue is recognized as services are provided.
NET LOSS PER SHARE
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. The weighted average number of shares outstanding
for the years ended December 31, 1995, 1996 and 1997 excludes approximately
2.2 million, 4.3 million and 15.6 million, respectively of antidilutive stock
options and warrants.
F-10
<PAGE>
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method which requires the recognition of related expense on the grant
date when the exercise price of the stock option granted is less then the fair
value of the underlying common stock. Additionally, the Company provides pro
forma disclosure of net loss and loss per share as if the fair value based
method had been applied in measuring compensation expense for stock options
granted in 1997 and 1996.
The policy of the Company has been to grant options 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 and 1997 for which $12
and $882, respectively was charged to expense. Had compensation costs for the
Company's stock option grants been determined based on the fair value at the
grant dates of options granted consistent with the fair value based method,
the Company's loss and loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C> <C>
Net loss . . . . . As Reported $ (4,626) $(15,632)
Pro forma. . . . (7,510) (21,237)
Net loss per share As Reported (.31) (.94)
Pro forma. . . . (.51) (1.27)
</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; volatility of 90%, risk-free interest rate of
6.72%, zero dividend yield and expected lives ranging from 4 to 8 years. The
weighted average fair value of options granted in 1996 and 1997 were $2.38 and
$2.47, respectively.
INCOME TAXES
The Company uses the asset and liability method of 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.
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, 1997 the Company has net tax operating loss carryforwards of approximately
$16,100 for U.S. income tax purposes and approximately $21,300 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 2012. The foreign net operating loss carryforwards related (1)
to Peru, $665 expire in the years 2000 through 2001 and (2) to Chile, $20,600,
do not expire.
The Company has deferred tax assets of approximately, $1,900 and $9,700
at December 31, 1996 and 1997, respectively, consisting primarily of net
operating loss carryforwards. The deferred tax assets have been fully offset
by a valuation allowance resulting from the uncertainty surrounding the future
realization of the net operating loss carryforwards.
F-11
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
During June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information" effective for fiscal years beginning after December 1997.
Management does not expect Statements No. 130 and 131 to have a significant
impact on the Company's reporting and disclosure requirements in 1998.
Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purposes financial statement. Statement No. 131
establishes standards for the way 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
3. CAPITALIZATION
The Company has had material transactions impacting its capitalization
during the past three years. The following information, in addition to the
disclosures in Note 4 - Related Party Transactions and Note 5 - Stock Options
and Warrants, describes the most significant of these transactions.
SENIOR NOTE OFFERING
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 of 150,000 Units, consisting of an
aggregate of $150,000 aggregate principal amount of 14% Senior Notes due
October 27, 2007 ("Senior Notes") and 5,250,000 warrants (the "Unit Warrants")
to purchase 5,250,000 shares of Common Stock of the Company 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 (the "Initial Warrants") to acquire 2,250,000 shares of Common Stock
of the Company at an exercise price of $4.40 per share. The Unit Warrants are
exercisable on the earlier of April 27, 1998 or the registration with the SEC
of the Senior Notes and the Initial Warrants are immediately exercisable and
both expire on October 27, 2007. Interest is payable semi-annually beginning
on April 1, 1998.
The fair value of the Unit Warrants, approximately $18,500 is reflected
As an original issue discount on the Senior Notes in the accompanying
consolidated balance sheet. Additionally, the Company incurred direct
financing costs of approximately $14,900, including the fair value of $7,900
of the Initial Warrants. The original issue discount and direct financing
costs are being amortized to interest expense over ten years.
The Senior Notes are redeemable on or after October 27, 2002 at the
option of the Company, in whole or in part from time to time, at specified
redemption prices declining annually to 100% of the principal amount on or
after October 27, 2005, plus accrued and unpaid interest. Upon a change in
control, the Company is required to make an offer to purchase the Senior Notes
at a purchase price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any. The Senior Notes contain certain
restrictive covenants that, among other things, limit the ability of the
Company to incur additional debt or issue preferred stock, pay dividends,
enter into related party transactions or make certain other restricted
payments.
F-12
<PAGE>
The net proceeds to the Company from the Senior Note Offering were
approximately $142,500, after deducting the underwriting discount and offering
expenses. Approximately $57,300 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. During November
and December of 1997, the Company used the net proceeds of the Senior Note
Offering as follows: (i) $5,900 for the acquisition of FirstCom Long Distance,
(ii) $4,300 for the purchase of telecommunications equipment and the repayment
of its subsidiaries liabilities, (iii) $2,600 to settle all of the Company's
outstanding obligations related to convertible debentures and (iv) $975 to
repay certain bridge notes. The Company expects to use the remaining proceeds
primarily to expand and operate the Company's telecommunications businesses in
Peru and Chile.
In addition to the deposit of a portion of the proceeds from the Senior
Note Offering to fund interest payments on the Senior Notes through October
2000, the Company deposited $62 million of the proceeds from the Senior Note
Offering in a separate account under a trustee's control pending application
of such funds by the Company for the payment of, as such terms are defined in
the Indenture: (a) Permitted Expenditures; (b) in the event of a Change in
Control of the Company, the Change in 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.
CONVERTIBLE DEBENTURES
On February 3, 1997, the Company issued $1,500 aggregate principal amount
of 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 $2,000 aggregate principal amount of 8% Convertible Debentures
due April 30, 1998 and warrants to purchase an aggregate 20,000 shares of the
Company's Common Stock (collectively the "Convertible Debentures").
During 1997, the Company issued 1,101,782 shares of Common Stock in
connection with the conversion of $1,950 aggregate principal amount of the
Convertible Debentures, plus related accrued interest. Effective December 31,
1997 the Company settled all of the Company's remaining financial obligations
related to the Convertible Debentures for $2,600 in cash.
PRIVATE ISSUANCES OF COMMON STOCK
In October 1994, the Company commenced a private offering of its common
stock. The Company issued 315,714 shares of common stock and raised $1,100
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 $3,000, 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 $1,120
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 $6,400 through August 1996, net of expenses
of $520.
During 1997, the Company issued 850,000 shares of common stock to two
officers and recognized related non-cash compensation expense of approximately
$2,300.
F-13
<PAGE>
4. RELATED PARTY TRANSACTIONS
TELECTRONIC S.A.
During the three years ended December 31, 1997, the Company entered into
certain transactions with Telectronic S.A. and its founders, Mr. George A.
Cargill and Mr. Eleazar Donoso. Mr. Cargill and Mr. Donoso are both Company
shareholders. Mr. Cargill has been a director of the Company since 1994.
From 1994 to 1997, the Company granted Mr. Cargill 290,000 stock options
with a weighted average exercise price of $2.09. The exercise price of such
grants was equal to the grant date fair value of the underlying Common Stock.
The Company purchased approximately $205, $172 and $77 of certain
telecommunication equipment in 1995, 1996 and 1997, respectively, from
Telectronic, S.A.
In October 1997, the Company issued 300,000 shares of Common Stock to Mr.
Donoso for certain financial assistance provided to the Company during its
development stage. The Company recognized interest expense of $852 related to
the aggregate fair value of such shares of Common Stock.
During 1997, the Company issued and redeemed $200 of bridge notes from
Mr. Cargill. In connection with such bridge notes Mr. Cargill received 20,000
warrants to purchase the Company's common stock at an exercise price of $2.56
per warrant.
MR. HERNAN STREETER
During the three years ended December 31, 1997, the Company entered into
several transactions with Mr. Hernan Streeter. Mr. Streeter formerly served
the Company as its Chief Executive Officer and its Chairman of the Board. In
addition, he is a principal shareholder of the Company. The Company paid
salaries to Mr. Streeter of $120 and $110 during 1995 and 1996, respectively.
From 1994 to 1996, the Company granted Mr. Streeter 510,000 stock options
with a weighted average exercise price of $1.91. The exercise price of such
grants was equal to the grant date fair value of the underlying Common Stock.
During 1995 and 1996, approximately $1,600 was loaned to the Company by
Laura Investments, Ltd., a company owned by Mr. Streeter. During 1996, the
Company paid $86 of interest to Laura Investments, Ltd. On March 31, 1996 the
loans, plus accrued interest, were converted into 839,235 shares of Company
Common Stock.
Mr. Streeter was the founder and Chief Executive Officer of FirstCom
Networks, which was acquired by the Company during 1996. Prior to its
acquisition, FirstCom Networks provided approximately $237 of
telecommunication services to the Company. Mr. Streeter also was the primary
shareholder and General Manager of FirstCom Long Distance, which was acquired
by the Company during 1997. Prior to this acquisition, the Company made sales
of $162 to FirstCom Long Distance. Pursuant to provisions of the FirstCom Long
Distance purchase agreement, the Company agreed to pay Mr. Streeter a
consulting fee of $120 during 1998.
F-14
<PAGE>
MAROON BELLS CAPITAL PARTNERS ("MBCP")
During the three years ended December 31, 1997, the Company entered into
certain transactions with MBCP. Two former directors of the Company, Paul
Moore and Phillip Magiera, are principals in MBCP. MBCP has provided certain
consulting and financial advisory services to the Company during the past
three years.
From 1994 to 1996, the Company granted MBCP and its principals 1,015,000
stock options with a weighted average exercise price of $2.12. The exercise
price of such grants was equal to the grant date fair value of the underlying
Common Stock.
During 1995, the Company recognized $100 as a financial advisory fee to
MBCP. During 1996, the Company purchased $493 in equipment whereby MBCP acted
as a broker. Additionally, during 1996 and 1997, the Company made expense
reimbursements of $219 and $132, respectively, to MBCP and its principals.
During 1996 and 1997, the Company converted $316 and $240, respectively,
of outstanding liabilities to MBCP into 172,506 and 80,000 shares,
respectively, of the Company's Common Stock.
During October 1997, the Company entered into an agreement with MBCP and
its principals, Theodore Swindells, Paul Moore and Phillip Magiera, to
compensate them for services rendered to the Company. Pursuant to such
agreement, the Company made a cash payment to MBCP of $500 at the closing of
the Senior Note offering and issued 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. The Company recognized
non-cash consulting expense related to the Common Stock and stock options of
approximately $1,800. Messrs. Moore and Magiera resigned from the Company's
Board of Directors effective as of the date of the agreement.
OTHER RELATED PARTY TRANSACTIONS
The Company paid approximately $865 in legal fees in 1997 to a law firm
having a senior partner who is also a current director of the Company.
F-15
<PAGE>
5. STOCK OPTIONS AND WARRANTS
Under the terms of the Company's stock option agreements, options have a
maximum term of ten years from the date of the grant. The options vesting
period varies from full vesting upon issuance of options to one forty eighth
per month to the end of the option term. A summary of the Company's stock
option activity is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- ---------------
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 3,625,000 $2.31
Granted. . . . . . . . . . . . . 960,000 1.96 2,060,000 2.52 3,670,000 3.15
Exercised. . . . . . . . . . . . - - - - - -
Cancelled. . . . . . . . . . . . - - - - - -
--------- --------- --------- ------- --------- -----
Outstanding at end of year . . . 1,565,000 $ 2.03 3,625,000 $ 2.31 7,295,000 $2.73
========= ========= ========= ======= ========= =====
Options exercisable at year-end. 1,250,350 $ 2.57 2,754,734 $ 2.54 4,970,365 $2.50
========= ========= ========= ======= ========= =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
AVERAGE
REMAINING OPTIONS EXERCISABLE
-------------------
EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE
PRICE OUTSTANDING LIFE EXERCISABLE PRICE
- ------------- ----------- ------------------- ----------- --------------
<S> <C> <C> <C> <C>
.35. . . . . 100,000 7 100,000 $ .35
1.83 to 1.96. 1,110,000 8 1,063,194 1.83 to 1.96
2.00 to 2.42. 3,130,000 9 1,465,786 2.00 to 2.42
2.50 to 2.81. 1,655,000 8 1,511,917 2.50 to 2.81
4.00 to 4.40. 1,100,000 10 493,518 4.00 to 4.40
6.00 to 8.00. 200,000 10 -- 6.00 to 8.00
----------- -----------
7,295,000 . . 4,970,365
============= ===========
</TABLE>
Included in the preceding table are 1,350,000 stock options, of which
452,952 are exercisable at December 31, 1997 with an exercise price of $2.13
and a weighted average remaining contractual life of 10 years. The exercise
price of such stock options was less than the grant date fair value of the
underlying Common Stock.
F-16
<PAGE>
During 1997 the Company granted two officers 2,650,000 stock options that
vest over a two year period. The Company recognized non-cash compensation
expense of $527 related to certain of these stock option grants. The terms of
1,000,000 stock options granted during 1996 were modified during 1997 to
provide for immediate vesting.
Including the Initial and Note Warrants described in Capitalization
above, the following is a summary of warrants granted by the Company:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ -----------------
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 75,000 $ 1.25 680,171 $ 2.97 680,171 $2.97
Granted. . . . . . . . . . . . . 605,171 3.18 - - 7,715,000 4.35
Exercised. . . . . . . . . . . . - - - - - -
Cancelled. . . . . . . . . . . . - - - - - -
-------- --------- ------- ------- --------- -----
Outstanding at end of year . . . 680,171 $ 2.97 680,171 $ 2.97 8,395,171 $4.24
======== ========= ======= ======= ========= =====
Options exercisable at year-end. 680,171 $ 2.97 680,171 $ 2.97 895,171 $2.80
======== ========= ======= ======= ========= =====
</TABLE>
These warrants resulted from the Company's financing activities from 1994 to
1997.
6. COMMITMENTS AND CONTINGENCIES
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.
The following summarizes future minimum payments under non-cancelable
operating lease agreements at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998 . . . $1,001
1999 . . . 920
2000 . . . 1,007
2001 . . . 1,101
2002-2003. 2,154
------
6,183
==========
</TABLE>
Rental expense under operating leases was $255, $508 and $961 for the
years ended December 31, 1995, 1996 and 1997, respectively.
The Company has entered into employment agreements with key members of
management that expire in 2000. These agreements provide for annual
compensation and payments upon death, disability and certain changes in
control.
F-16
<PAGE>
=========================================================
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>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . 4
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . 14
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . 26
CAPITALIZATION . . . . . . . . . . . . . . . . . . . 27
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . 29
SELECTED HISTORICAL FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . 36
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . 37
BUSINESS . . . . . . . . . . . . . . . . . . . . . . 43
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 59
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 63
DESCRIPTION OF NEW NOTES . . . . . . . . . . . . . . 65
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS . . . . . 92
PLAN OF DISTRIBUTION.. . . . . . . . . . . . . . . . 96
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . 97
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . 98
GLOSSARY OF DEFINED TERMS. . . . . . . . . . . . . . 99
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . F-1
</TABLE>
=========================================================
[INTERAMERICAS COMMUNICATIONS LOGO]
------------------------
OFFER TO EXCHANGE
------------------------
14% SENIOR NOTES DUE OCTOBER 27, 2007,
FOR ALL OUTSTANDING
14% SENIOR NOTES DUE OCTOBER 27, 2007
------------------------
, 1998
=========================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<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
Telecommunicaciones S.A. and UBS Securities LLC, previously filed as an exhibit to
the 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 the 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 the 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 the Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
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 the 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 the 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 the 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 the Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997 and incorporated
herein by reference.
5.1 Opinion of Baker & McKenzie (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, as amended, 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 January 5, 1998 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.
10.3 Employment and Severance Agreement, dated as of April 14, 1997, between
InterAmericas Communications Corporation and Douglas G. Geib II, previously
filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB filed with the
Commission on May 15, 1997 and incorporated herein by reference.
10.4 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.
10.5 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.
11.1 Statement regarding Computation of Per Share Earnings, previously filed as an
exhibit to Registrant's Annual Report on Form 10-KSB, filed with the Commission
on March 10, 1998 and incorporated herein by reference.
21.1 Subsidiaries of the Registrant, previously filed as an exhibit to Registrant's Annual
Report on Form 10-KSB, filed with the Commission on March 10, 1998 and
incorporated herein by Reference.
23.1 Consent of Price Waterhouse LLP.
23.2 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 the Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.
99.1 Form of Letter of Transmittal, previously filed as an exhibit to the 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 the 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 the 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 the Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10, 1997
and incorporated herein by reference.
</TABLE>
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person who
is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to
II-2
<PAGE>
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
2. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph l. immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
UNDERSIGNED REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MIAMI,
FLORIDA ON MARCH 17, 1998.
INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ DOUGLAS G. GEIB II
------------------------------------
Name: Douglas G. Geib II
Title: Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------
<S> <C> <C>
/s/ PATRICIO E. NORTHLAND * Chairman of the Board of March 17, 1998
- ----------------------------
Patricio E. Northland Directors, President and
Chief Executive Officer
(Principal Executive
Officer)
/s/ DOUGLAS G. GEIB II Chief Financial Officer March 17, 1998
- ----------------------------
Douglas G. Geib II and Director (Principal
Financial and Accounting
Officer)
/s/ DAVID C. KLEINMAN * Director March 17, 1998
- ----------------------------
David C. Kleinman
/s/ GEORGE A. CARGILL * Director March 17, 1998
- ----------------------------
George A. Cargill
/s/ ANDREW HULSH Director March 17, 1998
Andrew Hulsh
* By: /s/ DOUGLAS G. GEIB II
- ----------------------------
Douglas G. Geib II
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1996 ADDITIONS DEDUCTIONS 1997
<S> <C> <C> <C> <C>
Deferred tax asset valuation allowance
$ 1,900,000 7,800,000 -- $ 9,700,000
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
23.1 - Consent of Price Waterhouse LLP
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-4 of InterAmericas Communications Corporation
of our report dated March 2, 1998 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
March 13, 1998
