AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION STATEMENT NO. 333-41843
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
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>
<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>
---------------
<TABLE>
<S> <C>
DOUGLAS G. GEIB II
CHIEF FINANCIAL OFFICER
INTERAMERICAS COMMUNICATIONS CORPORATION
2600 DOUGLAS ROAD, SUITE 501 2600 DOUGLAS ROAD, SUITE 501
CORAL GABLES, FLORIDA 33134 CORAL GABLES, FLORIDA 33134
TELEPHONE: (305) 448-4422 TELEPHONE: (305) 448-4422
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------
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 list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE 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 STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 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 (the "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"), 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 (the "Common Stock") of ICCA at an
exercise price of $4.40 per share (the "Warrant Shares"). The Existing Notes
and Warrants will be separately tradable upon the effectiveness of this
Registration Statement.
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, like the Existing Notes (which they replace), will not
be guaranteed, will evidence the same indebtedness as the Existing Notes and
will be entitled to the benefits of the 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 whose Existing Notes are accepted for
exchange will be deemed to have waived the right to receive any interest
accrued on the Existing Notes. See "The Exchange Offer" and "Description of New
Notes." See "Description of New Notes--Certain Definitions" for definitions of
certain terms used herein which are capitalized.
SEE "RISK FACTORS" COMMENCING ON PAGE 18 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 Existing Notes and New 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, if any, to the date of redemption. In addition, at the
option of ICCA, up to 331/3% of the aggregate principal amount of Existing
Notes and 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 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 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
662/3% of the original aggregate principal amount of the Existing Notes and New
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
Existing Notes and New Notes will have the right to require ICCA to purchase
their Existing Notes and 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. There can be
no assurance that ICCA will have the financial resources necessary to
repurchase the Existing Notes and New 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
equal in right of payment of all senior indebtedness of ICCA, if any, incurred
in the future. The New Notes will be secured by a first priority pledge
pursuant to that certain Proceeds Pledge and Escrow Agreement. 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 March 31, 1998, ICCA's subsidiaries had approximately $548,000 of
indebtedness and $3.5 million of trade payables 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."
The Company will accept for exchange any and all validly tendered Existing
Notes prior to 5:00 p.m., New York City time on , 1998 (the "Expiration
Date"), unless the Company, in its sole discretion, extends the Exchange Offer
(in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended). 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 the consummation
i
<PAGE>
of the Exchange Offer, the holders of Existing Notes will continue to be
subject to the existing restrictions upon transfer of the Existing Notes 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 holder
is prohibited by applicable law or the policy of the Securities and Exchange
Commission (the "Commission") from participating in the Exchange Offer, (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 Form S-4 Registration Statement relating to the Exchange Offer
(the "Exchange Offer Registration Statement") 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 registration statement
on or prior to the Shelf Filing Deadline, which provides for resales of all
Existing Notes. In the event of a Registration Default, 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 Registration Rights Agreement between the
Company and UBS Securities LLC (the "Initial Purchaser"). The Company makes the
Exchange Offer in reliance on the position 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 Commission would make a similar determination with
respect to the Exchange Offer as in such other circumstances. Based on these
interpretations 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 under the
Securities Act or any other available exemption under the Securities Act or
(ii) a person that is an Affiliate, 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 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 or Warrants on any
national securities exchange or to seek the trading thereof through any
automated quotation system. The Company has been advised by 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
ii
<PAGE>
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 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 Warrants, or the ability of holders thereof to sell their New
Notes or Warrants, or the price at which such sales can be made. If such a
market were to develop, the New Notes or Warrants 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 May 14, 1998, the last sale price for the Common Stock as
reported by Nasdaq was $2.44 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 FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. 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'S 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 the Depository Trust Company (the "Depository" or "DTC") 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
Depository 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 Existing Notes and
New 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.
INFORMATION CONTAINED IN THE PROSPECTUS
THE INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN FURNISHED BY THE
COMPANY AND OBTAINED FROM INTERNAL COMPANY SURVEYS, INDUSTRY PUBLICATIONS AND
CURRENTLY AVAILABLE INFORMATION WHICH THE COMPANY BELIEVES TO BE RELIABLE.
REFERENCE IS MADE TO THE ACTUAL DOCUMENTS, COPIES OF WHICH WILL BE MADE
AVAILABLE UPON REQUEST, FOR THE COMPLETE INFORMATION CONTAINED THEREIN. ALL
SUMMARIES OF THE TERMS OF SUCH DOCUMENTS 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
Three months ended March 31, 1998 ......... 2.82 2.72 2.79 2.81
</TABLE>
- ----------------
Source: Extel Pricing Database.
(1) Average daily exchange rate.
CHILE
The following table sets forth, for the periods ending on the date
indicated, the high, low, average and period-end free-market exchange rate. The
Federal Reserve Bank of New York does not report a noon buying rate of Chilean
Pesos.
<TABLE>
<CAPTION>
PERIOD--
PERIOD-- HIGH LOW AVERAGE(1) END
- ------------------------------------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994 .............. 433.67 398.25 419.83 400.21
Year ended December 31, 1995 .............. 418.76 367.94 396.60 406.91
Year ended December 31, 1996 .............. 424.87 402.68 412.16 424.87
Year ended December 31, 1997 .............. 439.81 411.85 419.31 439.81
Three months ended March 31, 1998 ......... 466.95 439.18 451.51 454.34
</TABLE>
- ----------------
Source: Extel Pricing Database and Chilean Central Bank.
(1) Average daily exchange rate.
Unless otherwise indicated, industry and demographic data used throughout
this Prospectus have been obtained from the following industry publications and
have not been independently verified by the Company: Bank of America World
Information Services (March 1997); Telecom Markets in South America, Pyramid
Research, Inc. (October 1996) (the "Pyramid Research Report"); Subsecretaria de
Telecomunicaciones of the Republic of Chile (1997); National Bureau of
Statistics of the Republic of Peru (1997); Telefonica del Peru, S.A. 1996
Annual Report and Press Release in connection with the presentation of 2nd
Quarter 1997 financial results dated July 31, 1997.
3
<PAGE>
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 and Warrants
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, ICCA has agreed to furnish to State Street Bank
and Trust Company, N.A., the trustee (the "Trustee"), and to registered holders
of the Existing Notes and New 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 ICCA 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 Existing Notes and New
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 Existing Notes and New 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 WITHIN THE MEANING OF THE
FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. 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'S 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. ASUSED 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 TELECOMMUNICATIONS AND INDUSTRY TERMS USED
HEREIN WHICH ARE CAPITALIZED AND "DESCRIPTION OF NEW NOTES--CERTAIN
DEFINITIONS" FOR DEFINITIONS OF CERTAIN OTHER TERMS USED HEREIN WHICH ARE
CAPITALIZED
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 230 kilometer
digital fiber optic network in Lima, Peru, which the Company intends to expand
to approximately 400 kilometers. 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 anticipates substantial completion of its ATM network in Peru,
including last mile connections to approximately 150 buildings before the end
of 1998. 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.
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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 anticipates being granted in the fourth quarter of 1998 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 approximately 150 buildings,
scheduled for the end of 1998, 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, S.A.
("FirstCom Long Distance"), formerly Iusatel Chile, S.A., located 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, scheduled for the end of
1998, 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 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 the substantial completion of its networks, including
last mile connections to 150 buildings in each of Peru and Chile, scheduled for
the end of 1998, 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.
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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. The Company's ability to implement its business strategy
may be affected by a number of factors including, 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. 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. Accordingly, there can be no assurance that the Company
will successfully implement its business strategy in whole or in part. The
Company's viability, profitability, and growth depend upon the successful
implementation of its business plan. See "Risk Factors", "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 expand the geographic reach and density of its existing
networks as well as enter 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.
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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 targeting customers with multiple geographic locations 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.
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THE EXCHANGE OFFER
THE EXCHANGE OFFER
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." The Company makes this Exchange Offer in
reliance on the position 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 Commission would make a
similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these
interpretations 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 under the Securities Act or any other
available exemption under the Securities Act or (ii)
a person that is an Affiliate, 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.
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, the Company 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., NewYork
City time, on , 1998 unless the Exchange Offer
is extended by the Company, in its sole discretion.
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<PAGE>
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 (the "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 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 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 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
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<PAGE>
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 the Existing Notes on such beneficial owner's
behalf. See "The Exchange Offer--Procedures for
Tendering." If such beneficial owner wishes to
tender the Existing Notes on such owner's own
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
the 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.
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 documents required by the Letter of
Transmittal to the 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."
FEDERAL INCOME
TAX CONSIDERATIONS: The Exchange of the Existing Notes for New Notes
should not constitute a taxable event for United
States Federal income tax purposes. As a result,
holders of the New Notes should not recognize any
taxable gain or loss on such exchange. See "Federal
Income Tax Considerations."
EXCHANGE AGENT: State Street Bank & Trust Company, N.A. is serving
as the Exchange Agent in connection with the
Exchange Offer. See "The Exchange Offer--Exchange
Agent."
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<PAGE>
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."
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, like the Existing Notes
(which they replace), will not be guaranteed, will
evidence the same indebtedness as the Existing Notes
and will be entitled to the benefits of the
Indenture. See "Description of New Notes" for
further information and "--Certain Definitions" for
definitions of certain capitalized terms used below.
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 Existing Notes and New Notes through October 27,
2000 and, under certain circumstances, as security
for repayment of principal of the Existing Notes and
New 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
Existing Notes and New 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,
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<PAGE>
(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.
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 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 Existing Notes and New
Notes do not remain outstanding, ICCA will be
required by the terms of the Indenture to redeem all
of the Existing Notes and New 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."
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 331/3% 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 662/3% of the
original aggregate principal amount of the Existing
Notes and New 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, if any,
incurred in the future.
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<PAGE>
The New Notes will rank equal in right of payment to
all senior indebtedness of ICCA, if any, incurred in
the future. The New Notes will be secured by a first
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 Existing
Notes and 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 and to any indebtedness of such
subsidiary senior to that held by ICCA. As of March
31, 1998, ICCA's subsidiaries had approximately
$548,000 of indebtedness and $3.5 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 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."
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
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<PAGE>
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.
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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 summary condensed consolidated historical statement of
operations data for the three months ended March 31, 1998 and 1997 and balance
sheet data as of March 31, 1998 were derived from the unaudited consolidated
financial statements of the Company, which are included elsewhere in this
Prospectus and which in the opinion of management of the Company, include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the results of such unaudited interim periods. The
statement of operations data for the three months ended March 31, 1998 are not
necessarily indicative of results of operations that may be expected for future
periods or for the year ended December 31, 1998.
<PAGE>
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO FORMA
1994 1995 1996(1) 1997(1) 1997
----------- ------------- ----------- ------------ -------------
(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) (10,945) (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
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 26,114
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ..................................... $ 324 $ 3,327
Operating expenses ........................ (1,351) (4,904)
-------- --------
Loss from operations ...................... (1,027) (1,577)
Other income (expense) .................... 18 1,761
Interest expense .......................... (215) (5,403)
-------- --------
Net loss ................................ $ (1,224) $ (5,219)
======== ========
Net basic and diluted loss per share ....... $ (0.08) $ (0.27)
Weighted average shares
outstanding ............................... 16,153 19,084
CASH FLOWS:
Cash used in operating activities ......... $ (1,002) $ (738)
Cash used in investing activities ......... (392) (5,762)
Cash provided by financing activities ..... 1,704 5,592
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1997 1998
---------------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................................ $ 12,336 $ 11,428
Restricted cash and investments(2) ................................... 118,920 113,206
Total assets ......................................................... 170,031 168,443
Current portion of lease obligations, net of original issue discounts 313 233
Long-term debt and lease obligations .................................. 131,982 132,106
Total stockholders equity ............................................. 27,622 22,403
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
PRO FORMA
1994 1995 1996(1) 1997(1) 1997
------------ ------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ................................. $ (2,097) $ (2,102) $ (3,651) $ (9,978) $ (10,535)
Depreciation and amortization ............. 76 396 706 967 1,934
Capital expenditures ...................... 1,849 720 1,453 763
Ratio of earnings to fixed charges(4) ..... -- -- -- -- --
Deficiency of earnings to cover fixed
charges ................................. (2,531) (2,873) (4,626) (15,632) (36,098)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ................................. $ (807) $ (1,113)
Depreciation and amortization ............. 220 464
Capital expenditures ...................... 392 5,762
Ratio of earnings to fixed charges(4) ..... -- 0.07x
Deficiency of earnings to cover fixed
charges ................................. (1,224) (5,219)
</TABLE>
- ---------------
(1) Historical financial data includes the operations of Red de Servicios
Empresariales de Telecommunicaciones, S.A. ("Resetel"), acquired on May 7,
1996, and FirstCom Networks, S.A., formerly Hewster Chile, S.A. ("FirstCom
Networks"), acquired on July 31, 1996, from their respective dates of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Restricted cash and investments represent proceeds from the Initial
Offering that will be disbursed in accordance with the terms of the
Indenture relating to the Existing Notes. See "Description of Existing
Notes and New Notes--Proceeds Pledge and Escrow Agreement."
(3) "EBITDA" represents income (loss) from operations before interest, taxes,
depreciation and amortization. EBITDA is presented because it is commonly
used in the telecommunications industry to measure operating performance,
asset value and financial leverage. However, EBITDA should not be
considered as an alternative to net income as a measure of operating
results, cash flows or as a measure of liquidity in accordance with
generally accepted accounting principles. Also, EBITDA as defined herein
may not be comparable to similarly entitled measures reported by other
companies.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss prior to income taxes and fixed charges. Fixed charges consist of
interest expensed and capitalized and amortization of debt issuance costs.
17
<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 within the meaning of the federal securities laws,
including the Private Securities Litigation Reform Act of 1995. 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. 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. 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.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has substantial debt service
requirements. As of March 31, 1998, the Company has approximately $132.0
million of total long-term Indebtedness and the Company has stockholders'
equity of $22.4 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 $15.6 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 $36.1 million. The Company's annual interest obligations
under the Existing Notes and New Notes substantially exceeds the Company's
sales for the year ended December 31, 1997.
ABILITY TO SERVICE INDEBTEDNESS
The ability of ICCA to make scheduled payments with respect to its
indebtedness, including the Existing Notes and New Notes, will depend upon (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. 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 Existing
Notes and New Notes. If the Company is unable to generate sufficient cash flow
from operations to service its indebtedness, including the Existing Notes and
New 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
18
<PAGE>
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 Existing Notes
and New 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 Existing Notes and New
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 and contingencies affecting the business
and operations of the Company, many of which are beyond the control of the
Company, such as general economic conditions, the entry of new competitors in
the Company's markets and the introduction of new technology. 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."
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 Existing Notes and New 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 Existing Notes and New 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
19
<PAGE>
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 March 31, 1998, ICCA's subsidiaries had approximately $548,000 of
indebtedness and $3.5 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 March 31, 1998, the Company had an
accumulated deficit of $31.0 million. Since inception through March 31, 1998,
the Company's operations have resulted in EBITDA of $(18.6) 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 and the three months ended March 31, 1988, the Company incurred a net loss
of $4.6 million, $15.6 million and $5.2 million, respectively, and generated
negative cash flow from operations of $3.9 million, $5.9 million and $738,000,
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 and the failure to do
so would have a material adverse effect on the Company's ability to satisfy its
debt service requirements, including the New Notes, and may adversely impact
the price of the Common Stock.
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 amount of which the Company is presently unable to predict.
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.
20
<PAGE>
LIMITED OPERATING HISTORY
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.
ENTRANCE INTO NEWLY OPENING MARKETS
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 and on the value of the Common Stock and may affect the
Company's ability to satisfy its debt service requirements, including the New
Notes.
RISKS 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 which would also adversely
affect the value of the Common Stock.
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
21
<PAGE>
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 Existing Notes and New 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."
22
<PAGE>
DISCRETIONARY USE OF FUNDS
The Company expects to use the net proceeds of approximately $142.5
million 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 the Company's
telecommunications 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."
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 Existing
Notes and New Notes will have the right to require the ICCA to repurchase all
or any part of such holder's Existing Notes and New 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 Existing Notes and
New Notes does not remain outstanding, ICCA will be required by the terms of
the Indenture to redeem all of the Existing Notes and New 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.
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.
23
<PAGE>
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.
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 and
breaches of security (by computer virus, break-ins or otherwise), all 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
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
24
<PAGE>
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."
DEPENDENCE ON RIGHTS-OF-WAY AND OTHER THIRD PARTY AGREEMENTS
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 LOCAL TELECOMMUNICATIONS PROVIDERS
The Company is 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.
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 Chairman,
President and 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 Existing
Notes and New 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
Existing Notes and New Notes and the market
25
<PAGE>
value and liquidity of the Units, Existing Notes and New 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.
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
26
<PAGE>
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 Existing Notes and New 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 Existing Notes and New 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
27
<PAGE>
the same as those that would have resulted from transactions among unrelated
parties. The Indenture restricts the Company's ability to engage in
transactions with related parties. 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.
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 Existing Notes and New Notes may be treated as issued
with original issue discount unless such original issue discount is considered
minimal. 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 "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"), the claims of a
holder of the Existing Notes and New 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 Existing Notes and New 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 May 14, 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.
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 Existing Notes and 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
28
<PAGE>
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 Existing Notes and
New Notes will have the right to require ICCA to repurchase all or any portion
of their Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New 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."
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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New Notes, ICCA
could seek the consent of its lenders to the purchase of Existing Notes and New
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 Existing Notes and New Notes. In such
event, ICCA would be required to seek to refinance the Existing Notes and New
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 AND WARRANTS
The New Notes and Warrants are 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 Existing Notes and New 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 or Warrants on any securities exchange or
for quotation through NASDAQ. If a market for the New Notes or Warrants were to
develop, the New Notes or Warrants could trade at prices that may be higher or
lower than
29
<PAGE>
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 Existing 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 Existing Notes and New Notes or, in the alternative, subordinate the
Existing Notes and New 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 Existing Notes and New Notes are
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 Existing Notes and New 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.
EFFECT OF BANKRUPTCY ON ABILITY TO REALIZE UPON SECURITY
In order to secure its obligations under the Existing Notes and New 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 Existing Notes and New 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."
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<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.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of March 31, 1998.
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 MARCH 31,
1998
-----------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C>
CASH, RESTRICTED BANK DEPOSITS AND ESCROWS:
Cash and cash equivalents .................................................... $ 11,428
Restricted cash and investments .............................................. 113,206
---------
Total cash and restricted cash and investments ............................. $ 124,634
=========
Short-term debt:
Lease obligations ............................................................ 233
---------
Total short-term debt ...................................................... $ 233
=========
Long-term debt:
Existing Notes and New Notes, net of original issue discount ................. $ 131,791
Capital lease obligations .................................................... 315
Total long-term debt ....................................................... $ 132,106
=========
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 .......................................................... (31,002)
Cumulative translation adjustments ........................................... (238)
---------
Total stockholders' equity ................................................. $ 22,403
=========
Total capitalization ....................................................... $ 154,742
=========
</TABLE>
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<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 the
Closing Date. 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 state
securities laws (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
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 Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Based on these interpretations 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 under the Securities Act 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
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
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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."
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 the Depository, 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 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 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,
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<PAGE>
(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.
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 Depository 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
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<PAGE>
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 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"), 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.
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 Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository'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.
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
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<PAGE>
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 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 Depository pursuant to the book-entry transfer
procedures described below, such Existing Notes will be credited to an account
maintained with the Depository) 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 Depository 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 Depository's systems may
make book-entry delivery of Existing Notes by causing the Depository to
transfer such Existing Notes into the Exchange Agent's account at the
Depository in accordance with the Depository's procedures for transfer.
However, although delivery of Existing Notes may be effected through book-entry
transfer at the Depository, 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;
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<PAGE>
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery (the "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
(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
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
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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 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
registration statement 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, which registration statement shall provide for resales of all
Existing Notes. In the event of a Registration Default, the Company is required
to pay Liquidated Damages. See "--Liquidated Damages" and "Description of New
Notes--Registration Rights; Liquidated Damages."
LIQUIDATED DAMAGES
In the event of a Registration Default under the Registration Rights
Agreement, the Company is required to pay liquidated damages to each holder of
Transfer Restricted Securities, 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 Existing Notes and New Notes
constituting Transfer Restricted Securities held by such holder for each week
or portion thereof that the Registration Default continues. The amount of the
liquidated damages will increase by an additional $0.05 per week per $1,000
principal amount of Existing Notes and New 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 Existing Notes and New 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 Company 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:
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<TABLE>
<S> <C>
BY HAND DELIVERY:
BY MAIL:
State Street Bank & Trust Company State Street Bank & Trust Company
P.O. Box 778 Corporate Trust Department
Boston, Massachusetts 02102-0078 4th Floor
Attention: Sandra Szczsponik Two International Place
Boston, Massachusetts 02102-0078
BY OVERNIGHT DELIVERY: Attention: Sandra Szczsponik
Corporate Trust Department
BY FACSIMILE:
State Street Bank & Trust Company
4th Floor State Street Bank & Trust Company
Two International Place (617) 664-5232
Attention: Sandra Szczsponik
CONFIRM BY TELEPHONE:
(617) 664-5314
</TABLE>
State Street Bank & Trust Company is an affiliate of the Trustee under the
Indenture.
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, Trustee and 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.
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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.
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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 summary condensed historical statement of operations
data for the year ended December 31, 1993 was derived from unaudited financial
statements of the Company. The summary condensed consolidated historical
statement of operations data for the three months ended March 31, 1998 and 1997
and balance sheet data as of March 31, 1998 were derived from the unaudited
consolidated financial statements of the Company, which are included elsewhere
in this Prospectus and which in the opinion of management of the Company,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results of such unaudited interim
periods. The statement of operations data for the three months ended March 31,
1998 are not necessarily indicative of results of operations that may be
expected for future periods or for the year ended December 31, 1998. 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.
INTERAMERICAS COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993
(UNAUDITED) 1994 1995 1996 1997
------------- ----------- ------------- ----------- ------------
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NET LOSS PER COMMON
SHARE)
<S> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA(1):
Sales ..................................... $ -- $ 34 $ 224 $ 652 $ 1,130
Operating expenses ........................ (67) (2,207) (2,722) (5,009) (12,075)
------ -------- --------- -------- ---------
Loss from operations ...................... (67) (2,173) (2,498) (4,357) (10,945)
Interest income and other expense ......... (13) (45) (56) (23) (68)
Interest expense .......................... (7) (313) (319) (246) (5,934)
------- -------- --------- -------- ---------
Net loss ................................ $ (87) $ (2,531) $ (2,873) $ (4,626) $ (15,632)
======== ======== ========= ======== =========
Net basic and diluted loss per share ...... $(4.58) $ (1.30) $ (0.31) $ (0.31) $ (0.94)
Weighted average shares
outstanding ............................. 19 1,952 9,407 14,796 16,668
CASH FLOWS:
Cash used in operating activities ......... $ (126) $ (489) $ (2,150) $ (3,934) $ (5,939)
Cash used in investing activities ......... (310) (2,049) (1,170) (2,968) (8,562)
Cash provided by financing activities ..... 418 2,649 3,263 7,570 26,114
<PAGE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
-----------------------
1997 1998
----------- -----------
(AMOUNTS IN THOUSANDS OF
DOLLARS,
EXCEPT NET LOSS PER
COMMON SHARE)
<S> <C> <C>
HISTORICAL OPERATING DATA(1):
Sales ..................................... $ 324 $ 3,327
Operating expenses ........................ (1,351) (4,904)
-------- --------
Loss from operations ...................... (1,027) (1,577)
Interest income and other expense ......... 18 1,761
Interest expense .......................... (215) (5,403)
-------- --------
Net loss ................................ $ (1,224) $ (5,219)
======== ========
Net basic and diluted loss per share ...... $ (0.08) $ (0.27)
Weighted average shares
outstanding ............................. 16,153 19,084
CASH FLOWS:
Cash used in operating activities ......... (1,002) (738)
Cash used in investing activities ......... (392) (5,762)
Cash provided by financing activities ..... 1,704 5,592
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------- 1998
1995 1996 1997 (UNAUDITED)
-------- --------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 57 $ 723 $ 12,336 $ 11,428
Restricted cash and investments(2) ......... -- -- 118,920 113,206
Total assets ............................... 4,347 10,354 170,031 168,443
Current debt:
Lease obligations ......................... 11 114 313 233
Long-term liabilities:
Lease obligations ......................... 210 248 356 315
Existing Notes and New Notes, net ......... 131,626 131,791
Stockholders' equity ...................... 670 8,280 27,622 22,403
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
--------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ................................ $ (87) $ (2,097) $ (2,102) $ (3,651) $ (9,978)
Depreciation and amortization ............ -- 76 396 706 967
Capital expenditures. .................... 310 1,849 720 1,453 2,763
Ratio of earnings to fixed charges(4) .... -- -- -- -- --
Deficiency of earnings to cover
fixed charges .......................... (87) (2,531) (2,873) (4,626) (15,632)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
------------------------
1997 1998
----------- ------------
<S> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ................................ $ (807) $ (1,113)
Depreciation and amortization ............ 220 464
Capital expenditures. .................... 392 5,762
Ratio of earnings to fixed charges(4) .... -- 0.07x
Deficiency of earnings to cover
fixed charges .......................... (1,224) (5,219)
</TABLE>
- ---------------
(1) Historical financial data includes the operations of Resetel, acquired on
May 7, 1996, and FirstCom Networks, acquired on July 31, 1996, from their
respective dates of acquisition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Restricted cash and investments represents proceeds of the Initial Offering
that are to be used for the purchase of telecommunications equipment in
Peru and Chile and for payment of interest on the Existing Notes and New
Notes. See "Description of Existing Notes and New Notes--Proceeds Pledge
and Escrow Agreement."
(3) "EBITDA" represents loss form operations before interest, taxes,
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 may not be
comparable to similarly entitled measures reported by other companies.
(4) In calculating the ratio of earnings to fixed charges, earnings consists of
net loss prior to income taxes and fixed charges. Fixed charges consist of
interest expensed and capitalized and amortization of debt issuance costs.
42
<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 next generation provider of intelligent telecommunication
services. The Company's mission statement is to be the leading services
provider of high bandwidth integrated telecommunications services to businesses
and other high volume users operating in key Latin American markets, creating
great opportunities for its customers, employees, investors and other partners.
The Company's strategy is to (i) build facilities based fiber optic and
digital switching intelligent networks; (ii) develop strategic relationships
with technology network vendors and developers of Internet-based software; and
(iii) provide end-to-end network solutions to business customers.
Today, the Company is constructing state-of-the-art fiber optic ATM
networks in Santiago, Chile and Lima, Peru. ATM is an information transfer
standard that is one of a general class of packet technologies. ATM can be used
by many different information systems, including local area networks to deliver
traffic at varying rates, permitting a mix of voice, data, video and
multimedia. As of March 31, 1998, the Company had installed approximately (i)
120 kilometers of fiber optic cable through most of Santiago's downtown
business district and the outlying industrial and airport corridor and (ii) 230
kilometers of fiber optic cable through the major commercial and industrial
districts of Lima, and the port city of Callao. During the second and third
quarter of this year the Company intends to substantially complete the
installation of the ATM backbone equipment in both Peru and Chile.
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 ACQUISITION PRICE(1)
- ------------------------------------------------------ ---------- --------------------- ---------------------
<S> <C> <C> <C>
Hewster Servicios Intermedios, S.A. ("HSI") .......... Santiago July 15, 1994 $ 9.2 million(2)
Visat, S.A. ("Visat") ................................ Santiago September 23, 1994 1.1 million
Resetel .............................................. Lima May 7, 1996 2.8 million
Hewster, S.A. ("HSA ") ............................... Santiago July 31, 1996 1.5 million
Iusatel Chile, S.A. ("Iusatel") ...................... Santiago December 17, 1997 5.9 million
</TABLE>
- ----------------
(1) The acquisition price represents the purchase price as defined in the
respective stock purchase agreement and excludes any other acquisition
related costs.
(2) The acquisition of HSI was accounted for as a reverse acquisition,
resulting in HSI acquiring the Company, for accounting purposes, and the
recapitalization of HSI.
In Chile the Company operates three wholly owned subsidiaries, FirstCom
Networks (formerly operated by the Company under the names of Hewster Servicios
Intermedios, S.A. and Hewster S.A.), FirstCom Long Distance (formerly Iusatel
Chile S.A.) and Visat S.A. ("Visat").
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. In addition, FirstCom
Networks provides its
43
<PAGE>
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. 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. 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 satellite
communications.
In Peru, the Company operates as a wholly owned subsidiary, Red de
Servicios Empresariales de Telecommunicaciones, S.A. ("Resetel"). Upon
completion of its fiber optic network, Resetel intends to aggressively provide
multinational, national and local businesses a broad array of high quality
data, video and voice communication services, including LAN interconnection,
frame relay, remote terminal access and dedicated channels for access to the
Internet, on a private line basis. Resetel intends to expand its existing
service offerings to provide local public switched telephone service upon
liberalization of Peru's telecommunications markets and expiration of
Telefonica del Peru's exclusive concession to provide public switched local and
long distance telephony services, which is scheduled to occur in July 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
DURING DECEMBER 1997 THE COMPANY ACQUIRED FIRSTCOM LONG DISTANCE S.A.
(FORMERLY IUSATEL CHILE S.A.). THE COMPANY'S COMPARATIVE OPERATING RESULTS
DURING THE FIRST QUARTER OF 1998 WAS SIGNIFICANTLY IMPACTED BY THIS ACQUISITION
AS DISCUSSED IN MORE DETAIL BELOW. DURING THE NEXT SIX MONTHS THE COMPANY
INTENDS TO CONTINUE TO BUILD-OUT ITS FIBER OPTIC NETWORKS IN PERU AND CHILE AND
PLANS TO AGGRESSIVELY WIRE MANY OF THE BUILDINGS THAT INCLUDE THE COMPANY'S
TARGETED CUSTOMERS. DURING THE FOURTH QUARTER OF 1998, THE COMPANY BELIEVES IT
WILL BEGIN TO SHOW MARKED INCREASES IN REVENUES GENERATED FROM NETWORK
SERVICES.
REVENUES. The Company's revenues are derived primarily from its operations
in Chile. During the first quarter of 1998 FirstCom Long Distance contributed
approximately 89% of total revenues. The Company expects revenues to increase
over the next few years due to the completion of the Company's ATM fiber optic
networks and the related expansion of its operations in Peru and Chile.
The Company's revenues were $3,327,000 for the three months ended March
31, 1998 as compared to $324,000 for the three months ended March 31, 1997 and
$277,000 for the three months ended December 31, 1997. This increase during the
first quarter of 1998 was due to the acquisition of FirstCom Long Distance.
FirstCom Long Distance generated revenues during the first quarter of
approximately $3.0 million through the sale of approximately 9.2 million
minutes resulting in an average revenue per minute of approximately $.32.
Network revenue during the first quarter of 1998 of $327,000 consisted
primarily of equipment sales and system integration services.
COST OF REVENUES. The Company's cost of revenues is derived primarily from
its operations in Chile. Costs of revenues include both the cost of services
provided and the cost of equipment sold. During the first quarter of 1998 cost
of revenues relate principally to FirstCom Long Distance and include access
charges paid to local exchange carriers and transmission payments to other
carriers. Costs of revenues also include payments for rights of way related to
the Company's fiber optic networks. The Company anticipates that the cost of
revenues will increase with the expansion of its operations.
The Company's cost of revenues was $2,609,000 for the three months ended
March 31, 1998 as compared to $316,000 for the three months ended March 31,
1997 and $261,000 for the three months ended December 31, 1997. This increase
was attributable to the acquisition of FirstCom Long Distance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, professional fees related to legal, recruiting and
44
<PAGE>
accounting, advertising and marketing costs, and travel. The Company expects
selling, general and administrative expenses to increase over time as it
continues to expand its operations.
The Company's selling, general and administrative expenses were $1,831,000
for the three months ended March 31, 1998 as compared to $815,000 for the three
months ended March 31, 1997 and $2,254,000 for the three months ended December
31, 1997. This increase was primarily attributable to the acquisition of
FirstCom Long Distance. At March 31, 1998 the Company had approximately 150
employees compared to 130 employees at December 31, 1997. The Company expects
to increase the number of its employees during the second and third quarters of
this year.
DEPRECIATION AND AMORTIZATION. The Company depreciates its
telecommunications networks and intangible assets over their estimated useful
lives. The Company believes that depreciation and amortization expense will
continue to increase with the expansion of its operations.
The Company's depreciation and amortization expenses were $464,000 for the
three months ended March 31, 1998 as compared to $220,000 for the three months
ended March 31, 1997 and $309,000 for the three months ended December 31, 1997.
This increase was primarily attributable to an increase in depreciation and
amortization expense related to certain assets purchased in the acquisition of
FirstCom Long Distance.
INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding Senior Notes and capital leases. 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 Senior
Notes includes amortization of (i) deferred financing costs and (ii) original
issue discounts related to detachable warrants.
The Company's interest expense was $5,403,000 for the three months ended
March 31, 1998 as compared to $215,000 for the three months ended March 31,
1997 and $4,391,000 for the three months ended December 31, 1997. This increase
was due to a full quarter of financing costs related to the Senior Notes that
were issued on October 21, 1997. Of the total interest costs incurred by the
Company for the three months ended March 31, 1998 and 1997, $206,000 and
$132,000, respectively, of such costs were capitalized in connection with the
Company's construction of its fiber optic network in Lima, Peru.
The Company expects annual interest expense to be at least $22,500,000 in
the future due to the interest payable on Senior Notes and amortization of the
related original issue discount and deferred financing costs.
INTEREST INCOME AND OTHER. The Company currently earns interest income on
cash and cash equivalents, restricted cash, and restricted investments.
The Company's interest income and other was $1,761,000 for the three
months ended March 31, 1998 as compared to $18,000 for the three months ended
March 31, 1997 and $1,267,000 for the three months ended December 31, 1997.
This increase was primarily attributable to an entire quarter of interest
income earned on the Company's restricted cash and investments.
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. Under certain circumstances 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.
45
<PAGE>
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.
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.
The significant components of selling, general and administrative expenses
were as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Compensation ............... 1,202,000 2,775,000
Professional fees .......... 956,000 728,000
Travel ..................... 292,000 254,000
Other ...................... 822,000 1,508,000
</TABLE>
COMMON STOCK AND STOCK OPTION COMPENSATION. This expense is directly
attributable to the intrinsic value of shares of Common Stock and stock options
issued to certain officers and former directors of the Company during 1997.
Common Stock and stock options were issued to officers to reflect the value
attributable to their services. Common Stock and stock options issued to former
directors were issued to compensate them for services rendered to the Company
pursuant to an agreement signed in October 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 Existing Notes and New 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 past 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.
46
<PAGE>
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.
The significant components of selling, general and administrative expenses
were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Compensation ............... 934,000 1,202,000
Professional fees .......... 562,000 956,000
Travel ..................... 111,000 292,000
Other ...................... 299,000 822,000
</TABLE>
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, as well as a loss from operations before interest
of $1.6 million for the three months ended March 31, 1998. 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, as well as cash used in investing activities of
$5.8 million for the three months ended March 31, 1998. 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
through at least 1999.
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% Existing Notes and New 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
47
<PAGE>
15.1% 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 March 31, 1998), at an
exercise price of $4.40 per share. In addition, 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 Existing Notes and New Notes through October 27, 2000 and,
under certain circumstances, as security for repayment of principal of the
Existing Notes and New Notes.
In addition to the deposit of a portion of the proceeds from the Initial
Offering to fund interest payments on the Existing Notes and New 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: (a) Permitted
Expenditures; (b) in the event of a Change of Control of the Company, 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.
The Company expects to use these proceeds to expand and operate the
Company's telecommunications businesses in Peru and Chile. Under the terms of
the Indenture at least 60% of these funds used by the Company for Permitted
Expenditures must be related to the Company's telecommunications business in
Peru.
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.
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 fifth paragraph hereof will not apply to the
incurrence of any Permitted Debt. See "Description of New Notes--Incurrence of
Indebtedness and Issuance of Preferred Stock."
48
<PAGE>
A summary of the Company's value of Common Stock issued (see (2) below)
and Common Stock and Common Stock equivalents outstanding as of March 31, 1998
and the pro forma effect on the Company's equity capitalization upon the
exercise of all Common Stock equivalents outstanding at March 31, 1998 follows:
<TABLE>
<CAPTION>
STOCK OPTIONS AND WARRANTS OUTSTANDING
AT MARCH 31, 1998
----------------------------------------------------
ACTUAL AT MANAGEMENT OTHER OPTIONS
MARCH 31, AND SENIOR NOTE AND INCREMENTAL
1998 DIRECTORS(4) WARRANTS(5) WARRANTS(6) AS 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
issued(1)(2)
Par Value .................... $ 19,000 $ 4,995 $ 7,500 $ 3,195 $ 15,690
Additional paid in capital 26,887,000 15,206,519 32,992,500 6,927,362 55,126,381
------------ ------------ ------------ ----------- ------------
$ 26,906,000 $ 15,211,514 $ 33,000,000 $ 6,930,557 $ 55,142,071
============ ============ ============ =========== ============
Per share(3) ................... $ 1.41 $ 3.05 $ 4.40 $ 2.17 $ 3.51
</TABLE>
- ----------------
(1) The closing price of the Common Stock on March 31, 1998 was $2.44. 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) Value of Common Stock 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, as stated in the Company's
consolidated historical financial statements included elsewhere in this
Prospectus.
(3) Represents the amount in (2) per share of Common Stock.
(4) Represents the increase to 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 and the Company's receipt of the
exercise price as of March 31, 1998.
(5) Represents the increase to 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 Existing Notes and New Notes and are outstanding and
the Company's receipt of the exercise price as of March 31, 1998.
(6) Represents the increase to the Company's value of Common Stock issued upon
the exercise of all other stock options and warrants (vested and not
vested) outstanding and the Company's receipt of the exercise price as of
March 31, 1998 (includes 1,865,000 stock options issued to former officers
and directors).
(7) Represents the combined increase to the Company's value of Common Stock
issued of (4), (5) and (6) above.
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 Initial 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 Existing Notes and New 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 Existing Notes and New Notes after
October 27, 2000, will depend upon (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
49
<PAGE>
generate cash losses for the foreseeable future. The Company has deposited in
escrow funds representing interest payments with respect to the Existing Notes
and New 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 Existing Notes and New 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 Existing Notes
and New 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
Existing Notes and New Notes. Any failure by the Company to satisfy its
obligations with respect to the Existing Notes and New 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
Existing Notes and New 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 Existing Notes and New 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 Existing Notes and
New Notes.
At March 31, 1998 the Company had $124.6 million of cash and cash
equivalents, restricted cash and restricted investments. The Company believes
its current cash balances should 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 Existing Notes and New 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 Existing Notes and New Notes is payable in U.S. dollars. To
date, the Company has not had significant foreign
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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. As a result, the Company has not entered into foreign currency
hedging transactions. In the future, if third party foreign currency exposure
increases, the Company may enter into hedging transactions in order to mitigate
any related financial exposure. 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 Financial Accounting Standards Board ( 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.
51
<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 230 kilometer digital fiber optic network in Lima, Peru,
which the Company intends to expand to approximately 400 kilometers. 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 anticipates substantial
completion of its ATM network in Peru, including last mile connections to
approximately 150 buildings before the end of 1998. 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 anticipates being granted in the fourth quarter of 1998 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 approximately 150 buildings,
scheduled for the end of 1998, 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 Iusatel Chile, S.A. (currently
operating under a new name--FirstCom Long Distance S.A.), a company located 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
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<PAGE>
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 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, scheduled for the end of
1998, 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 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 and one ISP in Peru. Upon the
substantial completion of its networks, including last mile connections to 150
buildings in each of Peru and Chile scheduled for the end of 1998, 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. The Company's
ability to implement its business strategy may be affected by a number of
factors including 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. 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. Accordingly, there can be no assurance that the Company will
successfully implement its business strategy, in whole or in part. The
Company's viability, profitability and growth depend upon the successful
implementation of its business plan. See "Risk Factors," "--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 expand the geographic reach and density of its existing
networks as well as enter 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.
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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 targeting customers with multiple geographic locations it will achieve
operating synergies through the reduction of advertising and other related
costs.
GROWTH THROUGH ACQUISITIONS AND NEW LICENSES
The Company expects to opportunistically enter additional key Latin
American business centers in part by acquiring controlling interests in
existing companies that have licenses, concessions and rights-of-way to install
and operate fiber optic networks or by applying for such licenses and
concessions and negotiating for such rights-of-way directly. The Company may
also acquire other telecommunications service providers in existing and
targeted markets that enable the Company to expand or enhance its current
operations. The Company believes that many emerging local and long distance
carriers, cellular providers and recently privatized PTTs are likely to seek
alliances with local access providers with fiber optic systems, such as the
Company, to compete more effectively in the growing telecommunications markets.
GROWTH THROUGH STRATEGIC ALLIANCES
The Company intends to establish strategic alliances with the following
entities for the following purposes: (i) to engage major international carriers
to facilitate the termination or completion of dedicated international calls to
or from the countries where carriers' customers operate and (ii) to enter into
joint bids with local turnkey integrators and equipment vendors for the sale of
value-added services, such as video-conferencing, Internet, frame relay, ATM
networks, LAN to LAN interconnections, PBX and private telephone networks.
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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
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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.
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
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
ECONOMIC DATA*
Population (millions) 22.5 22.9 23.4 23.8
Real GDP (in constant 1990 US$ billions) 36.5 41.2 44.1 45.3
Inflation (%) 39.5 15.4 10.2 11.8
TELECOMMUNICATIONS DATA**
Main Lines in Service (in thousands) 673.0 772.4 1,109.2 1,435.1
Penetration Rate (main lines per 100 pop) 2.9 3.4 4.7 5.9
Service Revenues (US$ millions) 655.8 590.7 825.9 880.4
Local Services (US$ millions) 190.7 251.4 459.1 506.9
Toll Services (US$ millions) 235.2 123.2 130.9 143.1
International Services (US$ millions) 229.9 216.1 235.9 230.5
CHILE
1993 1994 1995 1996
----- ----- ------- -------
ECONOMIC DATA*
Population (in millions) 13.8 14.0 14.3 14.5
Real GDP (constant 1990 US$ billions) 38.2 39.8 43.1 46.1
Inflation (%) 12.2 8.9 8.2 6.6
TELECOMMUNICATIONS DATA**
Main Lines in Service (in millions) 1.5 1.6 1.8 2.2
Penetration Rate (main lines per 100 pop) 11.0 11.6 13.0 14.9
Service Revenues (US$ millions) 714.10 765.10 1,016.0 1,186.7
Local Services (US$ millions) 479.0 560.6 627.8 733.3
Toll Services (US$ millions) 135.2 118.9 235.6 275.2
International Services (US$ millions) 99.9 85.6 152.6 178.2
<CAPTION>
PERU
1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ECONOMIC DATA*
Population (millions) 24.3 24.8 25.3 25.8
Real GDP (in constant 1990 US$ billions) 47.6 50.2 53.1 56.5
Inflation (%) 10.0 9.1 8.3 7.5
TELECOMMUNICATIONS DATA**
Main Lines in Service (in thousands) 1,595.5 1,850.8 2,093.6 2,437.7
Penetration Rate (main lines per 100 pop) 6.6 7.5 8.3 9.4
Service Revenues (US$ millions) 1,216.2 1,410.8 1,595.9 1,858.2
Local Services (US$ millions) 676.0 784.2 887.1 1,032.9
Toll Services (US$ millions) 192.8 223.6 253.0 294.5
International Services (US$ millions) 347.4 403.0 455.8 530.8
1997 1998 1999 2000
------- ------- ------- -------
ECONOMIC DATA*
Population (in millions) 14.7 15.0 15.2 15.4
Real GDP (constant 1990 US$ billions) 48.8 52.3 55.9 59.8
Inflation (%) 5.7 5.0 5.1 4.7
TELECOMMUNICATIONS DATA**
Main Lines in Service (in millions) 2.6 3.0 3.5 3.9
Penetration Rate (main lines per 100 pop) 17.8 20.3 22.9 25.4
Service Revenues (US$ millions) 1,443.1 1,668.4 1,911.7 2,157.1
Local Services (US$ millions) 891.7 1,030.9 1,181.3 1,332.9
Toll Services (US$ millions) 334.6 386.9 443.3 500.2
International Services (US$ millions) 216.8 250.6 287.1 324.0
</TABLE>
- ----------------
Sources: Bank of America World Information Services (March 1997) and Pyramid
Research Report (October 1996)
* Economic Data includes historical information for the years 1993-1996 and
projections for the years 1997-2000.
** Telecommunications Data includes historical information for the years
1993-1995 and projections for the years 1996-2000.
COMPETITIVE LOCAL MARKET ACCESS
Once the domain of PTTs, the local access market in both developed and
emerging countries is increasingly open to competition. Where permitted, local
markets may be entered via any combination of (i) construction of proprietary
wired network infrastructure, (ii) construction of wireless local loop, PCS or
cellular networks and (iii) resale of the existing local carrier's network.
Companies gaining local access through the use of a fiber optic rings using 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
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respective customers. Private line services provide high capacity circuits to
transmit voice, data and video between two or more end-user locations locally
or internationally.
Long distance carriers have traditionally been the first customers for
CAPs. Local access in the markets in which the Company operates in some cases
comprises over forty percent of the cost of a long distance call. For this
reason, long distance carriers, as well as high volume corporate customers,
have great demand for the lower 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
57
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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 $373.6 million
are domestic and international long distance revenues. The Company believes
that Peru's telecommunications market offers an excellent environment for
telecommunications business growth. The Company believes that the Peruvian
economy is also a source of growing demand for telecommunication services with
growing domestic and multinational businesses attracting significant foreign
investment. The following chart presents certain historical and projected
information with respect to the telecommunications market in Peru for the
periods indicated:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA--PERU*
--------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
TELEPHONE
Minutes (in millions)
Local Services 3,600.0 (1) 4,240.0 (1) 4,954.0 (1)
Long Distance Domestic 388.0 (1) 394.0 (1) 461.0 (1)
Long Distance International 179.2 (1) 232.4 (1) 262.1 (1)
MAIN LINES IN SERVICE
(IN THOUSANDS) 673.0 (2) 772.4 (2) 1,109.2 (2)
PENETRATION RATE
(main lines per 100 pop) 2.9 (4) 3.4 (4) 4.7 (4)
SERVICE REVENUES
Local Services (US$ millions) 190.7 (1) 251.4 (4) 459.1 (4)
Toll Services (US$ millions) 235.2 (1) 123.2 (4) 130.9 (4)
International Services (US$ millions) 229.9 (1) 216.1 (4) 235.9 (4)
DATA
X-25/Frame Relay Ports (in thousands) 0.5 (1) 0.7 (1) 0.9 (1)
ISP Host Penetration
(main lines per 100 pop) 0.000(5) 0.001(5) 0.003(5)
<CAPTION>
TELECOMMUNICATIONS DATA--PERU*
----------------------------------------------------------------------------
1996 1997 1998 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
TELEPHONE
Minutes (in millions)
Local Services 7,806.2 (2) 4,193.4 (3) n/a n/a
Long Distance Domestic 577.0 (2) 326.4 (3) n/a n/a
Long Distance International 294.5 (2) 164.6 (3) n/a n/a
MAIN LINES IN SERVICE
(IN THOUSANDS) 1,435.1 (2) 1,595.5 (1) 1,850.8 (1) 2,093.6 (1)
PENETRATION RATE
(main lines per 100 pop) 5.9 (2) 6.6 (1) 7.5 (1) 8.3 (1)
SERVICE REVENUES
Local Services (US$ millions) 506.9 (3) 676.0 (1) 784.2 (1) 887.1 (1)
1,032.9 (1)
Toll Services (US$ millions) 143.15 (3) 192.8 (1) 223.6 (1) 253.0 (1)
International Services (US$ millions) 230.5 (3) 347.4 (1) 403.0 (1) 455.8 (1)
DATA
X-25/Frame Relay Ports (in thousands) 1.2 (1) 1.5 (1) 14.0 (1) 29.9 (1)
ISP Host Penetration
(main lines per 100 pop) 0.021(5) 0.084(5) 0.208(5) 0.361(5)
<CAPTION>
TELECOMMUNICATION
NS DATA--PERU*
------------------
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)
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)
</TABLE>
- ----------------
(1) Source: Pyramid Research Report.
(2) Source: Telefonica del Peru, S.A. 1996 Annual Report.
(3) Source: Telefonica del Peru S.A., 2nd Quarter Report: July 31, 1997.
Translations from 6/30/97 Peruvian Nuevo Sol into US$ at the
6/30/97 exchange rate of 0.377 US$/Peruvian Nuevo Sol.
(4) Source: Telefonica del Peru 1995 Annual Report. Translations from 12/31/95
Peruvian Nuevo Sol into US$ at the 12/29/95 exchange rate of 0.4341
US$/Peruvian Nuevo Sol.
(5) Source: Calculations based on Pyramid Research Report estimates of ISP
hosts and of population for Peru.
(*) Includes historical information for the years 1993-1995 and projections for
the years 1996-2000.
OPERATING COMPANY OVERVIEW. The Company conducts its business in Peru
through its wholly-owned subsidiary, Resetel, which was acquired by the Company
in May 1996. Resetel offers 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
58
<PAGE>
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.
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.
59
<PAGE>
NETWORK INFRASTRUCTURE. The Company provides its services in Peru through
its 230 kilometer fiber optic digital switched network, which is expected to
expand to approximately 400 kilometers. 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
approximately 7.5 million people). The Company anticipates substantial
completion of its ATM network in Peru, including last mile connections to
approximately 150 buildings before the end of 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.
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
60
<PAGE>
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 $178.2 million in
1996, representing a compound annual growth rate of 21.0%. Chile's
telecommunications markets continue to be dominated by the former PTTs,
although new entrants have begun to reduce the former PTTs' market share. In
the long distance market, Entel, the former long distance PTT, faces
competition from eight other carriers, and its market share has been reduced to
approximately 40.4% for domestic long distance and 37.5% for international
long-distance. As a result of its open telecommunications market, Chilean
subscribers enjoy some of the lowest prices in the world for long distance
telephony services. In the local telephony market, CTC, the former local
services PTT, controls approximately 96% of the local telephony market. The
Company believes that the full implementation of its business strategy will
enable it to penetrate this market and further develop its customer base.
The following table provides some general information on the historical
size and estimated growth of Chile's telecommunications market.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA--CHILE
-----------------------------------------------------------------------
1993 1994 1995 1996
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
TELEPHONE MINUTES
Local Service -- -- -- --
Long Distance Domestic (millions) n/a n/a 1,847.2 (1) 2,259.0 (2)
Long Distance International (millions) n/a n/a 136.9 (3) 172.9 (2)
MAIN LINES IN SERVICE
(in thousands) 1,513(4) 1,626(4) 1,846(4) 2,157(4)
PENETRATION RATE
(main lines per 100 pop) 11.0 (4) 11.6 (4) 13.0 (4) 14.9 (4)
SERVICE REVENUES
(US$ millions)
Local Services (US$ millions) 479.0 (4) 560.6 (4) 627.8 (4) 733.3 (4)
Toll Services (US$ millions) 135.2 (4) 118.9 (4) 235.6 (4) 275.2 (4)
International Services (US$ millions) 99.9 (4) 85.6 (4) 152.6 (4) 178.2 (4)
DATA
X-25/Frame Relay Ports (in thousands) 3.3 (4) 3.6 (4) 4.7 (4) 10.2 (4)
ISP Host Penetration
(main lines per 100 pop) 0.020(5) 0.022(5) 0.063(5) 0.157(5)
<CAPTION>
TELECOMMUNICATIONS DATA--CHILE
-------------------------------------------------------------------------
1997 1998 1999 2000
---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
TELEPHONE MINUTES
Local Service -- -- -- --
Long Distance Domestic (millions) n/a n/a n/a n/a
Long Distance International (millions) n/a n/a n/a n/a
MAIN LINES IN SERVICE
(in thousands) 2,623(4) 3,032(4) 3,474(4) 3,920(4)
PENETRATION RATE
(main lines per 100 pop) 17.8 (4) 20.3 (4) 22.9 (4) 25.4 (4)
SERVICE REVENUES
(US$ millions)
Local Services (US$ millions) 891.7 (4) 1,030.9 (4) 1,181.3 (4) 1,332.9 (4)
Toll Services (US$ millions) 334.6 (4) 386.9 (4) 443.3 (4) 500.2 (4)
International Services (US$ millions) 216.8 (4) 250.6 (4) 287.1 (4) 324.0 (4)
DATA
X-25/Frame Relay Ports (in thousands) 17.5 (4) 25.8 (1) 33.9 (4) 39.7 (4)
ISP Host Penetration
(main lines per 100 pop) 0.279(5) 0.413(5) 0.525(5) 0.601(5)
</TABLE>
- ----------------
n/a--Information not publicly available.
(1) Statistical measures were changed in 1994 due to the multicarrier system
implementation.
(2) Source: Calculations based on monthly market share data provided by the
Subsecretaria de Telecomunicaciones ("SUBTEL") as of August 1997.
(3) Source: Calculations based on Pyramid Research Report estimates of lines in
services--includes historical information for the years 1993-1995
and projections for the years 1996-2000.
(4) Source: Pyramid Research Report--includes historical information for the
years 1993-1995 and projections for the years 1996-2000.
(5) Source: Calculations based on Pyramid Research Report estimates of ISP
hosts and population for Chile.
OPERATING COMPANY OVERVIEW. The Company conducts its business in Santiago
through its wholly-owned subsidiaries, 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
61
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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 anticipates being granted during the fourth quarter of 1998 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.
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.
62
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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 the end
of 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 anticipates completing
last mile connections to approximately 150 buildings before the end of 1998.
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, during 1998, 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
63
<PAGE>
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.
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
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market in telecommunications. The law grants the Peruvian government the
ability to oversee telecommunications services through the Ministry of
Transportation, Communications, Housing and Construction (the "Ministry of
Transportation" or the "Ministry"). The Ministry has the authority to grant
concessions and impose sanctions for the violation of telecommunications laws.
Pursuant to Supreme Decree No. 007-97-MTC, the Specialized Telecommunications
Concession Unit ("STCU") became the government agency within the Ministry
charged with the following functions previously performed by OSIPTEL: (i)
grant, renew and cancel concessions, authorizations, permits and licenses; (ii)
manage the electric spectrum and approve the assignment of frequencies; and
(iii) discontinue the rendering of value added services offered by
concessionaires when such services cause any damage or harm to the public
telecommunications network.
CONCESSIONS. A private entity may only provide telecommunications services
in Peru pursuant to a concession granted by STCU and in accordance with a state
contract (the "State Contract") to be entered between the STCU and the
concessionaire. Such concessions, including the concession held by the Company
through Resetel, have a maximum period of twenty years and can be renewed for
an equal term without limitation subject to the submission of an application
for renewal two years prior to the expiration of the concession and compliance
with the requirements under the concession. The State Contract outlines, among
other obligations: (i) a minimum expansion plan for the operator; (ii) required
fees and tariffs; (iii) technology standards for all equipment; and (iv)
quality standards of service.
State Contracts are treated under Peruvian law the same as contracts
between private parties. For this reason, such contracts cannot be modified or
terminated by any subsequent regulation or legislation. The Ministry may,
however, if it is deemed in the public interest, modify the terms of State
Contracts unilaterally if such terms relate to the international
telecommunications policy of the Ministry, or if it is necessary to modify the
contract to comply with international laws, treaties or conventions. These
changes can only take place through an administrative process that provides for
public comment on any proposed changes.
LOCAL AND LONG DISTANCE SERVICES. Dial tone and public switched local and
long distance services in Peru will be provided exclusively by Telefonica until
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
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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.
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
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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 Subsecretaria de Telecommunicaciones
(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.
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.
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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 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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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.
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First Category Income Tax (the "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 (the "Additional
Withholding Income Tax") of 35% is payable by non-resident individuals and
entities on Chilean-source business income withdrawn or remitted overseas. This
tax is withheld by the paying business entity.
The 15% corporate tax is allowed as a credit against the Additional
Withholding Income Tax payable. As a result, the effective rate payable on
foreign investment profits remitted abroad is normally 35%, 15% being payable
at the time profits are earned with the 20% balance due on payment overseas.
Withholding tax is also imposed on most other payments made abroad. For
example:
1. 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 Income 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.
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EMPLOYEES
As of April 30, 1998, the Company had 158 full-time employees, of whom
approximately 66 are in Resetel, 36 are in FirstCom Networks, 51 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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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.
ANDREW 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.
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KEY EMPLOYEES OR CONSULTANTS
Luis Thais Diaz, age 54, has been Chairman of the Board of Directors of
Resetel since November 1996. Since July 1996, he has also been Chairman of the
Board of Directors of Drake Beam Morin-Chile, a human resources consulting
company based in the United States. From 1972 through 1996, Mr. Thais served as
representative of the United Nations Secretary General in Central America,
Argentina, Panama, Colombia, Venezuela and Chile. Mr. Thais has supervised
various telecommunications projects in those countries on behalf of the
International Telecommunications Organization.
Moises Blumen Cohen, age 28, has been the Chief Executive Officer of
Resetel since October 1996 and its Administrative Manager since August 1996.
From July 1993 until July 1996, Mr. Blumen was President of Compania Central
911, a Peruvian security alarm installation company founded by Mr. Blumen in
July 1993.
Ivan Van de Wyngard, age 53, has been a consultant to the Company since
October 1997. From 1986 to 1994, Mr. Van de Wyngard was Chief Executive Officer
of Entel. From 1995 to August 1997, Mr. Van de Wyngard was President of
Consultora Internacional de Telecommunicaciones VamCon Ltda., a Chilean
telecommunications consulting company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit Committee and a
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 Messr. Kleinman who 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
$20,000 per year (beginning January 1, 1998) stock options to acquire 50,000
shares of Common Stock at a price calculated on the average closing price of
the Common Stock for the five trading days immediately preceding the date of
such grant.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation earned by the Chief Executive Officer of ICCA, and the other most
highly compensated executive officer of ICCA during 1997 (such persons are
hereinafter referred to as the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------------- ---------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION(S) YEAR ($) ($) ($)(1) ($) (#) ($) ($)(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 -- -- -- -- -- -- --
</TABLE>
- ----------------
(1) Perquisites to each officer did not exceed the lesser of $50,000 or 10% of
the total salary and bonus for any officer.
(2) Effective as of November 23, 1996.
(3) Mr. Geib commenced employment with the Company on May 1, 1997. See "--
Employment and Consultants Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted in 1997 to ICCA's Named Executive Officers. The Company has no
outstanding stock appreciation rights. None of the Named Executive Officers
exercised options during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO WEIGHTED AVERAGE FOR OPTION TERM($)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED(#) IN FISCAL YEAR 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>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
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 SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
------------------------- ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) 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>
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<PAGE>
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 $750,000 bonus to Mr. Northland upon
consummation of the Initial Offering, the Company agreed to pay Mr. Northland a
performance bonus of $250,000 and vest all of his existing options to acquire
1,000,000 shares of Common Stock granted under his prior employment agreement.
During May 1997, the Company entered into an employment and severance
agreement (the "Geib Agreement") with Douglas G. Geib II, Chief Financial
Officer of ICCA. The Geib Agreement has a term of three years unless terminated
earlier for cause, death or disability, and provides for an annual salary of
$250,000. In addition to the base salary, the Geib Agreement provides for a
primary performance award based upon business criteria which is designed to
enhance shareholder value during each year up to a maximum of 100 percent of
the base salary payable thereunder. Mr. Geib was also granted non-qualified
stock options to purchase 500,000 shares of ICCA's Common Stock at an exercise
price of $2.42 per share. One-third of such options became exercisable on date
of employment, and the remainder vest in equal annual installments over the
first two years of Mr. Geib's three-year employment period.
During October 1997, the Company entered into an agreement with Mr. Ivan
Van de Wyngard (the "Van de Wyngard Agreement") for the performance of certain
management, consulting and advisory services to the Company. Under the Van de
Wyngard Agreement, Mr. Van de Wyngard will receive a monthly fee of $7,500 as
compensation for his services. The Van de Wyngard Agreement has a term of one
year and may be extended upon mutual agreement between the parties.
STOCK OPTIONS
As of March 31, 1998 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,
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<PAGE>
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 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 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 approximately $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.
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 plus accrued interest
of $30,000 and $240,000, respectively, of outstanding liabilities to MBCP into
172,506 and 80,000 shares, respectively, of the Company's Common Stock. The
value assigned to the Common Stock was equivalent to the grant date fair value.
77
<PAGE>
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.
OTHER RELATED PARTY TRANSACTIONS
The Company paid approximately $865,000 in legal fees in 1997 to Baker &
McKenzie. Andrew Hulsh is a Senior Partner of Baker & McKenzie and a 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. A value of $200,000 was assigned to such Common Stock equivalent
to the grant date market price.
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. No cash
consideration was paid by either officer for such shares. 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, 1997, between the Company and the 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
(the "Trust Indenture Act"). For definitions of certain capitalized terms used
in "Description of the New Notes," see "--Certain Definitions."
GENERAL
The Existing Notes were, and the New Notes will be, issued pursuant to an
Indenture between the Company and the Trustee. The terms of the Existing Notes
and New Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The Existing Notes and New
Notes are subject to all such terms, and holders of Existing Notes and New
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 equal 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) the
"Pledged Securities," which initially consist of Government Securities, and 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) the
Collateral Funds and placed in the Collateral Account to be held by the
Trustee, as Collateral Agent (the "Collateral Agent"), 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. 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.
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 Existing Notes and New 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
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<PAGE>
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 March 31, 1998, the Company's Subsidiaries have
approximately $548,000 of Indebtedness and $3.5 million 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 Existing Notes and New 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
Existing Notes and New Notes at their respective addresses set forth in the
register of holders of Existing Notes and New Notes; provided that all payments
with respect to Existing Notes and New 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 Existing
Notes and New 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 Company purchased and pledged to the Trustee for the
benefit of the holders of the Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes
and New 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
Existing Notes and New Notes (or, in the event an interest payment or payments
have been made, an amount sufficient to
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<PAGE>
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
Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New Notes in a
timely manner, all of the remaining Pledged Securities, if any, will be
released from the Pledge Account and thereafter the Existing Notes and New
Notes will be secured only by the Collateral Funds and the Collateral Account
described below to the extent that Collateral Funds remain in the Collateral
Account pursuant to the terms of the Proceeds Pledge and Escrow Agreement.
In addition to the pledge by the Company of the Pledged Securities, the
Proceeds Pledge and Escrow Agreement required the Company to (i) deposit $62.0
million of the net proceeds of the 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 Existing Notes and New
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 Existing Notes and New 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.
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
Existing Notes and New Notes to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such holder's Existing Notes and New Notes 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 Existing
Notes and New Notes does not remain outstanding, the Company will be required
by the terms of the Indenture to redeem all of the Existing Notes and New 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. 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 Existing Notes and New 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
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<PAGE>
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 Existing Notes and New 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."
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 331/3%
of the aggregate principal amount of Existing Notes and New 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 662/3% of the
original aggregate principal amount of the Existing Notes and New 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 Existing Notes and New Notes are to be redeemed at
any time, selection of Existing Notes and New Notes for redemption will be made
by the Trustee in compliance with the
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requirements of the principal national securities exchange, if any, on which
the Existing Notes and New Notes are listed, or, if the Existing Notes and New
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 Existing Notes and
New 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 Existing Notes and New 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. Existing Notes
and New Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Existing Notes and New 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 Existing Notes and New 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 equal to the Change of Control Payment. 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 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.
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
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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 and may require that a court of law
determine whether a Change of Control has occurred.
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 Existing Notes and New 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 Existing Notes and New
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
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Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 270 days after the Company's or any Restricted Subsidiary's receipt
of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary may apply such Net Proceeds, at its option, (a) to repay
Indebtedness under a Credit Facility (and to correspondingly reduce commitments
with respect thereto in the case of revolving borrowings) or (b) to the
acquisition of a Permitted Business or a controlling interest in a Permitted
Business or the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
Indebtedness under any Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute excess proceeds ("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 Existing Notes
and New Notes (an "Asset Sale Offer") to purchase the maximum principal amount
of Existing Notes and New 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
Existing Notes and New 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 Existing Notes
and New Notes surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Existing Notes and New 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 Existing Notes and New 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
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of Indenture
(other than Restricted Payments permitted by clauses (ii), (iii) or (iv) of
the following paragraph) shall not exceed, at the date of determination,
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) an amount equal to the net cash proceeds received
by the Company after the date of the Indenture from the issuance and sale
of its Qualified Capital Stock to the extent such net cash proceeds have
been, and continue to be, designated as Designated Equity Proceeds to be
added to the cumulative amount calculated pursuant to this clause (c) as
provided in the definition thereof, plus (iii) an amount equal to the net
cash proceeds received by the Company from the sale of Disqualified Stock
or debt securities of the Company that have been converted into Equity
Interests (other than Equity Interests or convertible debt securities sold
to a Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iv) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (1) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (2) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit the following Restricted
Payments: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the redemption, repurchase,
retirement, 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
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of the Company on the date of the Indenture or (ii) owned by any Person
described in this Prospectus under the caption "The FirstCom Long Distance
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.
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
Existing Notes and New 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
Existing Notes and New Notes;
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(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 Existing Notes and New Notes and (B)(1) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary and (2) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(viii) the guarantee by the Company of Indebtedness of the Company or a
Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness of the Company or any Restricted Subsidiary of the
Company (A) in respect of statutory obligations, performance, surety or
appeal bonds or other obligations of a like nature incurred in the ordinary
course of business or (B) under Hedging Obligations; provided that such
agreements (1) are designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (2) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities
and compensation payable thereunder; and
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(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 Existing Notes and New 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
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Indebtedness was permitted by the terms of the Indenture to be incurred, (f) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (i) any mortgage or other Lien on
real property acquired or improved by the Company or any Restricted Subsidiary
after the date of the Indenture that prohibit transfers of the type described
in (iii) above with respect to such real property, (j) any such customary
encumbrance or restriction contained in a security document creating a
Permitted Lien to the extent related to the property or assets subject to such
Permitted Lien, and (k) with respect to a Restricted Subsidiary, an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Company's Equity Interests in, or substantially all of the assets
of, such Restricted Subsidiary.
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 Existing Notes and New 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
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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 FirstCom
Long Distance 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.
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 the Initial Purchaser 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.
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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 Existing Notes and New Notes by such
Subsidiary, which guarantee shall be senior to or equal with such Subsidiary's
guarantee of or pledge to secure such other Indebtedness. Notwithstanding the
foregoing, any such guarantee by a Subsidiary of the Existing Notes and New
Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of the Company, of all of the Company's stock in,
or all or substantially all the assets of, such Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of
the Indenture. A form of such guarantee is attached as an exhibit to the
Indenture.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Existing Notes and New Notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the Indenture or the Existing
Notes and New Notes unless such consideration is offered to be paid or is paid
to all holders of the Existing Notes and New 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 Existing Notes and New Notes are
outstanding, the Company will furnish to the holders of Existing Notes and New
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
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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 Existing
Notes and New 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
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 Existing
Notes and New Notes may declare all the Existing Notes and New 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
Existing Notes and New 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 become due and
payable without further action or notice. Holders of the Existing Notes and New
Notes may not enforce the Indenture or the Existing Notes and New Notes except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Existing Notes and New
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from holders of the Existing Notes and New 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 Existing Notes and New
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 Existing Notes and New
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
Existing Notes and New 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 Existing Notes and New
Notes.
The holders of a majority in aggregate principal amount of the Existing
Notes and New Notes then outstanding by notice to the Trustee may on behalf of
the holders of all of the Existing Notes and New 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 Existing Notes and New
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 Existing Notes and New Notes, the Subsidiary
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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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New
Notes ("Legal Defeasance") except for (i) the rights of holders of outstanding
Existing Notes and New Notes to receive payments in respect of the principal
of, premium, if any, and interest and Liquidated Damages, if any, on such
Existing Notes and New Notes when such payments are due from the trust referred
to below, (ii) the Company's obligations with respect to the Existing Notes and
New Notes concerning issuing temporary Existing Notes and New Notes,
registration of Existing Notes and New Notes, mutilated, destroyed, lost or
stolen Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Existing Notes and New 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 Existing Notes
and New Notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Company must specify whether the Existing Notes and
New 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 Existing Notes and
New 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 Existing Notes and New
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
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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 Existing Notes and New 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 Existing Notes and New 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 Existing Notes and New Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Existing Notes and
New Notes), and any existing default or compliance with any provision of the
Indenture, the Existing Notes and New 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 Existing Notes and New Notes
(including consents obtained in connection with a tender offer or exchange
offer for Existing Notes and New 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 Existing
Notes and New 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 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 Existing Notes and New Notes then outstanding
if such amendment would adversely affect the rights of holders of Existing
Notes and New Notes.
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Notwithstanding the foregoing, without the consent of any holder of
Existing Notes and New Notes, the Company and the Trustee may amend or
supplement the Indenture or the Existing Notes and New Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Existing
Notes and New Notes in addition to or in place of certificated Existing Notes
and New Notes, to provide for the assumption of the Company's obligations to
holders of Existing Notes and New 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 Existing Notes and New 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
Existing Notes and New 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 Existing Notes and New 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, 2600 Douglas
Road, Suite 501, Coral Gables, Florida 33134, 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 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 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 Existing Notes and New 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 Existing Notes and New 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.
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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 Notes in exchange for all
Existing Notes and New 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 Registration Default
occurs, 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.
"Acquisition Costs" means the purchase price and related expenses of any
acquisition by the Company of (i) long-term assets used or useful in a
Permitted Business or (ii) a controlling interest in a Permitted Business in
connection with Telecommunications Businesses in Chile or Peru.
"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
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business (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions of the Indenture described above
under the caption "--Repurchase at the Option of Holders--Change of Control"
and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any
of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries,
in the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$1.0 million 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).
"Business Day" means any day other than a Legal Holiday.
"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,
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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 such
term is used in Section 13(d)(3) of the Exchange Act), (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 such term is used
in Section 13(d)(3) of the Exchange Act), 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.
"Change of Control Payment" means an offer price in cash equal to 101% of
the aggregate principal amount of each New Note tendered pursuant to the Change
of Control Offer plus accrued and unpaid interest and Liquidated Damages, if
any, thereon.
"Collateral Account" means the escrow account in which the Collateral
Funds have been placed.
"Collateral Funds" means $62.0 million of the net proceeds of the
Offering, which have been invested in Cash Equivalents and placed in 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, (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, such purchase or redemption price.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Subsidiaries for such period
to the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income, minus (v) non-cash
items increasing such Consolidated Net Income for such period. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Restricted Subsidiary without prior governmental approval (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted
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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.
"Convertible Debentures" means, collectively, (i) the Company's $1,500
aggregate principal amount of 7% Convertible Debentures due February 3, 2000
and (ii) the Company's $2,000 aggregate principal amount of 8% Convertible
Debentures due April 30, 1998.
"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
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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).
"Damages Payment Date" means with respect to the Existing Notes and New
Notes, each Interest Payment Date.
"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 Existing
Notes and New 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 Existing Notes and New Notes
mature.
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"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).
"Event of Default" means any of the following: (i) default for 30 days in
the payment when due of interest and Liquidated Damages, if any, on the
Existing Notes and New Notes, provided, however, that prior to October 27,
2000, the failure by the Company to pay interest on the Existing Notes and New
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 Existing Notes and New 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
Existing Notes and New 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.
"Existing Indebtedness" means up to $1.0 million in aggregate principal
amount of (a) Indebtedness of the Company and its Restricted Subsidiaries in
existence on the date of the Indenture and (b) Acquired Debt incurred by the
Company and its Restricted Subsidiaries in connection with the Iusatel
Acquisition, until such amounts are repaid.
"Fair Market Value" means, with respect to assets, Equity Interests or any
other securities having a fair market value (a) of less than $5.0 million, the
fair market value of such assets, Equity Interests or any other securities
determined in good faith by the Board of Directors of the Company (including a
majority of the Independent Directors thereof) and evidenced by a board
resolution and (b) equal to or in excess of $5.0 million, the fair market value
of such assets, Equity Interests or any other securities as determined by an
investment banking firm of national standing; provided that the fair market
value of the assets purchased in an arm's-length transaction by an Affiliate of
the Company (other than a Subsidiary) from a third party that is not also an
Affiliate of the Company or such purchaser and contributed to the Company
within five Business Days of the consummation of the acquisition of such assets
by such Affiliate shall be deemed to be the aggregate consideration paid by
such Affiliate (which may include the fair market value of any non-cash
consideration to the extent that the valuation requirements of this definition
are complied with as to any such non-cash consideration); provided, further,
that the fair market value of Equity Interests issued and sold to the public in
a registered public
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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.
"Foreign Active Business Requirement" means that 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.
"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.
"Global Note holder" means DTC's nominee in whose name the Existing Global
Note is registered.
"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.
"Holder" means a Person in whose name an Existing Note or New Note is
registered.
"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
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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."
"Legal Holiday" means Saturday, Sunday or a day on which banking
institutions in the City of New York, State of New York, are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday, payment may be made at a place of payment on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue on such payment for
the intervening period.
"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).
"Liquidated Damages" means liquidated damages payable by the Company as
described under the captions "Exchange Offer--Liquidated Damages" and
"Description of New Notes--Registration Rights; Liquidated Damages."
"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 Existing Notes and New 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.
"Non-U.S. holders" means persons other than U.S. holders.
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"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company.
"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 Debt" means certain items of Indebtedness as described in the
section "Description of New Notes--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
"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 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, 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.
"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 Existing Notes and New 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
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(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 Existing Notes and New
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 Existing Notes and New Notes on terms at least as favorable to the holders
of Existing Notes and New 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.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Pledge Account" means the account established by the Company with the
Trustee for the deposit of the Pledges Securities.
"Pledged Securities" means securities, initially consisting of Government
Securities, purchased by the Company with a portion of the proceeds from the
sale of the Existing Notes and New Notes, for deposit in the Pledge Account.
"Principals" means Patricio E. Northland, the current Chairman, President
and Chief Executive Officer of the Company, and Douglas G. Geib II, the current
Chief Financial Officer of the Company.
"Proceeds Pledge and Escrow Agreement" means the Proceeds Pledge and
Escrow Agreement, dated as of the date of the Indenture, by and between the
Company and the Trustee, as Collateral Agent, governing the disbursement of
funds from the Pledge Account and the Collateral Account.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Record holder" means with respect to any Damages Payment Date relating to
the Existing Notes or New Notes, each Person who is a holder of Existing Notes
or New Notes on the record date with respect to the Interest Payment Date on
which such Damages Payment Date shall occur.
"Registration Default" means any of the following events: (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, or (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer
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Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement.
"Registration Rights Agreement" means the A/B Exchange Registration Rights
Agreement dated as of October 27, 1997 between the Company and the Initial
Purchaser.
"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.
"Shelf Filing Deadline" means the earliest to occur of (1) the 45th day
after the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement, (2) the 45th day after the date on
which the Company receives notice from a holder of Transfer Restricted
Securities (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 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, and (3) the 60th
day after the Closing Date.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X of the
Commission in effect on the date hereof.
"Special Mandatory Redemption" means ICCA will be required by the terms of
the Indenture to redeem all of the Existing Notes and New Notes at a redemption
price in cash equal to 101% of the aggregate principal thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase
if after the Special Offer to Purchase is consummated at least $20.0 million in
aggregate principal amount of Existing Notes and New Notes does not remain
outstanding.
"Special Offer to Purchase" means 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 at an offer 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 purchase.
"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
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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 Existing
Notes and New 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."
"Systems Costs" means 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 in connection with Telecommunications Businesses in
Chile or Peru.
"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.
"Transfer Restricted Securities" shall mean each Existing Note and New
Note until the earlier to occur of: (i) the date on which such Existing Note
and New 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 Existing Note and New Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement 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 Exchange Offer
Registration Statement.
"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 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
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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 EXISTING NOTES AND NEW 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, 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, 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 DTC, (i)
upon deposit of the New Global Note, 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 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 Existing
Notes and New 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 Existing Notes and New 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 DTC or for maintaining,
supervising or reviewing any records of DTC relating to the Existing Notes and
New 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 Existing Notes and New Notes,
including the Existing Global Note, are
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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 Existing Notes and New Notes. The Company believes, however, that it
is currently the policy of 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 DTC. Payments by DTC's Participants and DTC's Indirect
Participants to the beneficial owners of Existing Notes and New Notes will be
governed by standing instructions and customary practice and will be the
responsibility of DTC's Participants or 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.
Payments in respect of the principal of, premium if any, interest and
Liquidated Damages, if any, on any Existing Notes and New 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.
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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.
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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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the material federal income tax considerations
to holders whose Existing Notes are exchanged for New Notes are as described
herein and constitutes the opinion of Baker & Mckenzie, counsel to the Company,
subject to the limitations and conditions set forth below. Except as
specifically discussed below with regard to Non-U.S. Holders, 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 New 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 New 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, because the Existing Notes were issued as part of a Unit
consisting of the Existing Notes and Warrants and the basis of such Unit was
required to be allocated to the Existing Notes and Warrants based on their
relative fair market value, the New 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 New 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.
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The amount of OID with respect to a New Note will be an amount equal to
the excess of the stated redemption price at maturity of such New Note over the
issue price of such New Note. The stated redemption price at maturity of each
New 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 New Note will qualify as qualified stated
interest. The issue price of a New Note will be equal to that portion of the
issue price of the Unit allocable to the New Note based on the relative fair
market values of the New Notes and Warrants forming part of a Unit at the time
of issuance. The OID will be considered DE MINIMIS, 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. The
purchase price of each Unit was $1,000. The Company has allocated $876.67 of
such purchase price to the Existing Notes. Thus, the OID is not DE MINIMIS. The
Company's allocation of the purchase price between the Existing Notes and the
Warrants will be binding on each holder of the New Notes, unless a holder
discloses on a statement attached to such holder's timely filed Federal income
tax return for the year that includes the acquisition date of the Units, that
the holder's determination of the allocation of such purchase price is different
from the Company's allocation of such purchase price. The Company's
determination of the allocation of the purchase price between the Existing Notes
and the Warrants is not binding on the Internal Revenue Service.
The amount of OID accruing with respect to any New Note will be the sum
of the "daily portions" of OID with respect to such New Note for each day during
the taxable year in which a holder owns a New 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 New 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 New Note will be equal to the following amount: (i) the
"adjusted issue price" of such New Note at the beginning of that accrual period,
multiplied by (ii) the yield to maturity of such New 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 New 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 New Notes will
have the right to require the Company to purchase their New Notes. The OID
Regulations provide that the right of holders of the New Notes to require
redemption of the New Notes upon the occurrence of a Change of Control will not
affect the yield or maturity date of the New 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 New Notes
as affecting the computation of the yield to maturity of any New Note.
The Company may redeem the New Notes at any time on or after October 27,
2002, and, in certain circumstances, may redeem or repurchase all or a portion
of the New 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.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION
Generally, any sale, redemption or other taxable disposition of New 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
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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 New Notes. The
adjusted tax basis of a holder in such New Notes will equal the issue price of
such New Notes, increased by any OID on the New Notes previously included in
such holder's income, and reduced by any payments (other than payments of
qualified stated interest) previously made on the New Notes. Such gain or loss
will be capital gain or loss, and will be long-term capital gain or loss if the
New 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 New Note may be
affected by the "market discount" rules of the Code under which a subsequent
purchaser of a New Note acquiring the New 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 New Note to the extent of the market
discount that has accrued while the debt instrument was held by such holder.
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. 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.
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).
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GAIN ON DISPOSITION OF NEW 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 New 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 New Notes is exempt from withholding of U.S. federal
income tax under the rules described above, the New Notes will not be included
in the estate of a deceased Non-U.S. Holder for U.S. federal estate tax
purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each year in which the New 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 New Note may
be required to withhold an amount equal to 31% from any payment of interest or
principal pursuant to the terms of the New Notes, or any payment of proceeds of
a redemption of New 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 New 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.
LEGAL MATTERS
Legal matters with respect to the New Notes offered hereby will be passed
upon for the Company by Baker & McKenzie, Miami, Florida.
EXPERTS
The consolidated financial statements of InterAmericas Communications
Corporation and its subsidiaries as of December 31, 1997 and 1996 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.
ATV: Refers to any system of distributing television programming that
generally results in better video and audio quality than that offered by the
NTSC 525-line standard.
BACKBONE: Refers to the major fiber cable carrying the accumulated
transmissions of many businesses connected to a network system. Similar to a
water main, the backbone is the high volume conduit for transmissions input by
multiple smaller connections (last-mile connections) from business offices.
BANDWIDTH: The range of frequencies that can be passed through a medium,
such as glass fibers, without distortion. The greater the bandwidth, the
greater the information carrying capacity of such medium. For fiber optic
transmission, electronic transmitting devices determine the bandwidth, not the
fibers themselves.
CAP (COMPETITIVE ACCESS PROVIDER): A company that provides its customers
with an alternative to the local telephone company for local transport of
private line, special access telecommunications services and switched access
services. CAPs are also referred to in the industry as alternative access
vendors, alternative local telecommunications service providers (ALTS) and
metropolitan area network providers (MANs).
CARRIER'S CARRIER: Refers to a telecommunications network that provides
wholesale telecommunications transmission to other major telecommunications
networks such as long distance, local and cellular telephone companies.
CENTREX: Refers to the switching capability provided by a telephone
company's central office to a customer over telephone lines on a subscription
basis. Centrex allows a customer to receive such services as intra-office call
routing and voice mail from a telephone company's switch, thereby avoiding the
purchase of a private switch known as PBX.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER): A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CTC: Compania de Telefonos de Chile, S.A., the PTT of Chile which was
privatized in 1987.
DEDICATED LINES: Telecommunications lines reserved for use by particular
customers along predetermined routes (in contrast to telecommunications lines
within the local telephone PTT's public switched network).
DIGITAL: Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission and switching
technologies employ a sequence of these pulses to represent information, as
opposed to the continuously variable analog signal. The precise digital numbers
preclude any distortion (such as graininess or snow, in the case of video
transmission, or static or other background distortion, in the case of audio
transmission).
DROP AND INSERT: Refers to a network's capability to share capacity among
users without dedicating any fiber strand to a single end user.
EARTH STATION: A parabolic antenna and associated electronics for
receiving or transmitting satellite signals.
ENHANCED SERVICES: Refers to private line services, and LAN and WAN
connectivity services.
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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.
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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.
SDH (SYNCHRONOUS DIGITAL HIERARCHY): An open standard for signals used in
optical fiber networks. It provides a basic data transport format that can be
used for all types of digital information (voice, video, data, facsimile and
graphics) and is used internationally. The specified base rate is 51.48 MBPS
(called synchronous transport signal level 1, or STS-1), and specifications
exist for data speeds up to 2.4 Gbps.
SNA (SYSTEMS NETWORK ARCHITECTURE): A tree structured computer network
architecture, with a mainframe host acting as the network control center.
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.
121
<PAGE>
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.
WAN (WIDE AREA NETWORK): A data network typically extending a LAN outside
a building, over telephone common carrier lines to link other LAN's in other
buildings.
122
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTERAMERICAS COMMUNICATIONS CORPORATION
Report of Independent Certified Public Accountants ................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited) ....................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and the three months ended
March 31, 1997 and 1998 (unaudited) .............................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and the three months ended
March 31, 1998 (unaudited) ....................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and the three months ended
March 31, 1997 and 1998 (unaudited) .............................. 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.
Price Waterhouse LLP
Miami, Florida
March 2, 1998
F-2
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 723 $ 12,336 $ 11,428
Restricted cash ............................................... -- 61,028 54,531
Restricted investments ........................................ -- 20,404 20,653
Accounts receivable, net ...................................... 113 2,367 2,531
Prepaid expenses and other current assets ..................... 491 1,208 779
--------- --------- ---------
Total current assets ......................................... 1,327 97,343 89,922
Restricted investments ......................................... -- 37,488 38,022
Telecommunications networks, net ............................... 3,956 9,348 15,030
Intangible assets, net ......................................... 5,029 10,881 10,703
Deferred financing costs ....................................... 42 14,971 14,766
--------- --------- ---------
Total assets ................................................. $ 10,354 $ 170,031 $ 168,443
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 299 $ 4,023 $ 3,194
Accrued interest .............................................. 83 3,797 9,047
Other accrued expenses ........................................ 591 1,709 916
Due to related parties ........................................ 416 263 --
Lease obligations, current .................................... 114 313 233
Other current liabilities ..................................... 323 322 544
--------- --------- ---------
Total current liabilities .................................... 1,826 10,427 13,934
Senior notes, net .............................................. -- 131,626 131,791
Lease obligations, less current portion ........................ 248 356 315
--------- --------- ---------
Total liabilities ............................................ 2,074 142,409 146,040
--------- --------- ---------
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 19
Additional paid in capital .................................... 18,493 26,887 26,887
Warrants ...................................................... -- 26,737 26,737
Accumulated deficit ........................................... (10,151) (25,783) (31,002)
Cumulative translation adjustments ............................ (78) (238) (238)
--------- --------- ---------
Total stockholders' equity ................................... 8,280 27,622 22,403
--------- --------- ---------
Total liabilities and stockholders' equity ................... $ 10,354 $ 170,031 $ 168,443
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ------------------------------
1997 1998
1995 1996 1997 (UNAUDITED) (UNAUDITED)
------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues ..................... $ 224 $ 652 $ 1,130 $ 324 $ 3,327
Operating expenses:
Cost of revenues ............ 408 958 1,203 316 2,609
Selling, general and
administrative ............ 1,906 3,272 5,265 815 1,831
Non-cash compensation and
consulting ................ 12 73 4,640 -- --
Depreciation and
amortization .............. 396 706 967 220 464
---------- ----------- ----------- ---------- -----------
2,722 5,009 12,075 1,351 4,904
---------- ----------- ----------- ---------- -----------
Loss from operations ......... (2,498) (4,357) (10,945) (1,027) (1,577)
Interest expense ............. (319) (246) (5,934) (215) (5,403)
Interest income .............. 10 80 1,315 18 1,761
Other expense, net ........... (66) (103) (68) -- --
---------- ----------- ----------- ---------- -----------
Net loss ..................... $ (2,873) $ (4,626) $ (15,632) $ (1,224) $ (5,219)
========== =========== =========== ========== ===========
Net basic and diluted loss
per share ................... $ (.31) $ (.31) $ (.94) $ (.08) $ (.27)
========== =========== =========== ========== ===========
Weighted average common shares
outstanding ................. 9,407,000 14,795,660 16,667,719 16,152,518 19,084,300
========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
PAID-IN
SHARES AMOUNTS CAPITAL
------------ --------- ------------
<S> <C> <C> <C>
Balances at December 31, 1994 .............. 6,316,024 $ 6 $ 2,637
Common stock issued in private
placements ................................ 635,761 1 1,962
Conversion of debt ......................... 4,888,900 5 1,126
Stock issued for acquisitions .............. 111,000 -- 400
Imputed interest on
related party notes ....................... -- -- 16
Stock option grants ........................ -- -- 12
Currency translation adjustment ............ -- -- --
Net loss ................................... -- -- --
--------- --- -------
Balances at December 31, 1995 .............. 11,951,685 12 6,153
Common stock issued in private
placements ................................ 1,939,042 2 7,430
Conversion of debt ......................... 1,011,791 1 1,985
Stock issued for acquisitions .............. 1,250,000 1 2,812
Imputed interest on related
party notes ............................... -- -- 40
Stock option grants ........................ -- -- 73
Currency translation adjustment ............ -- -- --
Net loss ................................... -- -- --
---------- --- -------
Balances at December 31, 1996 .............. 16,152,518 16 18,493
Conversion of debt ......................... 1,101,782 1 2,459
Stock issued to certain officers, related
parties and former directors .............. 1,830,000 2 5,935
Warrants to purchase common stock .......... -- -- --
Currency translation adjustment ............ -- -- --
Net loss ................................... -- -- --
---------- --- -------
Balances at December 31, 1997 .............. 19,084,300 19 26,887
Net loss (unaudited) ....................... -- -- --
---------- --- -------
Balances at March 31, 1998
(unaudited) ............................... 19,084,300 $19 $26,887
========== === =======
<CAPTION>
ACCRUED CUMULATIVE
DISTRIBUTIONS ACCUMULATED TRANSLATION
AND WARRANT DEFICIT ADJUSTMENT TOTAL
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 .............. $ (6,088) $ (2,652) $ (14) $ (6,111)
Common stock issued in private
placements ................................ -- -- -- 1,963
Conversion of debt ......................... 6,088 -- -- 7,219
Stock issued for acquisitions .............. -- -- -- 400
Imputed interest on
related party notes ....................... -- -- -- 16
Stock option grants ........................ -- -- -- 12
Currency translation adjustment ............ -- -- 44 44
Net loss ................................... -- (2,873) -- (2,873)
--------- --------- ------ ---------
Balances at December 31, 1995 .............. -- (5,525) 30 670
Common stock issued in private
placements ................................ -- -- -- 7,432
Conversion of debt ......................... -- -- -- 1,986
Stock issued for acquisitions .............. -- -- -- 2,813
Imputed interest on related
party notes ............................... -- -- -- 40
Stock option grants ........................ -- -- -- 73
Currency translation adjustment ............ -- -- (108) (108)
Net loss ................................... -- (4,626) -- (4,626)
--------- --------- ------ ---------
Balances at December 31, 1996 .............. -- (10,151) (78) 8,280
Conversion of debt ......................... -- -- -- 2,459
Stock issued to certain officers, related
parties and former directors .............. -- -- -- 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 .............. 26,737 (25,783) (238) 27,622
Net loss (unaudited) ....................... -- (5,219) -- (5,219)
--------- --------- ------ ---------
Balances at March 31, 1998
(unaudited) ............................... $ 26,737 $ (31,002) $ (238) $ 22,403
========= ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
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 Existing Notes and New Notes ...................................... -- -- 150,000
Deferred financing costs ...................................................... -- -- (7,000)
Restricted cash and investments ............................................... -- -- (118,920)
Proceeds from credit agreements ................................................ -- -- --
Proceeds from convertible debentures .......................................... -- -- 3,500
Repayment of convertible debentures ........................................... -- -- (1,550)
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 26,114
--------- ------- ----------
Net increase (decrease) in cash and cash equivalents ........................... (57) 668 11,613
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 $ 12,336
========= ========= ==========
Cash paid for interest ........................................................ $ 2 $ 153 $ 545
========= ========= ==========
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1998
(UNAUDITED) (UNAUDITED)
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $ (1,224) $ (5,219)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense ........................................ 220 464
Amortization of deferred financing costs and original issue discounts ........ -- 297
Beneficial conversion features on convertible debentures ..................... 310 --
Capitalized interest related to network construction ......................... (132) (206)
Services exchanged for common stock .......................................... -- --
Non-cash compensation and consulting expense ................................. -- --
Interest converted to equity ................................................. -- --
Changes in assets and liabilities:
Accounts receivable ......................................................... 84 (164)
Prepaid expenses and other current assets ................................... (306) 534
Other assets ................................................................ (111) (31)
Accounts payable and accrued expenses ....................................... (84) 3,728
Due to related parties ...................................................... -- (263)
Other current liabilities ................................................... 241 122
Deferred taxes .............................................................. -- --
-------- --------
Cash used in operating activities .......................................... (1,002) (738)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ........................................ (392) (5,762)
Acquisition of FirstCom Long Distance ......................................... -- --
Acquisition of Visat .......................................................... -- --
Acquisition of FirstCom Networks .............................................. -- --
-------- --------
Cash used in investing activities .......................................... (392) (5,762)
-------- --------
Cash flows from financing activities:
Issuance of Existing Notes and New Notes ...................................... -- --
Deferred financing costs ...................................................... -- --
Restricted cash and investments ............................................... (350) 5,713
Proceeds from credit agreements ................................................ 2,054 --
Proceeds from convertible debentures .......................................... -- --
Repayment of convertible debentures ........................................... -- --
Issuance of common stock ...................................................... -- --
Net proceeds from issuance of (repayments to)
notes payable and Bridge Notes ............................................... -- --
Additions to notes payable to related party ................................... -- --
(Payments under) proceeds from leasing obligations ............................ -- (121)
-------- --------
Cash provided by financing activities, net ................................. 1,704 5,592
-------- --------
Net increase (decrease) in cash and cash equivalents ........................... 310 (908)
Effect of exchange rate changes on cash ........................................ (17) --
Cash and cash equivalents at beginning of year ................................. 723 12,336
-------- --------
Cash and cash equivalents at end of year ....................................... $ 1,016 $ 11,428
======== ========
Cash paid for interest ........................................................ $ 61
========
</TABLE>
Capital lease obligations of $221 and $172 were incurred in 1995 and 1996
respectively.
During 1997 and 1998, the Company capitalized $712 and $206, respectively, of
interest costs related to the construction of a fiber optic network.
The accompanying notes are an integral part of these consolidated financial
statements.
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>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
1. ORGANIZATION AND BUSINESS FORMATION--(CONTINUED)
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 following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of FirstCom Networks, Resetel and
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>
DECEMBER 31,
--------------------------
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenue .................... $ 8,614 $ 10,927
Net loss ................... (32,875) (39,895)
Net loss per share ......... $ (2.22) $ (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>
DECEMBER 31, ESTIMATED
----------------------- 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>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS
UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
The interim financial data as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 is unaudited. The information reflects all
adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to present fairly the financial position
and results of operations of the Company for the periods indicated. Results of
operations for the interim periods are not necessarily indicative of the
results of operations for the full year.
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
F-9
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
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.
Telecommunications networks consists of:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
----------------------- 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 grant date fair value
F-10
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
of the common stock. Through November 1996, the grant date fair value of the
common stock was estimated by the Company's Board of Directors. After November
1996, the grant date fair value of the common stock was based on the NASDAQ
trading price.
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.
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 was $2.38. The weighted
average fair value of stock options granted during 1997 (i) with a strike price
equivalent to the grant date fair value of the underlying common stock was
$2.60, and (ii) with a strike price less than the grant date fair value of the
underlying common stock was $2.26.
F-11
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
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.
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% Existing Notes and New Notes due
October 27, 2007 ("Existing Notes and New Notes") and 5,250,000 warrants (the
"Unit
F-12
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. CAPITALIZATION--(CONTINUED)
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 Existing Notes and New 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, as determined by an investment bank,
approximately $18,500 is reflected as an original issue discount on the
Existing Notes and New 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, as
determined by an investment bank. The original issue discount and direct
financing costs are being amortized to interest expense over ten years using
the level yield method with an effective interest rate of 18.9 percent.
The Existing Notes and New 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 Existing
Notes and New Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any. The
Existing Notes and New 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.
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 Existing Notes and New Notes through October 27, 2000 and, under certain
circumstances, as security for repayment of principal of the Existing Notes and
New 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 Existing Notes and New 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: (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 June 30, 1995, the Company converted $6,088 of convertible debt into
4.5 milion shares of the Company's common stock.
F-13
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. CAPITALIZATION--(CONTINUED)
On July 31, 1995, the Company converted $781 of an outstanding bridge loan
into 388,900 shares of the Company's common stock.
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. Pursuant to the terms
of the 7% Convertible Debentures (i) the conversion price was equivalent to the
lesser of the fair value of the Company's common stock on the date the debt was
issued or 83% of the fair value of the Company's common stock at the date of
conversion, (ii) the Company was obligated to register with the SEC all shares
of common stock underlying the warrants and debentures, and (iii) the failure
to register such shares of common stock by June 30, 1997 would result in an
additional weekly interest charge of 0.1 percent on the outstanding principal
balance. 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"). Pursuant to the terms of the 8% Convertible
Debentures (i) the conversion price was equivalent to the lesser of the fair
value of the Company's common stock on the date the debt was issued or 80% of
the fair value of the Company's common stock on the date of conversion, (ii)
the Company was obligated to register with the SEC all shares of common stock
underlying the warrants and debentures, and (iii) the failure to register such
shares of common stock by August 6, 1997 would result in an additional cash
payment every 30 days thereafter of 3% of the original principal amount.
The Convertible Debentures were issued with beneficial conversion features
due to the fact that the holders may convert the debt at any time prior to the
maturity at a conversion price less than the conversion date fair value of the
Company's common stock. As a result, the Company has designated $466 as
interest expense related to the value of the beneficial conversion feature
realized upon conversion.
During October 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.
Such settlement amount related to the following items:
<TABLE>
<S> <C>
Outstanding principal ......... $1,550
Accrued interest .............. 128
Redemption premiums ........... 335
Penalties ..................... 587
------
$2,600
======
</TABLE>
The above (i) redemption premiums have been included in interest expense
and (ii) penalties have been included in selling, general and administrative
expenses in the accompanying consolidated statement of operations.
The Company's March 31, 1997 unaudited interim financial statements did
not reflect $310,000 of interest expense related to the 7% Convertible
Debentures beneficial conversion feature. Accordingly, the Company's March 31,
1997 unaudited interim financial statements have been restated to reflect this
change.
F-14
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. CAPITALIZATION--(CONTINUED)
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 September 1997, the Company issued 850,000 shares of common stock
to two officers and recognized related non-cash compensation expense of $2,338.
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.
As compensation for his service as a director of the Company, 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. The fair value of such warrants was recorded as original issue
discount and subsequently expensed upon repayment of the bridge notes.
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.
F-15
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
4. RELATED PARTY TRANSACTIONS--(CONTINUED)
As compensation for his services as a director and Chief Executive Officer
of the Company, 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 of $7, 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.
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.
As compensation for their services as directors of the Company, 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, plus accrued interest of
$30, 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 (i) the grant date fair value of the Common Stock
of $1,420 and (ii) the intrinsic value of the stock options of $355. Messrs.
Moore and Magiera resigned from the Company's Board of Directors effective as
of the date of the agreement.
F-16
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
4. RELATED PARTY TRANSACTIONS--(CONTINUED)
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.
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 OPTIONS EXERCISABLE
AVERAGE -------------------------------
REMAINING
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
783,333 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-17
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
5. STOCK OPTIONS AND WARRANTS--(CONTINUED)
During 1997 the Company granted two officers 2,650,000 stock options that
vest over a two year period. The exercise price of such grants was equal to the
grant date fair market value of the underlying Common Stock, except for 850,000
options with an exercise price of $2.13. The Company recognized non-cash
compensation expense of $527 related to the 850,000 options. 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. The weighted average grant date fair value of warrants granted during
1997 was $3.52.
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>
<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.
F-18
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
As a result of this transaction, the Company recognized compensation expense of
$250 related to the performance bonus. The strike price of the vested options
was equivalent to the fair value of the underlying Common Stock on the date of
the Northland 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.
F-19
<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 CHARGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOFOR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information .......................
Prospectus Summary ..........................
Risk Factors ................................
Convertible Debentures ......................
Use of Proceeds .............................
Capitalization ..............................
The Exchange Offer ..........................
Unaudited Pro Forma Condensed
Combined Financial Information ...........
Selected Historical Financial Data ..........
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ....................
Business ....................................
Management ..................................
Certain Relationships and
Related Party Transactions ...............
Description of New Notes ....................
Material Federal Income
Tax Considerations .......................
Plan of Distribution ........................
Legal Matters ...............................
Experts .....................................
Glossary of Defined Terms ...................
Index to Financial Statements ............... F-1
</TABLE>
[LOGO TO COME]
-----------------------------------
OFFER TO EXCHANGE
-----------------------------------
14% SENIOR NOTES
DUE OCTOBER 27, 2007,
FOR ALL OUTSTANDING
14% SENIOR NOTES
DUE OCTOBER 27, 2007
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------
<S> <C>
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 (to be filed by amendment).
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.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------
<S> <C>
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.
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.
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 9, 1998 and
incorporated herein by reference.
12 Statement Regarding Computation of Earnings to Fixed Charges.
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 9, 1998 and incorporated herein by
reference.
23.1 Consent of Price Waterhouse LLP (to be filed by amendment).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<S> <C>
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 toreofferings 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.
5. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or
II-3
<PAGE>
in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose 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) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
6. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<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 Coral Gables,
Florida on May 22, 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 Directors, May 22, 1998
- ----------------------------------- President and Chief Executive Officer
Patricio E. Northland
(Principal Executive Officer)
/s/ DOUGLAS G. GEIB II Chief Financial Officer and Director May 22, 1998
- ----------------------------------- (Principal Financial and
Douglas G. Geib II
Accounting Officer)
/s/ DAVID C. KLEINMAN* Director May 22, 1998
- -----------------------------------
David C. Kleinman
/s/ GEORGE A. CARGILL* Director May 22, 1998
- -----------------------------------
George A. Cargill
/s/ ANDREW HULSH Director May 22, 1998
- -----------------------------------
Andrew Hulsh
</TABLE>
- ----------------
*By: /s/ DOUGLAS G. GEIB II
------------------------------
Douglas G. Geib II
Attorney-in-fact
II-5
<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>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------- -----------
<S> <C> <C>
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 (to be filed by
amendment).
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.
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- -------------------------------------------------------------------------------------- -----------
<S> <C> <C>
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.
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 9, 1998 and incorporated herein by reference.
12 Statement Regarding Computation of Earnings to Fixed Charges.
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 9, 1998 and
incorporated herein by reference.
23.1 Consent of Price Waterhouse LLP (to be filed by amendment).
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>
EXHIBIT 12.1
<TABLE>
<CAPTION>
INTERAMERICAS COMMUNICATIONS CORPORATION
COMPUTATION OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax loss $(87) (2,531) (2,873) (4,626) (15,632) (1,224) (5,219)
Fixed Charges:
Interest expense 7 313 319 246 5,934 215 5,403
Interest capitalized - - - - 712 - 206
---- ------ ------ ------ ------- ------ ------
Total fixed charges 7 313 319 246 6,646 215 5,609
Earnings (loss) before
income taxes and
fixed charges (80) (2,218) (2,554) (4,380) (8,986) (1,009) 390
Ratio of earnings
to fixed charges N/A N/A N/A N/A N/A N/A 0.07x
Deficiency of earnings
to cover fixed charges (87) (2,531) (2,873) (4,626) (15,632) (1,224) (5,219)
</TABLE>
