AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998
REGISTRATION STATEMENT NO. 333-41839
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INTERAMERICAS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
TEXAS 87-0464860
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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
1200 BRICKELL AVENUE, SUITE 1900
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 only securities being registered in this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or a continuous basis pursuant to Rule 415, under the Securities
Act of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(o)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
The Registrant has converted its Form S-3 Registration Statement (File No.
333-41839) to the Form S-1 Registration Statement being filed herewith.
<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 AUGUST 13, 1998
PROSPECTUS
[INTERAMERICAS COMMUNICATIONS LOGO]
COMMON STOCK
$.001 PAR VALUE
----------------
This Prospectus relates to 18,368,513 shares (the "Shares") of Common
Stock, par value $.001 per share ("Common Stock"), of InterAmericas
Communications Corporation, a Texas corporation ("ICCA" and, together with its
subsidiaries, the "Company"), being offered from time to time by stockholders
of ICCA ("the Registering Stockholders"), including (i) Shares issued in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder and (ii) Shares issuable
upon the exercise of outstanding warrants and options to purchase shares of
Common Stock.
The names of the Registering Stockholders, their respective holdings and
the duration of their respective warrants or options, as the case may be, are
set forth under "Registering Stockholders." The Shares may be sold or
distributed by the Registering Stockholders or by donees, transferees or
pledges of, or the successors in interest to, the Registering Stockholders from
time to time in transactions for their own account, in negotiated transactions,
or a combination of such methods of sale, at fixed prices which may change, at
market prices prevailing at the time of sale, at prices relating to such
prevailing market prices or at negotiated prices. The Registering Stockholders
may effect such transactions by selling Shares to or through broker/dealers,
and such broker/dealers may receive compensation in the form of discounts,
concessions or commissions from the Registering Stockholders or the purchasers
of the Shares for whom such broker/dealers may act as agent and to whom they
sell as principal or both (which compensation as to a particular broker/dealer
might be less than or in excess of customary commissions). Except for the
exercise price of the Registering Stockholders' warrants and options, none of
the proceeds from the sale of Shares by the Registering Stockholders pursuant
to this Prospectus will be received by ICCA.
----------------
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THIS OFFERING AND AN INVESTMENT IN THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "ICCA." On July 29, 1998, the last sale price for the Common Stock
as reported by Nasdaq was $2.06 per share.
----------------
The date of this Prospectus is , 1998
<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 AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY UNDERWRITER,
AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY RESALE MADE
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR 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 OFFERS 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.
----------------
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.
AVAILABLE INFORMATION
ICCA has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with any
amendments thereto, the "Registration Statement") under the Securities Act with
respect to the Shares of Common Stock offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain information,
exhibits and
3
<PAGE>
undertakings contained in the Registration Statement. For further information
with respect to ICCA and the shares of Common Stock offered hereby, reference
is made to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. In addition,
ICCA is subject to the informational and reporting requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. The Registration Statement, the exhibits and
schedules thereto, reports and other information filed with or furnished to the
Commission by ICCA may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 6061-2511. Copies of such materials may be obtained,
at prescribed rates, by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and such material
may be accessed through the web site maintained by the Commission at
http://www.sec.gov.
4
<PAGE>
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 SENIOR 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.
5
<PAGE>
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.
6
<PAGE>
BUSINESS STRATEGY
The Company's goal is to become a leading provider of high bandwidth
telecommunications services to businesses and other high volume users and
carriers operating in key Latin American business centers. The Company follows
a regional business strategy in Latin America as set forth below. The Company
has modified this strategy to adapt to the specific economic and regulatory
environments of each market in which the Company operates and intends to
operate in the future. 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 liberalization of Peru's
telecommunications markets in August 1998. 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.
7
<PAGE>
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.
SENIOR NOTE OFFERING
On October 27, 1997, the Company consummated an offering ("the Senior Note
Offering") of units ("Units") consisting (i) $150.0 million aggregate principal
amount of 14% Senior Notes due October 27, 2007 (the "Existing Notes") and (ii)
5,250,000 warrants ("Warrants," or "Unit Warrants") to purchase an aggregate of
5,250,000 shares of Common Stock, at an exercise price of $4.40 per share. The
Senior Note Offering resulted in net proceeds to the Company of approximately
$142.5 million. The Units were originally issued and sold by ICCA in a
transaction which was exempt from the registration requirements of the
Securities Act. Concurrent with the filing of the Registration Statement of
which this Prospectus forms a part, the Company has filed a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement") to register
the 14% Senior Notes due October 27, 2007
8
<PAGE>
("Senior Notes"), which are being offered (the "Exchange Offer") in exchange
for 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 hence the New Notes will not bear legends
restricting the transfer thereof. The Existing Notes and the New Notes are
sometimes referred to herein collectively as the "Senior Notes." See
"Description of Senior Notes."
The Company was incorporated in Nevada in April 1989 and reincorporated in
Texas in July 1994. The Company's principal executive offices are located at
2600 Douglas Road, Suite 501, Coral Gables, Florida 33134, and its telephone
number at such offices is (305) 448-4422.
NO CASH PROCEEDS TO THE COMPANY FROM THE SALE OF THE SHARES
This Offering is intended to satisfy certain obligations of the Company to
the Registering Stockholders. Except for the exercise price of the Registering
Stockholders' warrants and options, the Company will not receive any proceeds
from the sale of the Shares offered hereby. The Company has agreed to pay
substantially all of the expenses incident to the registration, offering and
sale of the Shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents.
9
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a high degree of risk.
Prospective investors should consider all of the information contained in this
Prospectus before purchasing any of the Shares of Common Stock offered hereby.
In particular, prospective investors should consider the factors set forth
herein under "Risk Factors."
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").
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.
The Company has restated its December 31, 1997 and 1996 financial
statements to reflect the effect of revising the price per share of Company
common stock issued in connection with the May 1996 acquisition of Resetel from
$2.25 to $5.99 per share. The revised price per share is based on the average
closing price of the Company's common stock for the period of 14 days before
and after the date the terms of the acquisition were announced. The previously
recorded purchase price was based on the Company's March 1996 private
placement. The effect of the change in price per share increased the reported
purchase price from approximately $2,800,000 to $7,500,000. The effect of the
restatement on (1) the Company's annual statements of operations, related to
increased amortization expense, was to increase net loss by $136,000 and
$234,000, resulting in a net loss of $4,762,000 and $15,866,000 for the years
ended December 31, 1996 and 1997, respectively (2) on the Company's
stockholders' equity, related to the increased purchase price, was to increase
additional paid in capital by $4,675,000, resulting in additional paid in
capital of $23,168,000 and $31,562,000 as of December 31, 1996 and 1997,
respectively and (3) on the Company's net basic and diluted loss per share,
related to increased amortization expense of $0.01 per share, resulting in net
basic and diluted loss per share of $0.32 and $0.95 for the years ended
December 31, 1996 and 1997. The related impact on the interim March 31, 1998
unaudited financial statements was to increase net loss by $58,000, increase
additional paid in capital by $4,675,000 and increase net basic and diluted
loss per share by $0.01.
FIRSTCOM LONG DISTANCE
The financial statements of FirstCom Long Distance (such statements,
together with the notes thereto, being referred to herein as the "FirstCom
Financial Statements") have been prepared in accordance with generally accepted
accounting principles in Chile ("Chilean GAAP"). Chilean GAAP varies in certain
significant respects from U.S. GAAP, Note 30 to the FirstCom Long Distance
Financial Statements contained elsewhere in this Prospectus provides a
description of the principal differences between Chilean GAAP and U.S. GAAP as
they relate to FirstCom Long Distance.
Chilean GAAP requires that the financial statements be restated to reflect
the full effects of loss in the purchasing power of the Chilean Peso on the
operations of FirstCom Long Distance. See Notes 2 and 4 to the FirstCom Long
Distance Financial Statements contained elsewhere in this Prospectus. For
comparative purposes, the FirstCom Long Distance Financial Statements and the
amounts disclosed in the related notes for the year ended December 31, 1996
have been restated in terms of Chilean Pesos based on December 31,
10
<PAGE>
1997 purchasing power. In accordance with Chilean regulations and accounting
practices, the restatement was calculated based on the official Consumer Price
Index of the National Institute of Statistics of Chile, which was 6.3% for the
year ended November 30, 1997. Balances in U.S. dollars included in the FirstCom
Long Distance balance sheet for the years ended December 31, 1996 and 1997 have
been translated at the "Observed Exchange Rate" as determined by the Central
Bank of Chile using the exchange rates of Ch$424.87, and Ch$439.18, per US $1,
respectively.
References herein to "U.S. dollars" or "U.S. $" are to the lawful currency
of the United States. References herein to Chilean "Pesos" or "Ch$" are to the
lawful currency of Chile. Amounts may be expressed in thousands of constant
Chilean Pesos ("ThCh$") or thousands of US dollars ("ThUS$"). With respect to
FirstCom Long Distance, this Prospectus contains translations of certain
Chilean Pesos amounts into U.S. dollars at specified rates solely for the
convenience of the reader. These translations should not be construed as
representations that the peso amounts actually represent such U.S. dollar
amounts or could be converted into U.S. dollar amounts at the rate indicated.
Unless otherwise indicated, such U.S. dollar amounts have been translated from
Chilean Pesos at an exchange rate at December 31, 1997 of Ch$439.18 per US $1,
as reported by Banco de Chile (the "Chilean Central Bank"). See "Exchange Rate
Data."
11
<PAGE>
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
PricewaterhouseCoopers LLP, independent certified public accountants.
The summary condensed unaudited pro forma combined statements of
operations for the year ended December 31, 1997 gives effect to the Senior Note
Offering and 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.
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------------- -----------------------
(AS RESTATED)
PRO FORMA
1994 1995 1996(1) 1997(1) 1997 1997 1998
----------- ------------- --------------- --------------- ------------- ----------- -----------
(AS RESTATED) (AS RESTATED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales .......................... $ 34 $ 224 $ 652 $ 1,130 $ 11,145 $ 324 $ 3,327
Operating expenses ............. (2,207) (2,722) (5,145) (11,722) (23,098) (1,410) (4,963)
-------- --------- -------- ---------- --------- -------- --------
Loss from operations ........... (2,173) (2,498) (4,493) (10,592) (11,953) (1,086) (1,636)
Other income (expense) ......... (45) (56) (23) 1,247 662 18 1,761
Interest expense ............... (313) (319) (246) (6,521) (25,411) (215) (5,403)
-------- --------- -------- ---------- --------- -------- --------
Net loss ..................... $ (2,531) $ (2,873) $ (4,762) $ (15,866) $ (36,702) $ (1,283) $ (5,278)
======== ========= ======== ========== ========= ======== ========
Net basic and diluted loss
per share ...................... $ (1.30) $ (0.31) $ (0.32) $ (0.95) $ (2.20) $ (0.08) $ (0.28)
Weighted average shares
outstanding .................... 1,952 9,407 14,796 16,668 16,668 16,153 19,084
CASH FLOWS:
Cash used in operating
activities ................... $ (489) $ (2,150) $ (3,934) $ (4,889) $ (1,002) $ (1,788)
Cash used in investing
activities ................... (2,049) (1,170) (2,968) (127,482) (742) (49)
Cash provided by financing
activities ................... 2,649 3,263 7,570 146,584 2,054 (1,671)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1997 1998
---------------- --------------
(AS RESTATED) (AS RESTATED)
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................... $ 14,936 $ 11,428
Restricted cash and investments(2) ........... 118,920 113,206
Total assets ................................. 176,936 172,689
Convertible debentures ....................... 1,550 --
Current portion of lease obligations ......... 313 233
Long-term debt and lease obligations .......... 131,982 132,106
Total stockholders equity ..................... 31,927 26,649
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
PRO FORMA
1994 1995 1996(1) 1997(1) 1997
------------ ------------ --------------- --------------- -------------
(AS RESTATED) (AS RESTATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ......................... $ (2,097) $ (2,102) $ (3,651) $ (9,391) $ (9,927)
Depreciation and amortization ..... 76 396 842 1,201 2,013
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) (4,762) (15,866) (36,702)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
(AS RESTATED)
1997 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ......................... $ (808) $ (1,113)
Depreciation and amortization ..... 278 523
Capital expenditures .............. 392 5,762
Ratio of earnings to fixed
charges(4) ...................... -- 0.07x
Deficiency of earnings to cover
fixed charges ................... (1,283) (5,278)
</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 Senior Note
Offering that will be disbursed in accordance with the terms of the
Indenture relating to the Existing Notes. See "Description of Senior
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.
13
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE COMMON STOCK OFFERED
HEREBY.
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "projects," and words of similar import constitute
forward-looking statements 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 $26.6 million. In addition, in each year since its inception, the
Company's earnings have been inadequate to cover its fixed charges by a
substantial amount. The Company's earnings were inadequate to cover its fixed
charges by $4.8 million and $15.9 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 $36.7 million. The Company's annual interest obligations
under the Senior 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 Senior 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 Senior Notes. If
the Company is unable to generate sufficient cash flow from operations to
service its indebtedness, including the Senior Notes, it may have to modify its
growth plans, restructure or refinance its indebtedness or seek additional
capital. There can be no assurance that (i) any of these strategies could be
effected on satisfactory terms, if at all, in light of the Company's
14
<PAGE>
high leverage or (ii) any such strategy would yield sufficient proceeds to
service the Company's indebtedness, including the Senior Notes. See
"--Historical and Anticipated Operating Losses," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Company's high level of indebtedness imposes substantial risks to
holders of the Senior Notes, including the following: (i) the ability of the
Company to pay interest and Liquidated Damages, if any, on, and the redemption
price of or the principal amount at maturity of, the Senior Notes when due may
be impaired; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (iii) a substantial portion of the
Company's cash flow from operations must be dedicated to service its
indebtedness and will not be available for capital expenditures and other
purposes in furtherance of the Company's strategic growth objectives, and the
failure of the Company to generate sufficient cash flow to service such
indebtedness could result in a default under such indebtedness; (iv) the
Indenture contains restrictions on the Company's ability to pay dividends or to
repurchase securities and imposes numerous other operating and financing
restrictions, the failure to comply with which may result in a default under
the Indenture; (v) the Company is more highly leveraged than many of its
competitors which may place it at a competitive disadvantage; (vi) the
Company's high degree of leverage could make it more vulnerable to adverse
changes in its business and in general economic conditions; and (vii) the
ability of the Company to satisfy its obligations under its indebtedness will
be dependent upon risks, uncertainties 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 Senior 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 Senior Notes is dependent upon the
earnings of its subsidiaries and the distribution of sufficient funds from its
subsidiaries. ICCA's subsidiaries will have no obligation, contingent or
otherwise, to make any funds available to ICCA for payment of the principal of,
and interest and Liquidated Damages, if any, on the Senior Notes. In addition,
the ability of ICCA's subsidiaries to make such funds available to ICCA may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, ICCA's subsidiaries
will be permitted under the terms of the Indenture to incur certain additional
indebtedness that may severely restrict or prohibit the making of
distributions, the payment of dividends or the making of loans by such
subsidiaries to ICCA. The failure of ICCA's subsidiaries to pay dividends or
otherwise make funds available to ICCA could have a material adverse effect
upon ICCA's ability to satisfy its debt service requirements including its
ability to make payments on the New Notes.
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 ($9.9) 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 $4.8 million, $15.9 million and $5.3 million, respectively, and generated
negative cash flow from operations of
15
<PAGE>
$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 Senior 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 Senior Note Offering to meet
its capital expenditure requirements. See "Use of Proceeds." Although the
Company believes that the proceeds of the Senior Note Offering are sufficient
to fund its current plans, actual capital expenditures may vary significantly
from the Company's estimates depending on a number of factors, many of which
are beyond the Company's control, including the pace and extent of network
upgrade and expansion, the magnitude of potential acquisitions, investments or
the impact of strategic alliances, and levels of incremental sales and
regulatory actions, which, individually or collectively, could cause material
changes in the Company's capital expenditure requirements.
The Company may need additional capital to (i) finance its anticipated
growth, (ii) fund working capital needs and future debt service obligations,
(iii) take advantage of unanticipated opportunities, including more rapid
international expansion, acquisitions of customer bases or businesses or
investments in, or strategic alliances with, companies that are complementary
to the Company's current operations, (iv) develop or expand into new services
or (v) otherwise respond to unanticipated competitive pressures. The Company
currently expects to obtain such additional capital, if necessary, through
internally generated cash flow and from offerings of additional debt or equity
securities. There can be no assurance, however, that the Company will be
successful in producing sufficient internally generated cash flow or raising
sufficient capital on terms acceptable to the Company, if at all. Moreover, the
amount of, and the terms and conditions of the instruments relating to, the
Company's current outstanding indebtedness may adversely affect the Company's
ability to raise additional capital. Failure to internally generate or raise
sufficient funds may require the Company to delay, abandon or reduce the scope
of any potential future expansion, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
LIMITED OPERATING HISTORY
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 Senior 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
16
<PAGE>
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
Senior 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
Senior 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 the operations, technologies, services and
products of the acquired companies and the diversion of management's attention
from other business concerns.
UNCERTAINTY OF MARKET ACCEPTANCE; POTENTIAL LACK OF SUBSCRIBER DEMAND
The Company's success is subject to a number of business, economic,
regulatory and competitive factors, many of which are beyond the Company's
control, including the extent to which prospective subscribers will use the
Company's services. The Company's ability to service its indebtedness,
including the Senior Notes, is subject to the successful implementation of its
growth strategy which, in turn, is premised, among other things, on the
Company's expectation that demand for its current services will increase
significantly in its existing markets and that there will be strong demand for
services introduced by the Company in the future. The Company has only recently
begun providing telecommunications services in Peru. Subscriber demand for the
Company's services in the markets in which it currently operates and in those
in which it expects to operate is uncertain. See "--Competition" and "--Rapid
Industry and Technological Change." Failure to gain market acceptance for, or
subscriber demand of, current or planned services would have a material adverse
effect on the Company. In addition, the Company has incurred and will continue
to incur significant operating expenses and has made, and will continue to
make, significant capital investments. Accordingly, any material miscalculation
by the
17
<PAGE>
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.
COMPETITION
The international telecommunications industry is highly competitive. The
Company's success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including global alliances
among some of the world's largest telecommunications carriers, PTTs, wireless
telephone companies and microwave carriers. Other existing and potential
competitors include cable television companies, railway companies, electric
companies and other utilities with rights-of-way and large end-users which have
private networks. The intensity of such competition has recently increased and
the Company believes that such competition will continue to intensify as the
number of new market entrants increases. Many of the Company's existing and
potential competitors have substantially greater financial, marketing and other
resources than the Company. If the Company's competitors devote significant
additional resources to the provision of telecommunications services to the
Company's target customer base, such action would have a material adverse
effect on the Company's business, financial condition and/or results of
operations. There can be no assurance that the Company will be able to compete
successfully against such existing and potential competitors.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on the type and quality of services
offered. The Company has no control over the prices set by its competitors, and
some of the Company's competitors may be able to use their financial resources
to cause severe price competition. Any such price competition would have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, intensified competition in certain of the
Company's markets may cause the Company to reduce its prices, which may reduce
the Company's revenue and margins. See "Business--Business and
Services--Chile--Competition" and "--Peru--Competition."
RAPID INDUSTRY AND TECHNOLOGICAL CHANGE
The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. In addition, the
telecommunications industry is in a period of rapid technological evolution.
The Company is unable to predict which of the many possible future product and
service offerings will be important to establish and maintain a competitive
position in or what expenditures will be required to develop and provide such
products and services. The Company's future financial performance will depend,
in part, upon its ability to anticipate and adapt to rapid regulatory and
technological changes occurring in the telecommunications industry and upon its
ability to offer, on a timely basis, services that meet evolving industry
standards. There can be no assurance that the Company will be able to adapt to
such technological changes or offer such services on a timely basis or
establish or maintain a competitive
18
<PAGE>
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 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
19
<PAGE>
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 Senior
Notes. The Company believes that its future success will depend in large part
on its continued ability to attract and retain skilled and qualified personnel
with experience in the telecommunications industry. Such employees are in great
demand and are often subject to competing offers of employment. The Company has
not obtained disability or life insurance policies covering its key executive
officers.
COUNTRY RISKS
GENERAL. The Company has invested significant resources in Latin America
and intends to continue to make such investments in Latin America in the
future. Accordingly, the Company may be subject to economic, political or
social instability or other developments not typical of investments made in the
United States. Such events could adversely affect the financial condition and
results of operations of the Company, the ability of the Company to repay the
Senior Notes and the market value and liquidity of the Units, Senior Notes,
Warrants and/or Warrant Shares. During the past several years, countries in
Latin America in which the Company operates or plans to operate have been
characterized by varying degrees of inflation, uneven growth rates and
political uncertainty. The Company currently does not have political risk
insurance in the countries in which it conducts business. While the Company
carefully considers these risks when evaluating investment opportunities and
seeks to mitigate these and other risks by diversifying its operations in a
number of Latin American countries, there is no assurance that the Company will
not be materially adversely affected as a result of such risks.
CURRENCY RISKS AND EXCHANGE CONTROLS. Although ICCA's subsidiaries have
attempted, and will continue to attempt, to match costs and revenues and
borrowings and repayments in terms of their respective local currencies,
payment for a majority of purchased equipment has been, and may continue to be,
required to be made in currencies, including US dollars, other than local
currencies. In addition, the value of ICCA's investment in a subsidiary is
partially a function of the currency exchange rate between the US dollar and
the applicable local currency. In general, the Company does not execute hedge
transactions to reduce its exposure to foreign currency exchange rate risks.
Accordingly, the Company may experience economic loss and a negative impact on
earnings with respect to its holdings solely as a result of foreign currency
exchange rate fluctuations, which include foreign currency devaluations against
the dollar. The countries in which ICCA's subsidiaries now conduct business
generally do not restrict the removal or conversion of local or foreign
currency; however, there can be no assurance that this situation will continue.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations--Inflation and Exchange Rates" and "Business--Regulation--
Peru--Foreign Investment and Exchange Controls" and "--Chile--Foreign
Investment and Exchange Controls."
20
<PAGE>
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 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,
21
<PAGE>
accordingly, is subject to government regulation in each market. Much of the
Company's planned growth is predicated upon the liberalization of
telecommunications markets. The Company has confronted, and is likely to
continue to confront, changes in government policy or circumstances that can
affect the Company's business and results of operations. There can be no
assurance that such events in the future will not have a material adverse
effect on the Company's results of operations.
The governments of the countries in Latin America vary widely with respect
to structure, constitution and stability. While Latin American governments have
historically exercised extensive influence over their economies, the role of
government has declined as countries have liberalized their political
structures and economies. However, there can be no assurance that future
developments in the government administration of local economies would not
materially and adversely impair the Company's business and financial condition,
the value of the Units, the Senior Notes, the Warrants and/or the Warrant
Shares or the Company's ability to pay principal of or interest and Liquidated
Damages, if any, on the Senior Notes.
LABOR ISSUES. In most Latin American countries labor unions are considered
to be strong and influential. Accordingly, while none of the Company's
operations are currently unionized, no assurance can be given that the Company
will not encounter strikes or other types of conflicts with labor unions or the
Company's personnel in the Company's markets or that such labor disputes will
not have an adverse effect on the Company. In addition, in response to pressure
by labor unions, many Latin American governments in which the Company targets
operations have, at times, actively regulated cross-border transactions,
including placing limitations on imported goods. Such regulations may result in
delays and increased costs for the Company.
TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
The Company has engaged in a large number of transactions with its
shareholders, directors, officers and other related parties. There can be no
assurance that the terms of these transactions were the same as those that
would have resulted from transactions among unrelated parties. The Indenture
restricts the Company's ability to engage in transactions with related parties.
See "Certain Relationships and Related Party Transactions," "Description of
Senior Notes--Certain Covenants--Affiliate Transactions" and the Report of
Independent Certified Public Accountants contained in the consolidated
financial statements of the Company contained elsewhere in this Prospectus.
LACK OF DIVIDENDS
ICCA does not anticipate paying dividends on the Common Stock for the
foreseeable future, and the ability of ICCA to make dividend payments on the
Common Stock is restricted by certain covenants in the Indenture. See "Price
Range of Common Stock and Dividend Policy" and "Description of Senior
Notes--Certain Covenants--Restricted Payments."
SHARES ELIGIBLE FOR FUTURE SALE
As of August 3, 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
22
<PAGE>
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
Senior Notes. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions, financing and other corporate
transactions, could have the effect of preventing or making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
capital stock of ICCA, which may adversely affect the market price of the
Senior Notes. The Indenture limits the ability of the Company to issue
Preferred Stock. See "Description of Senior Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
23
<PAGE>
USE OF PROCEEDS
This Offering is intended to satisfy certain obligations of the Company to
register the Shares under the Securities Act to holders of Shares and warrants
and options to purchase Shares. The Company will not receive any proceeds from
the sale of the Shares offered hereby and has agreed to pay the expenses of the
Offering.
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:
Senior 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 ................................................. 31,562
Outstanding warrants ....................................................... 26,737
Accumulated deficit ........................................................ (31,431)
Cumulative translation adjustments ......................................... (238)
---------
Total stockholders' equity ............................................... $ 26,649
=========
Total capitalization ..................................................... $ 158,755
=========
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 gives effect to the Senior Note
Offering, the application of proceeds therefrom and the consummation of the
acquisition of FirstCom Long Distance ("FCLD") as if they each had occurred at
the beginning of the relevant period. The FCLD acquisition is accounted for
under the purchase method of accounting.
The Unaudited Pro Forma Condensed Combined Statement of Operations and
accompanying notes should be read in conjunction with the Company's
consolidated financial statements and FCLD's Financial Statements, including
the notes thereto, appearing elsewhere in this Prospectus. The pro forma
statements do not purport to represent what the Company's results of operations
or financial position would actually have been if the aforementioned
transactions or events had occurred on the dates specified or to project the
Company's results of operations or financial position for any future periods or
at any future date. The pro forma adjustments are based upon available
information and certain adjustments that the Company believes are reasonable.
In the opinion of the Company, all adjustments have been made that are
necessary to present fairly the pro forma statements.
25
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
HISTORICAL
---------------------------- PRO FORMA PRO FORMA
ICCA FCLD(1) ADJUSTMENTS(2) ICCA
-------------- ----------- ------------------ ------------
(AS RESTATED)
<S> <C> <C> <C> <C>
Sales .............................................. $ 1,130 $ 10,015 $ 11,145
Operating Expenses:
Cost of Sales ..................................... 1,203 6,132 7,335
Selling,general and administrative ................ 9,318 4,432 13,750
Depreciation and amortization ..................... 1,201 504 308 (a) 2,013
--------- -------- --- ---------
Loss from operations ............................... (10,592) (1,053) (308) (11,953)
Other income (expense) ............................. 1,247 (585) 662
Interest expense ................................... (6,521) (410) (18,480)(b) (25,411)
--------- -------- ------- ---------
Net loss ........................................... (15,866) (2,048) (18,788) (36,702)
Net loss per common share .......................... $ (0.95) $ (2.20)
Weighted average common shares outstanding ......... 16,668 16,668
</TABLE>
26
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
(1) Represents condensed financial information derived from the FCLD
Financial Statements included elsewhere in this Prospectus. The FCLD Financial
Statements have been prepared in accordance with Chilean GAAP. Such financial
statements include, for convenience of the reader, translation of amounts from
Chilean Pesos to U.S. dollars at the exchange rate on December 31, 1997 of
Ch$439.18=US$1.
The information below for FCLD reconciles the Chilean GAAP convenience
translation balances to US GAAP. The US GAPP adjustment column reflects the
principal differences between Chilean GAAP and US GAAP included in Note 30 to
the FCLD Financial Statements' and the translation adjustment column reflects
the impact of remeasuring amounts in accordance with the criteria set forth in
Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation," using the current rate method of translation, as the Chilean Peso
is considered to be the functional currency and the books and records are
maintained in that currency - under such method all revenues and expenses are
translated using the exchange rate of the transaction date.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------
US GAAP TRANSLATION
CHILEAN GAAP ADJUSTMENTS ADJUSTMENT US GAAP US GAAP
THCH$ THCH$ THCH$ THCH$ THUS$
---------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Sales ........................................ $ 4,199,618 198,904 4,398,522 10,015
Operating expenses:
Cost of sales ............................... 3,096,099 (524,938) 121,776 2,692,937 6,132
Selling, general and administrative ......... 1,858,229 88,010 1,946,239 4,432
Depreciation and amortization ............... 211,455 10,015 221,470 504
------------ ------- --------- ------
Loss from operations ......................... (966,165) 524,938 (20,897) (462,125) (1,053)
Other income (expense) ....................... (245,380) (11,622) (257,002) (585)
Interest expense ............................. (172,052) (8,149) (180,201) (410)
------------ ------- --------- ------
Net loss ..................................... $ (1,383,597) 524,938 (40,668) (899,327) (2,048)
============ ======== ======= ========= ======
</TABLE>
(2) Represents pro forma adjustments to reflect the Senior Note Offering
and the FCLD acquisition as if both transactions had occurred at the beginning
of the period presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-------------------
<S> <C>
(a) Depreciation and amortization represents the amortization of
intangible asset (international telephony license) acquired in the
FCLD acquisition over a 20 year period ................................ $ 308
(b) Interest expense on $150.0 million of Senior Notes at an interest rate
of 14.0% per annum, net of $3,797 of Senior Note interest expense
recognized from October 27, 1997 to December 31, 1997 ................. $ (17,203)
Represents current amortization expense related to deferred financing
costs and original issue discount attribuable to warrants using the
level yield method over a 10 year period .............................. (1,277)
---------
$ (18,788)
</TABLE>
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
ICCA
The selected historical financial data presented below as of December 31,
1995, 1996 and 1997 and for the years ended December 31, 1994, 1995, 1996 and
1997 have been derived from the consolidated financial statements of the
Company which were audited by PricewaterhouseCoopers 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>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------------------------------------------- -----------------------
(AS RESTATED)
1993
(UNAUDITED) 1994 1995 1996 1997 1997 1998
------------- ----------- ------------- --------------- -------------- ----------- -----------
(AS RESTATED) (AS RESTATED)
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT NET LOSS PER COMMON SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA(1):
Sales .......................... $ -- $ 34 $ 224 $ 652 $ 1,130 $ 324 $ 3,327
Operating expenses ............. (67) (2,207) (2,722) (5,145) (11,722) (1,410) (4,963)
------ -------- --------- -------- ---------- -------- --------
Loss from operations ........... (67) (2,173) (2,498) (4,493) (10,592) (1,086) (1,636)
Interest income and other
expense ...................... (13) (45) (56) (23) 1,247 18 1,761
Interest expense ............... (7) (313) (319) (246) (6,521) (215) (5,403)
--------- -------- --------- -------- ---------- -------- --------
Net loss ..................... $ (87) $ (2,531) $ (2,873) $ (4,762) $ (15,866) $ (1,283) $ (5,278)
======== ======== ========= ======== ========== ======== ========
Net basic and diluted loss
per share .................... $(4.58) $ (1.30) $ (0.31) $ (0.32) $ (0.95) $ (0.08) $ (0.28)
Weighted average shares
outstanding .................. 19 1,952 9,407 14,796 16,668 16,153 19,084
CASH FLOWS:
Cash used in operating
activities ................... $ (126) $ (489) $ (2,150) $ (3,934) $ (4,889) (1,002) (1,788)
Cash used in investing
activities ................... (310) (2,049) (1,170) (2,968) (127,482) (742) (49)
Cash provided by financing
activities ................... 418 2,649 3,263 7,570 146,584 2,054 (1,671)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------- 1998
(AS RESTATED) (UNAUDITED)
1995 1996 1997 (AS RESTATED)
-------- --------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 57 $ 723 $ 14,936 $ 11,428
Restricted cash and investments(2) ......... -- -- 118,920 113,206
Total assets ............................... 4,347 14,893 176,936 172,689
Current debt:
Convertible debentures ..................... -- -- 1,550 --
Lease obligations ......................... 11 114 313 233
Long-term liabilities:
Lease obligations ......................... 210 248 356 315
Senior Notes, net ......................... 131,626 131,791
Stockholders' equity ...................... 670 12,819 31,927 26,649
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------------------ -----------------------
(AS RESTATED)
1993 1994 1995 1996 1997 1997 1998
--------- ------------ ------------ --------------- -------------- ---------- ------------
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3) ......................... $ (87) $ (2,097) $ (2,102) $ (3,651) $ (9,391) $ (808) $ (1,113)
Depreciation and amortization ..... -- 76 396 842 1,201 278 523
Capital expenditures. ............. 310 1,849 720 1,453 2,763 392 5,762
Ratio of earnings to fixed
charges(4) ...................... -- -- -- -- -- -- 0.07x
Deficiency of earnings to cover
fixed charges ................... (87) (2,531) (2,873) (4,762) (15,866) (1,283) (5,278)
</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 Senior Note
Offering that are to be used for the purchase of telecommunications
equipment in Peru and Chile and for payment of interest on the Senior
Notes. See "Description of Senior 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.
29
<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 7.5 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
30
<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.
RESTATED FINANCIAL STATEMENTS AND AMENDED QUARTERLY FINANCIAL INFORMATION
During August 1998, the Company restated its December 31, 1997 and 1996
financial statements to reflect the effect of revising the price per share of
Company common stock issued in connection with the May 1996 acquisition of
Resetel from $2.25 to $5.99 per share. The revised price per share is based on
the average closing price of the Company's common stock for the period of 14
days before and after the date the terms of the acquisition were announced. The
previously recorded purchase price was based on the Company's March 1996
private placement. The effect of the change in price per share increased the
reported purchase price from approximately $2,800,000 to $7,500,000. The effect
of the restatement on (1) the Company's annual statements of operations,
related to increased amortization expense, was to increase net loss by $136,000
and $234,000, resulting in a net loss of $4,762,000 and $15,866,000 for the
years ended December 31, 1996 and 1997, respectively (2) on the Company's
stockholders' equity, related to the increased purchase price, was to increase
additional paid in capital by $4,675,000, resulting in additional paid in
capital of $23,168,000 and $31,562,000 as of December 31, 1996 and 1997 and (3)
on the Company's net basic and diluted loss per share, related to increased
amortization expense of $0.01 per share, resulting in net basic and diluted
loss per share of $0.32 and $0.95 for the years ended December 31, 1996 and
1997, respectively. The related impact on the interim March 31, 1998 unaudited
financial statements was to increase net loss by $58,000, increase additional
paid in capital by $4,675,000 and increase net basic and diluted loss per share
by $0.01.
31
<PAGE>
During October 1997 and August 1998 the Company amended certain financial
information as reported on Forms 10-QSB during 1996 and 1997. A summary of the
original and amended (unaudited) financial information and a description of the
related impact of the Company's statement of operations follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
DATA)
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues ................................. $ 58 $ 113 $ 477
Loss from Operations ..................... (591) (1,646) (2,911)
Net loss, as amended ..................... $ (621) $(1,711) $(2,981)
====== ======= =======
Net basic and diluted loss per
share, as amended ....................... $(0.05) $(0.13) $(0.21)
====== ======= =======
General and administrative
expenses ................................ 247 (a) 247 (a)
Depreciation expense ..................... 110 (a) 240 (a) 240 (a)
Interest expense ......................... 36 (a) 36 (a)
Amortization expenses .................... 64 (c) 122 (c)
------- -------
Net loss, as originally reported ......... $ (511) $(1,124) $(2,336)
====== ======= =======
Net basic and diluted loss per
share, as originally reported ........... $(0.04) $(0.08) $(0.16)
====== ======= =======
<CAPTION>
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
DATA)
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997
-------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues ................................. $ 324 $ 585 $ 853
Loss from Operations ..................... (1,085) (2,384) (8,574)
Net loss, as amended ..................... $(1,283) $ (2,881) $(10,069)
====== ======= ========
Net basic and diluted loss per
share, as amended ....................... $ (0.08) $ (0.18) $ (0.61)
====== ======= ========
General and administrative
expenses ................................
Depreciation expense .....................
Interest expense ......................... 178 (b)
Amortization expenses .................... 58 (c) 116 (c) 176 (c)
------ ------- --------
Net loss, as originally reported ......... $(1,047) $(2,765) $ (9,893)
====== ======= ========
Net basic and diluted loss per
share, as originally reported ........... $(0.06) $ (0.17) $ (0.61)
====== ======= ========
</TABLE>
- ----------------
(a) Reflects (i) adjustment identified in the fourth quarter of 1996 to provide
depreciation on assets placed in use during the first quarter of 1996,
for which depreciation initially had not commenced until the second
quarter of 1996 and (ii) adjustments for various expenses and costs
identified by the Company in the fourth quarter of 1996 as relating to
earlier 1996 quarters.
(b) Reflects additional interest identified in the fourth quarter of 1997
related to the beneficial conversion feature inherent in the 7%
Convertible Debentures issued in February 1997. Of the total adjustment of
$310, the amount of $132 was capitalized as part of the Company's fiber
optic network.
(c) Reflects the quarterly effect of the Resetel purchase price described in
the introductory language to the table above.
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.
32
<PAGE>
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 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 $523,000 for the
three months ended March 31, 1998 as compared to $220,000 for the three months
ended March 31, 1997 and $368,000 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.
33
<PAGE>
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.
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 $4,678,000 for the year ended December
31, 1997 as compared to $3,272,000 for the year ended December 31, 1996. This
increase of approximately $1,406,000, 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 ...................... 822,000 921,000
</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 $1,201,000 for the year ended December 31, 1997 as compared to
$842,000 for the year ended December 31, 1996. This increase of $359,000 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 $6,521,000 for the
year ended December 31, 1997 as compared to $246,000 for the year ended
December 31, 1996. This increase of approximately $6,275,000 was due to
additional financing costs related to the Senior Notes, the issuance of
convertible debentures in February and May 1997 and the non-cash charge of
$852,000 related to the value of 300,000 shares of common stock issued to an
individual for certain past financial assistance
34
<PAGE>
provided to the Company. Of the total interest costs incurred by the Company
for the year ended December 31, 1997, $712,000 of such costs were capitalized
in connection with the Company's construction of its fiber optic network in
Lima, Peru.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SALES. The Company's sales were $652,000 for the year ended December 31,
1996 as compared to $224,000 for the year ended December 31, 1995. This
increase of approximately $428,000, was attributable to additional services
provided by the Company through its HSA subsidiary, which was acquired in July
1996.
COST OF SALES. The Company's cost of sales was $958,000 for the year ended
December 31, 1996 as compared to $408,000 for the year ended December 31, 1995.
This increase of approximately $550,000, was attributable to added costs
associated with the increase in sales discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses were $3,272,000 for the year ended December
31, 1996 as compared to $1,906,000 for the year ended December 31, 1995. This
increase of approximately $1,366,000, was primarily attributable to an increase
in corporate expenses related to salaries, professional fees, consulting fees
and travel attributable to the ongoing support of the Company's subsidiary
operations as well as corporate development opportunities, and expenses
attributable to the Company's Resetel and HSA subsidiaries which were acquired
by the Company in May 1996 and July 1996, respectively.
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 $842,000 for the year ended December 31, 1996 as compared to
$396,000 for the year ended December 31, 1995. This increase of $446,000 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, $4.5 million and $10.6 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 $127.5 million for the years ended December 31, 1995,
1996 and 1997, respectively, as well as cash used in investing activities of
$49,000 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 and the
purchase and use of restricted cash and investments. Further development of the
Company's business and the expansion of its fiber optic networks, service
offerings and customer base will require significant
35
<PAGE>
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% Senior Notes due October 27, 2007 and 5,250,000 Unit Warrants to
purchase 5,250,000 shares of Common Stock of the Company at an exercise price
of $4.40 per share. The Unit Warrants entitle the holders thereof to acquire an
aggregate of 5,250,000 shares of Common Stock, representing approximately 15.1%
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 Senior Notes through October 27, 2000 and, under certain
circumstances, as security for repayment of principal of the Senior Notes.
In addition to the deposit of a portion of the proceeds from the Senior
Note Offering to fund interest payments on the Senior Notes through October
2000, the Company deposited $62 million of the proceeds from the Senior Note
Offering in a separate account under a trustee's control pending application of
such funds by the Company for the payment of: (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 this paragraph will not apply to the incurrence of any Permitted
Debt. See "Description of Senior Notes--Incurrence of Indebtedness and Issuance
of Preferred Stock."
36
<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 31,562,000 15,206,519 32,992,500 6,927,362 55,126,381
------------ ------------ ------------ ----------- ------------
$ 31,581,000 $ 15,211,514 $ 33,000,000 $ 6,930,557 $ 55,142,071
============ ============ ============ =========== ============
Per share(3) ................... $ 1.65 $ 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 Senior 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 Senior Note Offering, the Company has become highly
leveraged and has substantial debt service requirements. In addition, in each
year since its inception the Company had net losses from operations and
therefore had insufficient earnings to cover its fixed charges. The Company's
annual interest obligations under the Senior Notes substantially exceeds the
Company's net income.
The ability of the Company to make scheduled payments with respect to its
indebtedness, including interest on the Senior Notes after October 27, 2000,
will depend upon (i) its ability to implement its business plan, and to expand
its operations and to successfully develop its customer base in its target
markets, (ii) the ability of the Company's subsidiaries to remit cash to the
Company in a timely manner and (iii) the future operating performance of the
Company and its subsidiaries. Each of these factors is, to a large extent,
subject to economic, financial, competitive, regulatory and other factors, many
of which are beyond the Company's control. The Company expects that it will
continue to generate cash losses for the foreseeable future. The Company has
deposited in escrow funds representing interest
37
<PAGE>
payments with respect to the Senior Notes through October 2000. However, no
assurance can be given that the Company will be successful in developing and
maintaining a level of cash flow from operations sufficient to permit it to pay
the principal of, and the interest on the Senior Notes after such time, or with
respect to its other indebtedness. If the Company is unable to generate
sufficient cash flow from operations to service its indebtedness, including the
Senior Notes, it may have to modify its growth plans, restructure or refinance
its indebtedness or seek additional capital. There can be no assurance that (i)
any of these strategies can be effected on satisfactory terms, if at all, in
light of the Company's high leverage or (ii) any such strategy would yield
sufficient proceeds to service the Company's indebtedness, including the Senior
Notes. Any failure by the Company to satisfy its obligations with respect to
the Senior Notes at maturity or prior thereto would constitute a default under
the Indenture and could cause a default under other agreements governing
current or future indebtedness of the Company.
Substantially all of the Company's assets are held by its subsidiaries and
substantially all of the Company's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company's ability to pay the
principal of, and interest and liquidated damages, if any, when due, on the
Senior Notes is dependent upon the earnings of its subsidiaries and the
distribution of sufficient funds from its subsidiaries. the Company's
subsidiaries will have no obligation, contingent or otherwise, to make funds
available to the Company for payment of the principal of, and interest and
liquidated damages on, if any, the Senior Notes. In addition, the ability of
the Company's subsidiaries to make such funds available to the Company may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, the Company's
subsidiaries will be permitted under the terms of the Indenture to incur
indebtedness that may severely restrict or prohibit the making of
distributions, the payment of dividends or the making of loans by such
subsidiaries to the Company. The failure of the Company's subsidiaries to pay
dividends or otherwise make funds available to the Company could have a
material adverse effect upon the Company's ability to satisfy its debt service
requirements including its ability to make payments on the Senior Notes.
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 Senior Notes will limit the ability of the Company and
its subsidiaries to incur additional indebtedness.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations may have substantial effects on the
Company's results of operations and financial condition. Generally, the effects
of inflation in many Latin American countries, including Chile and Peru, have
been offset in part by a devaluation of the local countries' currencies
relative to the U.S. dollar. Nevertheless, the devaluation of each country's
currency may have an adverse effect on the Company.
A substantial portion of the Company's purchases of capital equipment and
interest on the Senior Notes is payable in U.S. dollars. To date, the Company
has not had significant foreign currency exposure with third parties and
generally intends to be paid for its services in U.S. dollars or in local
38
<PAGE>
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.
39
<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
40
<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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<PAGE>
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 liberalization of Peru's telecommunications markets in
August 1998. 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.
42
<PAGE>
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.
SENIOR NOTE OFFERING
On October 27, 1997, the Company consummated the Senior Note Offering of
150,000 units pursuant to Rule 144A and Regulation S under the Securities Act,
consisting of (i) $150.0 million aggregate principal amount of 14% Senior Notes
due October 27, 2007 and (ii) 5,250,000 Unit Warrants to purchase an aggregate
of 5,250,000 shares of Common Stock, at an exercise price of $4.40 per share.
The Senior Note Offering resulted in net proceeds to the Company of
approximately $142.5 million. The Units were originally issued and sold by the
Company in a transaction which was exempt from the registration requirements of
the Securities Act. The Company has filed a Form S-4 and Form S-1 Registration
Statements with the SEC to register under the Securities Act (i) New Notes
which contain substantially identical terms as the Existing Notes and are being
offered in exchange for the Existing Notes and (ii) the Common Stock underlying
the Unit Warrants, respectively. 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, except that the New Notes will have been registered under the
Securities Act, and hence the New Notes will not bear legends restricting the
transfer thereof. See "Description of Senior Notes."
INDUSTRY OVERVIEW
GENERAL
The continuing liberalization of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have significantly expanded the Company's opportunities in the
converging voice and data telecommunications markets. Rapid liberalization of
the telecommunications industry in Latin America is expected to expand
opportunities in the local telecommunications services market. Technological
advances, including growth of the Internet, the increased use of packet
switching technology for voice communications and the growth of multimedia
applications, are expected to result in growth in the high-speed data services
market. The Company believes that the current deregulation in many Latin
American countries, coupled with technological innovation, will lead to market
developments similar to those that occurred upon deregulation of long distance
telecommunications services in the United States and the United Kingdom,
including an increase in traffic volume and the continued introduction of new
providers of telecommunications services of varying sizes.
Telecommunications traffic of business customers and telecommunications
carriers has increased dramatically and these customers now insist upon the
quality and high capacity inherent in fiber optic transmission technology such
as the technology used by the Company. As customers require increased bandwidth
capabilities to handle complex voice, video and data telecommunications, the
Company believes that demand for transmission capacity will continue to
increase. Digital signals carried over optical fibers are superior in many
respects to analog signals carried over copper wires, an older technology which
many PTTs continue to use for parts of their networks, although many PTTs are
using fiber optic technology to expand their existing networks. In addition to
offering faster and more accurate transmission of voice and data
communications, digital fiber optic networks generally require less maintenance
than comparable copper wire networks, thereby decreasing operating costs. The
capacity of fiber optic cable is determined in part by the interface of
electronic equipment with the network, thereby allowing network capacity to be
increased through a change in electronics, rather than the fiber itself. Fiber
optic cable also provides enhanced transmission quality as signals are largely
immune to electromagnetic interference.
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LATIN AMERICAN MARKETS
Many countries in Latin America, and most of the region's major
metropolitan markets, have economies that are growing faster than many other
areas of the world. The Company believes that this growth is attributable in
part to an increase in foreign investments, new trade agreements, such as the
NAFTA, Mercosur and the Andean Pact, and the privatization of many industries,
including the telecommunications industry. Many of Latin America's major
metropolitan centers are among the largest cities in the world, are centers of
trade and commerce for a wide region or for an entire country, and are home to
a high concentration of large domestic and multinational corporations that
require advanced telecommunications services. Following the economic recovery
of many Latin American countries in the early 1990's, multinational
corporations headquartered in North America, Europe and Asia began to invest in
Latin America by either establishing new operations or expanding existing
operations. In conducting their activities in Latin America, these
multinational corporations require state-of-the-art telecommunications networks
to handle the flow of information between their headquarters and their branches
throughout Latin America. The telecommunications infrastructure in many of
these markets is very limited or obsolete, resulting in significant unmet
demand for advanced telecommunications services including reliable, high
capacity data circuits, private line LANs and domestic and international long
distance connectivity. The telecommunications industry in Latin America has
experienced rapid growth in large part because most Latin American governments
are opening their telecommunications markets to competition. By the year 2000,
the telecommunications markets in most countries in the region are expected to
be deregulated.
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
<PAGE>
CHILE
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.
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<PAGE>
COMPETITIVE LOCAL MARKET ACCESS
Once the domain of PTTs, the local access market in both developed and
emerging countries is increasingly open to competition. Where permitted, local
markets may be entered via any combination of (i) construction of proprietary
wired network infrastructure, (ii) construction of wireless local loop, PCS or
cellular networks and (iii) resale of the existing local carrier's network.
Companies gaining local access through the use of a fiber optic rings using ATM
technology are uniquely positioned to provide services for large business
customers due to the high capacity of such systems.
In the United States and other developed countries, CAPs have been allowed
to enter markets in advance of complete deregulation through their provision of
special access services and private line services. Typically, CAPs begin
providing such services through their own fiber optic loop networks, which are
built over existing facilities and often exceed existing providers in terms of
bandwidth, reliability and enhanced service capability. Frequently, fixed
wireless technologies are used to cost effectively extend the network from the
fiber optic network to customer locations. Special access services provide high
capacity voice, data and video circuits to connect long distance carriers with
their respective customers. Private line services provide high capacity
circuits to transmit voice, data and video between two or more end-user
locations locally or internationally.
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.
45
<PAGE>
BUSINESS AND SERVICES
Peru
COUNTRY OVERVIEW. Peru is the fourth largest country in South America with
an estimated population of 23.9 million people. Lima, the capital of Peru and
the major economic center in Peru, has a population of approximately 6.8
million people. According to the 1996 report issued by the Peruvian National
Bureau of Statistics, as of 1993, approximately 70.1% of Peru's population
lived in cities. In 1990, Alberto Fujimori, a political outsider, was elected
President and embarked on a series of economic and political measures to
curtail inflation and restore economic stability. From 1991 through 1996, GDP
increased by an average annual growth rate of 5.2%, although GDP increased by
only 2.8% in 1996. The lower GDP growth rate in 1996 has been largely
attributed to the Peruvian government's effort to reduce expenditures to avoid
an overheated economy and to reduce Peru's current account deficit. Inflation
has been dramatically curtailed as a result of President Fujimori's economic
plan, falling from 7,649.7% in 1990 to 11.8% in 1996. GDP is expected to grow
at a compound annual growth rate of 6.2% from 1997 to 2002.
MARKET OVERVIEW. The Company believes that demand for telephone service in
Peru has historically been unmet due to lack of investment, high prices, poor
service and long waiting periods for service. One of the goals of the
privatization of Peru's former local and long distance PTT, Telefonica, in 1994
(the "Privatization") was to expand significantly the national
telecommunications network and improve service quality. The number of lines in
service has increased since the Privatization from approximately 772,000 to
over 1.4 million at December 31, 1996. Notwithstanding the significant recent
growth in lines in service, Peru continues to have a relatively low penetration
rate with 5.9 lines in service per 100 inhabitants at December 31, 1996. The
Company believes that continued growth in demand for telecommunication services
in Peru will be influenced by the growth of the Peruvian economy, foreign
investment and international trade, the continued expansion of the
telecommunications network and the re-balancing of tariffs. Based on 1996
operating results for Telefonica, the local and long distance
telecommunications markets in Peru are estimated to have accounted for
approximately $880.5 million in total revenues, of which approximately $506.9
million are local access and service revenues and approximately $373.6 million
are domestic and international long distance revenues. The Company believes
that Peru's telecommunications market offers an excellent environment for
telecommunications business growth. The Company believes that the Peruvian
economy is also a source of growing demand for telecommunication services with
growing domestic and multinational businesses attracting significant foreign
investment. The following chart presents certain historical and projected
information with respect to the telecommunications market in Peru for the
periods indicated:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA--PERU*
--------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
TELEPHONE
Minutes (in millions)
Local Services 3,600.0 (1) 4,240.0 (1) 4,954.0 (1)
Long Distance Domestic 388.0 (1) 394.0 (1) 461.0 (1)
Long Distance International 179.2 (1) 232.4 (1) 262.1 (1)
MAIN LINES IN SERVICE
(IN THOUSANDS) 673.0 (2) 772.4 (2) 1,109.2 (2)
PENETRATION RATE
(main lines per 100 pop) 2.9 (4) 3.4 (4) 4.7 (4)
SERVICE REVENUES
Local Services (US$ 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)
<PAGE>
<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>
46
<PAGE>
- ----------------
(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 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 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
47
<PAGE>
early mover advantages, build its customer base and expand the range of
services provided to its customers to include local and long distance telephony
upon the expiration of Telefonica's exclusive concession in July 1999.
The Company believes that the quality of its private line services
compares favorably to similar services offered by its competitors. Accordingly,
as part of its marketing strategy, the Company is offering its services on a
trial basis to several major financial institutions in Lima. Upon completion of
the trial with Interbank in July 1997, the Company was hired to link ten of
Interbank's Lima branches through the Company's network.
In addition, the Company believes that the rapid growth of Internet use in
Peru will provide it with a significant opportunity to further develop its
customer base through the strategic referral of customers between ISPs and the
Company.
CONCESSIONS. Resetel provides its services pursuant to a renewable local
carrier concession expiring in 2016. Resetel's concession can be renewed for an
additional 20 years upon prior approval by the Peruvian Ministry of Transport
and Communications. After July 1999, when the local telephony services market
opens for competition, Resetel and other carriers will be able to provide local
telephony services as regulations permit. At such time, Resetel intends to seek
approval to also provide long distance services.
NETWORK INFRASTRUCTURE. The Company provides its services in Peru through
its 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.
48
<PAGE>
Management believes that following the deregulation of local and domestic
and international long-distance telephony in July 1999, competition in these
services may arise from a variety of new entrants, including telecommunications
carriers providing services in other countries as well as companies currently
providing services in other industries previously liberalized in Peru. Existing
telecommunications service providers may have established customer
relationships as well as other capabilities and resources to expand their
current service offerings and include local carriers, wireless telephone
operators, the providers of data services, cable television network operators
and operators of existing private network infrastructure, such as electric
power companies. The Company believes that other companies have filed
applications for local concessions, including COMSAT whose license was recently
granted.
The identity of new entrants and the scope of increased competition, and
any corresponding adverse effect on the Company's results, will depend on a
variety of factors. Among such factors are the business strategies and
financial and technical capabilities of potential competitors, prevailing
market conditions at the time competition is permitted, applicable Peruvian
regulations with respect to new entrants and the Company, as well as the
effectiveness of the Company's strategy to prepare for increased competition.
See "Risk Factors--Competition."
CHILE
COUNTRY OVERVIEW. Chile is a highly urbanized country, with a population
of approximately 14.7 million in 1996, of which 85.0% are estimated to live in
cities. Santiago, the capital of Chile and a major international economic
center, has a population of approximately 5.1 million people. The Chilean
government has implemented a strategy to encourage foreign investment in Chile
and it has privatized and deregulated many industries, including
transportation, energy and telecommunications. Since 1991, the Chilean economy
has experienced high rates of economic growth. From 1991 through 1996, GDP
increased by an average annual rate of 7.3%. Inflation has been dramatically
curtailed during this period, falling from 18.7% in 1991 to 6.6% in 1996. GDP
is expected to grow at a compounded annual growth rate of 7.0% from 1997
through the year 2002.
MARKET OVERVIEW. As the first telecommunications market to commence
deregulation in Latin America, Chile has experienced substantial growth in
telecommunications revenue and telephone density. Total international long
distance revenues have grown from $99.9 million in 1993 to $178.2 million in
1996, representing a compound annual growth rate of 21.0%. Chile's
telecommunications markets continue to be dominated by the former PTTs,
although new entrants have begun to reduce the former PTTs' market share. In
the long distance market, Entel, the former long distance PTT, faces
competition from eight other carriers, and its market share has been reduced to
approximately 40.4% for domestic long distance and 37.5% for international
long-distance. As a result of its open telecommunications market, Chilean
subscribers enjoy some of the lowest prices in the world for long distance
telephony services. In the local telephony market, CTC, the former local
services PTT, controls approximately 96% of the local telephony market. The
Company believes that the full implementation of its business strategy will
enable it to penetrate this market and further develop its customer base.
49
<PAGE>
The following table provides some general information on the historical
size and estimated growth of Chile's telecommunications market.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS DATA--CHILE
-----------------------------------------------------------------------
1993 1994 1995 1996
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
TELEPHONE MINUTES
Local Service -- -- -- --
Long Distance Domestic (millions) n/a n/a 1,847.2 (1) 2,259.0 (2)
Long Distance International (millions) n/a n/a 136.9 (3) 172.9 (2)
MAIN LINES IN SERVICE
(in thousands) 1,513 (4) 1,626 (4) 1,846 (4) 2,157 (4)
PENETRATION RATE
(main lines per 100 pop) 11.0 (4) 11.6 (4) 13.0 (4) 14.9 (4)
SERVICE REVENUES
(US$ 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 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.
50
<PAGE>
COUNTRY STRATEGY. The Company intends 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.
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.
51
<PAGE>
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 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
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approximately 96%. Both CTC and Entel operate fiber optic loops in Santiago,
while Teleductos S.A. operates a passive point-to-point network built using a
star topology.
The Company believes it can successfully compete in the Santiago
telecommunications market by providing customers a competitively priced,
bundled service offering consisting of data, long distance and other
value-added services. In addition, the Company intends to begin offering local
services during 1998 after it receives a license, as to which there can be no
assurance. Such services will be delivered over the Company's digital fiber
optic network which will help the Company control operating costs and minimize
the need to rely on other carriers' networks. The Company believes that it is
well-positioned to develop and increase its customer base in Santiago because
(i) it will be able to gain a "first mover" advantage in offering services to
its targeted customer base of medium and small-sized businesses which the
Company believes have significant unmet demand for advanced telecommunications
services and (ii) its services are provided via a digital fiber optic network
that utilizes the ATM protocol and "drop and insert" technology, which enables
the Company to offer an extensive range of advanced telecommunications
services. The Company believes that its size and the entrepreneurial culture of
its management team will allow it to react quickly to changes in the
marketplace and that, coupled with its strong commitment to customer service,
will differentiate FirstCom Networks and FirstCom Long Distance from its
larger, less flexible competitors.
REGULATION
PERU
PERUVIAN TELECOMMUNICATIONS LAWS AND REGULATIONS. The principal features
of Peruvian regulation of telecommunications services include the General
Telecommunications Law (the "Peruvian Telecommunications Law"), State
Contracts, the General Regulation to the Telecommunications Law (the "General
Regulation"), and the Regulation (the "OSIPTEL Regulation") for the
Organization for Supervision of Private Investments in Telecommunications
("OSIPTEL"). These laws and their related governmental authorities constitute
the legal and regulatory framework within which the Company provides services
in Peru.
The Peruvian Telecommunications Law sets out the basic framework for the
provision and regulation of telecommunications services, and has the stated
objective of providing a competitive market in telecommunications. The law
grants the Peruvian government the ability to oversee telecommunications
services through the Ministry of Transportation, Communications, Housing and
Construction (the "Ministry of Transportation" or the "Ministry"). The Ministry
has the authority to grant concessions and impose sanctions for the violation
of telecommunications laws. Pursuant to Supreme Decree No. 007-97-MTC, the
Specialized Telecommunications Concession Unit ("STCU") became the government
agency within the Ministry charged with the following functions previously
performed by OSIPTEL: (i) grant, renew and cancel concessions, authorizations,
permits and licenses; (ii) manage the electric spectrum and approve the
assignment of frequencies; and (iii) discontinue the rendering of value added
services offered by concessionaires when such services cause any damage or harm
to the public telecommunications network.
CONCESSIONS. A private entity may only provide telecommunications services
in Peru pursuant to a concession granted by STCU and in accordance with a state
contract (the "State Contract") to be entered between the STCU and the
concessionaire. Such concessions, including the concession held by the Company
through Resetel, have a maximum period of twenty years and can be renewed for
an equal term without limitation subject to the submission of an application
for renewal two years prior to the expiration of the concession and compliance
with the requirements under the concession. The State Contract outlines, among
other obligations: (i) a minimum expansion plan for the operator; (ii) required
fees and tariffs; (iii) technology standards for all equipment; and (iv)
quality standards of service.
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
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legislation. The Ministry may, however, if it is deemed in the public interest,
modify the terms of State Contracts unilaterally if such terms relate to the
international telecommunications policy of the Ministry, or if it is necessary
to modify the contract to comply with international laws, treaties or
conventions. These changes can only take place through an administrative
process that provides for public comment on any proposed changes.
LOCAL AND LONG DISTANCE SERVICES. Dial tone and public switched local and
long distance services in Peru will be provided exclusively by Telefonica until
May 1999, at which time the exclusivity provisions in Telefonica's concession
will expire and the local and long distance markets are scheduled to be opened
to competition by new entrants. The Company operates under a concession which
permits it to provide private line, special access and value-added services
within the local telecommunications markets of Lima and Callao. Beginning in
1999, the Company may seek to obtain authorization to begin providing dial tone
as well as public local and long distance switched services.
TECHNICAL REQUIREMENTS. The Company is required to comply with regulations
and detailed technical plans promulgated by the OSIPTEL that apply to such
matters as the transmission, routing, signaling and assignment of numbers in
the Peruvian telephone network as well as use of the radio frequency spectrum.
Before concessionaires initiate service, their facilities must have been
authorized by the Ministry of Communications and must be in full compliance
with the applicable regulations and technical plans. Failure to comply with the
technical plans can be grounds for terminating a concession if the holder does
not comply within a period of time prescribed by the OSIPTEL.
Both Telefonica and operators of private networks must make their networks
available for interconnection with other carriers' networks in order to promote
competition within Peru's telecommunications marketplace.
FEES, TARIFFS AND OTHER CHARGES. In conformity with the Telecommunications
Law, the General Regulation, and the OSIPTEL Regulation, telephone operators,
including the Company, must pay certain fees, tariffs, and other charges which
are primarily comprised of: (i) a concession fee; (ii) annual tariffs; (iii)
payment to OSIPTEL for supervisory services; and (iv) contribution to the Fund
for Private Investment in Telecommunications ("FITEL"). The Company may set its
own tariff levels for its private line service, subject to certain maximum
tariff levels set by the OSIPTEL.
FOREIGN INVESTMENT AND EXCHANGE CONTROLS. The basic legal framework to
attract foreign investment to Peru is provided by the Foreign Investment
Promotion Law. The Law provides for specific rules that guarantee
nondiscriminatory treatment of foreign investors investing in Peru, and
provides mechanisms to stimulate and secure foreign capital. Specifically,
under the Law, foreign investors may freely remit all profit and repatriate all
capital invested in Peru, and may freely convert such local currency proceeds
into U.S. dollars. No registration with any government authority of such profit
remittance or capital repatriation is required under Peruvian law irrespective
of whether the original investment was made in the form of a capital
contribution or intercompany loans. Notwithstanding the low level of
restrictions on foreign investment, Peruvian law provides that if the foreign
investor's home country imposes foreign investment restrictions on investments
made by Peruvian companies in that country, the Peruvian government is
authorized to impose similar restrictions with respect to investments made by
companies from that country. For this reason, foreign investors are encouraged
to enter into a legal stabilization agreement (the "Legal Stability Agreement")
with the Peruvian government to guarantee certain rights with respect to their
foreign investment in Peruvian companies.
Legal Stability Agreements are entered into for a term of ten years.
Foreign investors who execute such agreements are guaranteed the following
rights, as of the date of the execution of the agreement: (i) maintenance of
the existing tax treatment of the foreign investment; (ii) legal stability as
to the availability of foreign currency for the remittance of profits and
repatriation of capital and (iii) non-discriminatory treatment of the foreign
investor.
Foreign investors may enter into the Legal Stability Agreement by
submitting an application to the National Commission on Foreign Investments,
provided that the capital contribution is made in the
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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 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.
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Concessions and permits are granted by the Chilean government for a fixed
term which is presently 30 years. These concessions and permits can be renewed
for the same period if so requested by the concessionaire. However, because the
Company's concession was granted before the establishment of fixed terms, such
concession is deemed to be indefinite in accordance with its terms and with
Transitory Article 3 of such law. Concessions and permits cannot be assigned,
transferred or leased without the prior authorization of the Undersecretary of
Telecommunications, which authorization cannot be denied without reasonable
cause.
Holders of concessions to provide public telecommunications services must
establish and accept interconnection with others, in accordance with technical
requirements established by the Undersecretary of Telecommunications, to ensure
that users have access to all public services. Concession holders may establish
their own systems or use facilities of other entities.
Any telephone service outage must be corrected within 12 hours or users
are entitled to indemnification and the concession holder is subject to fines.
The Undersecretary of Telecommunications may suspend a concession holder's
service for up to thirty days for failure to comply with technical
requirements, which action may be challenged in the courts within a term of
five days as of the notification to the holder of the concession.
The Chilean Telecommunications Law provides that holders of concessions
and permits shall have access, on equal economic and technical basis, to
satellite systems and international cables.
Existing concessions may be terminated if the concession holder does not
fulfill certain of its obligations, including: (i) fulfillment of the technical
framework applicable to the service; (ii) reiterative sanctions because of the
suspension of transmissions; (iii) nonpayment of a fine imposed on the
concession holder for more than 30 days; and (iv) the unauthorized change of
any of the essential elements of the concession. The holder of the concession
can appeal such termination to the Chilean Supreme Court within ten days if it
believes that the termination was illegal.
TARIFF SYSTEM. Currently, providers of domestic and international long
distance services are subject to maximum tariffs fixed by the Chilean
government.
The Company's services are presently subject to maximum tariffs under the
Chilean Telecommunications Law. The Chilean government establishes the maximum
tariffs of regulated services by using a methodology that provides for the
recovery of investments and the costs of operations of such services, as well
as a profit based on the cost of capital. Under the Chilean Telecommunications
Law, the structure, level and mechanism for indexing the affected services are
fixed every five years by a joint decree issued by the Ministry of
Transportation and Telecommunications and the Ministerio de Economia, Fomento y
Reconstruccion (the "Ministry of the Economy") on the basis of the incremental
costs of providing the tariffed service in each geographical service area where
the service is provided, including capital costs taking into account the
expansion plans of the regulated companies over the five year period. In the
absence of expansion plans, the structure and level of rates are set on the
basis of marginal long-term costs. Maximum tariffs are established on the basis
of an economic model that relies on the costs of an ideally efficient
enterprise that offers only the service subject to tariff. The tariff for each
service that is subject to tariff regulation reflects the theoretical cost
components associated with such service.
Tariffs for domestic long distance telephone services must include the
prices of long distance transmission and switching as well as the price of
local telephone service. Tariffs for international long distance services must
include such price components as the price of domestic and international
services, the cost of access to the local network, as well as the settlement
costs with foreign correspondents.
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
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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.
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
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property tax, and a simplified import tariff. In addition, withholding taxes
are imposed on interest and salary income, and Peru has a recently expanded
value-added tax ("VAT") that covers certain products and services.
INCOME TAX. Peruvian corporations or foreign corporations domiciled in
Peru are subject to an income tax at a rate of 30% on the net income realized
by the company during the fiscal year. There is no departmental, regional or
municipal income tax.
PAYMENT OF DIVIDENDS. Under applicable Peruvian law, amounts paid as
dividends or distributed as profits are not deemed to be taxable income and,
consequently, are not subject to any taxation.
EXTRAORDINARY ASSET TAX. Peruvian corporations are subject to an annual
extraordinary asset tax calculated at a rate of 0.5% over the value of the net
assets of the corporation. The amount of the net extraordinary asset tax which
is due may be credited against the corporation's income tax.
VALUE ADDED TAX. Peruvian corporations are subject to a value added tax
calculated at a rate of 18% over the value of services rendered to customers,
goods imported into Peru, sale of personal or real property and assignment of
fixed assets to an affiliate. Companies are entitled to an off-setting credit
against the value added taxes imposed on the sales of goods and services.
CHILE
TAXATION. Generally, foreign investors and local businesses are treated
equally, although foreign investors are given the benefit of certain fixed rate
tax options which allow them to limit the impact of future adverse tax changes.
To promote savings and investment, the income of business entities is
taxed in two stages, initially when income is earned and finally when profits
are distributed to the ultimate business owners. The effective rate payable on
foreign investment profits remitted abroad is normally 35%, 15% being payable
at the time profits are earned with the balance due on payment overseas.
Considerable emphasis is placed on indirect taxation through a 18% value-added
tax which contributes about 60% of fiscal revenue.
First Category Income Tax (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;
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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.
EMPLOYEES
As of August 3, 1998, the Company had 220 full-time employees, of whom
approximately 102 are in Resetel, 46 are in FirstCom Networks, 66 are in
FirstCom Long Distance and six 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 expires in
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
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
$20,000 per year (beginning January 1, 1998) stock options to acquire 50,000
shares of Common Stock at a price calculated on the average closing price of
the Common Stock for the five trading days immediately preceding the date of
such grant.
61
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
compensation earned by the Chief Executive Officer of ICCA, and the other most
highly compensated executive officer of ICCA during 1997 (such persons are
hereinafter referred to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------------- ---------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION(S) YEAR ($) ($) ($)(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 $50,000 or 10% of
the total salary and bonus for any officer.
(2) Effective as of November 23, 1996.
(3) Mr. Geib commenced employment with the Company on May 1, 1997. See "--
Employment and Consultants Agreements."
The following table sets forth certain information concerning options
granted in 1997 to ICCA's Named Executive Officers. The Company has no
outstanding stock appreciation rights. None of the Named Executive Officers
exercised options during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED(#) IN FISCAL YEAR PER SHARE($/SH) 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>
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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FY-END(#) FY-END($)
----------------------- --------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) 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>
62
<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 Senior Note 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 August 3, 1998 ICCA has outstanding options to purchase 7,490,000
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 Senior Note 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,
63
<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.
64
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TELECTRONIC S.A. AND MR. HERNAN STREETER
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 is also a current director of the Company.
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 $120,000 and $110,000 during 1995 and 1996,
respectively.
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. 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.
From 1994 to 1996 the Company granted Mr. Streeter 510,000 stock options
with a weighted average exercise price of $1.91, respectively.
On July 24, 1995, Mr. Donoso received 1,425,000 shares of Common Stock
(the "Donoso Shares") from the Company in exchange for his ownership interest
in HSI, a company which was acquired by the Company, in a transaction which was
exempt from the registration requirements of the Securities Act pursuant to
Regulation S and Section 4(2) thereof. On September 14, 1995, Mr. Donoso loaned
the Donoso Shares to Laura Investments, Ltd., a company owned and controlled by
Mr. Streeter.
From September 14, 1995 to March 1996, Laura Investments, Ltd. loaned the
Company an aggregate amount of $1,631,550. During March 1996, the Company
converted the original principal amount of $1,631,550, plus accrued interest of
$7,000 into 839,235 shares of Common Stock which were registered in the name of
Laura Investments, Ltd. and issued in a transaction which was exempt from the
registration requirements of the Securities Act pursuant to Regulation S and
Section 4(2) thereof.
During September 1997, Laura Investments Ltd. agreed to transfer 839,235
shares of the Company's Common Stock to Mr. Donoso in an attempt to satisfy its
obligatons to Mr. Donoso in connection with the transfer of the Donoso Shares
to Laura Investments, Ltd. which occurred on September 14, 1995. However, Mr.
Donoso claimed that the Company owed him additional shares of Common Stock in
consideration of the initial transaction between Mr. Donoso and Laura
Investments Ltd. on September 14, 1995 (or the equivalent monetary
consideration). The Company issued 300,000 shares of Common Stock to Mr. Donoso
in October 1997 in settlement of all outstanding claims by Mr. Donoso against
the Company. The Company recognized interest expense of $852,000 related to the
aggregate fair value of such shares of Common Stock issued to Mr. Donoso. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof.
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.
65
<PAGE>
MAROON BELLS CAPITAL PARTNERS ("MBCP")
During the three years ended December 31, 1997 the Company entered into
certain transactions with MBCP. Two former directors of the Company, Paul Moore
and Phillip Magiera, are principals in MBCP. MBCP has provided certain
consulting and financial advisory services to the Company during the past three
years.
From 1994 to 1996, the Company granted MBCP and its principals 1,015,000
stock options with a weighted average exercise price of $2.12.
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 during (i) 1996 was determined by the
Company's Board of Directors based on similar transactions (E.G., private
placements) and (ii) 1997 was based on the NASDAQ trading price.
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 (i) the grant date fair value of the Common Stock
of approximately $1,420,000 and (ii) the intrinsic value of the stock options
of approximately $355,000. The fair value of such common stock and the
intrinsic value of such stock options was based on the Common Stock's grant
date NASDAQ trading price. 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. The Company
recognized non-cash compensation expense of approximately $1,650,000 and
$688,000 representing the grant date fair value of the aforementioned 600,000
and 250,000 shares of Common Stock, respectively. 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. The Company recognized non-cash compensation expense
of approximately $372,000 and $155,000, representing the grant date intrinsic
value of the aforementioned 600,000 and
66
<PAGE>
250,000 stock options, respectively. 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.
The strike price of such options exceeded the grant date fair value of the
underlying common stock. As such the options had no intrinsic value and no
related compensation expense was recorded.
67
<PAGE>
REGISTERING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by the Registering Stockholders as of
August 3, 1998 and the number of shares of Common Stock which may be offered
pursuant to this Prospectus for the account of each of the Registering
Stockholders or their transferees from time to time. See "Plan of
Distribution." However, such Registering Stockholders are under no obligation
to sell all or any portion of the Common Stock being offered hereby, nor are
the Registering Stockholders obligated to sell any such shares of Common Stock
immediately under this Prospectus. Because the Registering Stockholders may
sell all or part of their shares of Common Stock, no estimate can be given as
to the number of shares of Common Stock that will be held by any Registering
Stockholder upon termination of the Offering made hereby. As described in the
footnotes below, certain of the Registering Stockholders have occupied a
position, office or other material relationship with the Company or its
affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
----------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
NAME OF REGISTERING STOCKHOLDERS(2)(3) PRIOR TO OFFERING OFFERED HEREBY(4)
- --------------------------------------------------- ------------------- ------------------
<S> <C> <C>
Patricio E. Northland(5) .......................... 3,214,000 3,214,000
Douglas G. Geib II(6) ............................. 1,286,000 1,286,000
Paul Moore(7) ..................................... 880,000 880,000
Philip Magiera(8) ................................. 860,000 860,000
Maroon Bells Capital Partners, Inc.(9) ............ 355,000 355,000
Patricio Silva Echenique(10) ...................... 460,000 460,000
Teleport Chile(11) ................................ 388,900 388,900
UBS Securities LLC(12) ............................ 2,250,000 2,250,000
Hernan Streeter Rios(13) .......................... 2,313,750 510,000
George Cargill(14) ................................ 2,040,000 340,000
David C. Kleinman(15) ............................. 200,000 200,000
Moises Blumen Cohen(16) ........................... 100,000 100,000
Jeffery Wattenberg(17) ............................ 100,000 100,000
Windmill Corp.(18) ................................ 100,000 100,000
Douglas MacLellan(19) ............................. 115,000 115,000
Rodrigo Garcia(20) ................................ 65,000 65,000
Luis Thais Diaz(21) ............................... 33,334 33,334
Dinton Trader (UK) Ltd.(22) ....................... 43,171 43,171
Robert Richman(23) ................................ 35,000 35,000
Rudy Beeck(24) .................................... 20,000 20,000
Juan Gabriel Valdez(25) ........................... 5,250 5,250
Aurelia Martinez(26) .............................. 4,000 4,000
Paulina Swinburn(27) .............................. 4,000 4,000
Huberto Ewert(28) ................................. 2,000 2,000
Cede & Co.(29) .................................... 5,250,000 5,250,000
United International Properties, Inc.(30) ......... 200,000 200,000
Mainstreet Limited(31) ............................ 50,000 50,000
Arcadia Importers & Exporters, Inc.(32) ........... 871,162 871,162
KA Investments, LDC(33) ........................... 140,248 140,248
NU Investments, LLC(34) ........................... 210,372 210,372
Kevin Kimberlin(35) ............................... 814 814
John Steinmetz(36) ................................ 7,835 7,835
Spencer Trask Holdings, Inc.(37) .................. 7,322 7,322
Carol Zervoulei(38) ............................... 300 300
Andrew Hulsh(39) .................................. 50,000 50,000
Jose Segrera(40) .................................. 45,000 45,000
Carlos Fernandez(41) .............................. 100,000 100,000
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
----------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
NAME OF REGISTERING STOCKHOLDERS(2)(3) PRIOR TO OFFERING OFFERED HEREBY(4)
- ------------------------------------------------- ------------------- ------------------
<S> <C> <C>
Dante Cordova(42) ............................... 50,000 50,000
First Equity Corporation of Florida(43) ......... 14,805 14,805
</TABLE>
- ----------------
(1) Includes shares of Common Stock owned and shares of Common Stock issuable
upon the exercise of outstanding vested and unvested stock options and
warrants.
(2) Certain of the Registering Stockholders have sold all or a portion of
their shares of Common Stock pursuant to Rule 144 promulgated under the
Securities Act.
(3) The Offering is intended to satisfy certain obligations of the Company to
the Registering Stockholders. The Registering Stockholders are under no
obligation to sell all or any portion of their shares of Common Stock
being offered hereby, immediately or after the date of this Prospectus.
Because the Registering Stockholders may sell all or part of their shares
of Common Stock, no estimate can be given as to the number of shares of
Common Stock that will be held by any Registering Stockholder upon
termination of the Offering made hereby.
(4) Assumes that each Selling Stockholder will sell all of the shares of
Common Stock offered pursuant to this Prospectus, but not any other shares
of Common Stock beneficially owned by such Selling Stockholder. However,
none of the Registering Stockholders has indicated their intention to sell
any of the shares of Common Stock owned by them as of the date of this
Prospectus.
(5) Mr. Northland is the President, Chairman of the Board of Directors and
Chief Executive Officer of the Company. Includes 2,614,000 shares of
Common Stock issuable upon the exercise of outstanding stock options,
1,538,000 of which are fully vested and 200,000 vest on September 9, 1998
and 1999, 100,000 vest on October 7, 1998 and 1999 and 238,000 vest on
October 21, 1998 and 1999. Unless exercised, options to purchase 1,000,000
shares of Common Stock will expire on October 31, 2006 and options to
purchase 600,000, 300,000 and 714,000 shares of Common Stock will expire
on September 9, October 7, and October 21, 2007, respectively.
(6) Mr. Geib is the Chief Financial Officer and a director of the Company.
Includes 1,036,000 shares of Common Stock issuable upon the exercise of
outstanding stock options, 511,999 of which are fully vested and 166,667
vest on May 1, 1999 and 83,333 vest on September 9, 1998 and 1999 and
95,333 vest on October 21, 1998 and 1999. Unless exercised, options to
purchase 500,000 shares of Common Stock will expire on May 1, 2007 and
options to purchase 250,000 and 286,000 shares of Common Stock will expire
on September 9 and October 21, 2007, respectively.
(7) Mr. Moore is a former director of the Company. Includes 630,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 80,000 shares of
Common Stock will expire on August 1, 2004, options to purchase 100,000
shares of Common Stock will expire on December 19, 2005, options to
purchase 200,000 shares of Common Stock will expire on March 13, 2006 and
options to purchase 250,000 shares of Common Stock will expire on October
3, 2007.
(8) Mr. Magiera is a former director of the Company. Includes 610,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
which are fully vested. Unless exercised, options to purchase 160,000
shares of Common Stock will expire on December 19, 2005, options to
purchase 200,000 shares of Common Stock will expire on March 13, 2006 and
options to purchase 250,000 shares of Common Stock will expire on October
3, 2007.
(9) Maroon Bells Capital Partners, Inc. is a former provider of financial
advisory and consulting services to the Company. Includes 275,000 shares
of Common Stock issuable upon the exercise of outstanding stock options
which are fully vested. Unless exercised, options to purchase 200,000
shares of Common Stock will expire on March 14, 2006 and options to
purchase 75,000 shares of Common Stock will expire on June 30, 2004.
(10) Mr. Silva is a former director of the Company. Includes 360,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 160,000 shares of
Common Stock will expire on December 19, 2005 and options to purchase
200,000 shares of Common Stock will expire on March 13, 2006.
(11) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on December 31, 1998.
(12) The shares of Common Stock are issuable upon the exercise of outstanding
warrants which are fully vested.
(13) Mr. Streeter is the former Chairman of the Board of Directors and Chief
Executive Officer of the Company. Includes 510,000 shares of Common Stock
issuable upon the exercise of outstanding stock options which are fully
vested. Unless exercised, options to purchase 100,000 shares of Common
Stock will expire on July 12, 2004, options to purchase 185,000 shares of
Common Stock will expire on July 31, 2004, options to purchase 100,000
shares of Common Stock will expire on December 19, 2005 and options to
purchase 125,000 shares of Common Stock will expire on March 13, 2006.
(14) Mr. Cargill is a director of the Company. Includes 320,000 shares of
Common Stock issuable upon the exercise of outstanding stock options which
are fully vested and 20,000 shares of Common Stock issuable upon the
exercise of outstanding warrants. Unless exercised, options to purchase
80,000 shares of Common Stock will expire on July 31, 2004, options to
purchase 160,000 shares of Common Stock will expire on December 19, 2005,
options to purchase 80,000 shares of Common Stock expire on December 15,
2007 and the warrants will expire on October 21, 2002.
(15) Mr. Kleinman is a director of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options, 100,000 of which
are fully vested and 50,000 vest on May 29, 1999 and 2000. Unless
exercised, the options will expire on May 29, 2007.
69
<PAGE>
(16) Mr. Blumen is the Chief Executive Officer and Administrative Manager of
Resetel. The options vest ratably over a three-year period commencing on
October 9, 1998.
(17) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
automatically expire on December 19, 2005.
(18) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on March 13, 2006.
(19) Mr. MacLellan is a former director of the Company. The shares of Common
Stock are issuable upon the exercise of outstanding stock options which
are fully vested. Unless exercised, options to purchase 80,000 shares of
Common Stock will expire on July 31, 2004 and options to purchase 10,000
shares of Common Stock will expire on December 19, 2005.
(20) Mr. Garcia is an employee of FirstCom Networks. The shares of Common Stock
are issuable upon the exercise of outstanding stock options which are
fully vested. Unless exercised, the options will expire on July 31, 2004.
(21) Mr. Thias is the former Chairman of the Board of Directors of Resetel. The
options vest ratably over a five-year period commencing on October 9,
1998. The amount of options which have vested is subject to reduction to
the extent that certain target earnings of Resetel are not attained.
(22) The shares of Common Stock are issuable upon the exercise of outstanding
stock options and warrants which are fully vested. Unless exercised, the
options will expire on June 16, 2001 and the warrants will expire on
October 21, 2002.
(23) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on March 14, 2006.
(24) The shares of Common Stock are issuable upon the exercise of outstanding
stock options which are fully vested. Unless exercised, the options will
expire on December 19, 2005.
(25) Mr. Valdez is a former employee of the Company. The shares of Common Stock
are issuable upon the exercise of outstanding stock options, 3,500 of
which are fully vested and the remainder vest in equal monthly increments
over one year commencing January 1998. Unless exercised, the options will
expire on December 19, 2005.
(26) Ms. Martinez is a former employee of the Company. The shares of Common
Stock are issuable upon the exercise of outstanding stock options, 2,667
of which are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(27) Mr. Swinburn is a former employee of the Company. The shares of Common
Stock are issuable upon the exercise of outstanding stock options, 2,667
of which are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(28) Mr. Ewert is a former employee of the Company. The shares of Common Stock
are issuable upon the exercise of outstanding stock options, 1,333 of
which are fully vested and the remainder of which vest in equal monthly
increments over one year commencing January 1998. Unless exercised, the
options will expire on December 19, 2005.
(29) The shares of Common Stock are issuable upon the exercise of outstanding
warrants which are fully vested.
(30) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on May 1, 2000.
(31) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on October 21, 2002.
(32) Includes outstanding warrants to purchase 20,000 shares of Common Stock.
Unless exercised, the warrants will expire on June 30, 2002.
(33) Includes outstanding warrants to purchase 40,000 shares of Common Stock.
Unless exercised, the warrants will expire on February 2, 2002.
(34) Includes outstanding warrants to purchase 60,000 shares of Common Stock.
Unless exercised, the warrants will expire on February 2, 2002.
(35) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(36) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(37) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(38) The shares of Common Stock are issuable upon the exercise of outstanding
warrants. Unless exercised, the warrants will expire on June 30, 2000.
(39) Mr. Hulsh is a director of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options which are fully
vested. Unless exercised, the options will expire December 16, 2007.
(40) Mr. Segrera is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options of which 15,000
vest on December 15, 1998, 1999 and 2000.
(41) Mr. Fernandez is an employee of the Company. The shares of Common Stock
are issuable upon the exercise of outstanding stock options of which
25,000 vest on March 25, 1999, 2000, 2001 and 2002.
(42) Mr. Cordoba is an employee of the Company. The shares of Common Stock are
issuable upon the exercise of outstanding stock options of which 16,666
vest on June 7, 1999, 2000 and 2001.
(43) The shares of Common Stock are issuable upon the exercise of outstanding
warrants which are fully vested. Unless exercised, the warrants will
expire in August 2003.
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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 Senior Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Senior Notes are subject to all such
terms, and holders of Senior Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein
of certain terms used below. Copies of the proposed form of Indenture, Proceeds
Pledge and Escrow Agreement and Registration Rights Agreement will be made
available to prospective investors as set forth under "Available Information."
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." For purposes of this "Description of
Senior Notes," the term "Company" refers only to InterAmericas Communications
Corporation and not to any of its Subsidiaries.
RANKING
The Senior Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company incurred in the future, if any. The Senior Notes
will rank equal in right of payment to all senior Indebtedness of the Company
incurred in the future, if any. The Senior Notes will be secured by a first
priority pledge pursuant to the Proceeds Pledge and Escrow Agreement of (1) 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 Senior 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 Senior Notes. The
ability of the Company's Subsidiaries to make payments will be subject to,
among other things, the terms of such Subsidiaries' Indebtedness, the
availability of such funds and the applicable laws of the jurisdictions under
which such Subsidiaries are organized.
The Obligations under the Senior Notes will be effectively subordinated to
all Indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of the Company's Subsidiaries.
Any right of the Company to receive assets of any of its Subsidiaries upon
the latter's liquidation or reorganization (and the consequent right of the
holders of the Senior Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such Subsidiary, in
which case the claims of the
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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 Senior Notes will be limited to $150.0 million in aggregate principal
amount and will mature on October 27, 2007. Interest on the Senior Notes will
accrue at the rate of 14% per annum and will be payable in cash semi-annually
on April 27 and October 27 (each, an "Interest Payment Date"), commencing on
April 27, 1998 to holders of record on the immediately preceding April 12 and
October 12. Interest on the Senior Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Senior Notes will be payable as to
principal, interest and Liquidated Damages, if any, at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages,
if any, may be made by check mailed to the holders of the Senior Notes at their
respective addresses set forth in the register of holders of Senior Notes;
provided that all payments with respect to Senior Notes the holders of which
have given wire transfer instructions to the Company will be required to be
made by wire transfer of same day funds to the accounts specified by the
holders thereof. Until otherwise designated by the Company, its office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Senior Notes 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 Senior Note Offering, the Company purchased and pledged to the Trustee for
the benefit of the holders of the Senior Notes the Pledged Securities in such
amount as is sufficient upon receipt of scheduled interest and principal
payments of such securities, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to provide for payment
in full of the first six scheduled interest payments due on the Senior Notes.
The Company used approximately $63.0 million of the net proceeds of the Senior
Note Offering to acquire the Pledged Securities. The Pledged Securities were
pledged by the Company to the Trustee for the benefit of the holders of Senior
Notes pursuant to the Proceeds Pledge and Escrow Agreement and are being held
by the Trustee in the Pledge Account. Pursuant to the Proceeds Pledge and
Escrow Agreement, immediately prior to an interest payment date on the Senior
Notes, the Company may either deposit with the Trustee from funds otherwise
available to the Company cash sufficient to pay the interest scheduled to be
paid on such date or the Company may direct the Trustee to release from the
Pledge Account proceeds sufficient to pay interest then due. In the event that
the Company exercises the former option, the Company may thereafter direct the
Trustee to release to the Company proceeds or Pledged Securities from the
Pledge Account in like amount. A failure by the Company to pay interest on the
Senior Notes within five days of an Interest Payment Date through October 27,
2000 will constitute an immediate Event of Default under the Indenture.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Senior
Notes (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full
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of any interest payments remaining, up to and including the sixth scheduled
interest payment) the Trustee will be permitted to release to the Company at
the Company's request any such excess amount. The Senior Notes will be secured
by a first priority security interest in the Pledged Securities and in the
Pledge Account and, accordingly, the Pledged Securities and the Pledge Account
will also secure all Obligations of the Company under the Senior Notes and the
Indenture to the extent of such security.
Under the Proceeds Pledge and Escrow Agreement, if the Company makes the
first six scheduled interest payments on the Senior Notes in a timely manner,
all of the remaining Pledged Securities, if any, will be released from the
Pledge Account and thereafter the Senior Notes will be secured only by the
Collateral Funds and the Collateral Account described below to the extent that
Collateral Funds remain in the Collateral Account pursuant to the terms of the
Proceeds Pledge and Escrow Agreement.
In addition to the pledge by the Company of the Pledged Securities, the
Proceeds Pledge and Escrow Agreement required the Company to (i) deposit $62.0
million of the net proceeds of the Senior Note Offering in an account under the
Trustee's exclusive dominion and control pending application of such funds by
the Company for the payment of (a) Permitted Expenditures, (b) in the event of
a Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith and (ii) grant to the Trustee, as
Collateral Agent, for the benefit of holders of the Senior Notes and itself as
Trustee, a first priority security interest in the Collateral Funds and the
Collateral Account securing all Obligations of the Company under the Senior
Notes and the Indenture. The Collateral Funds are required to be invested in
Cash Equivalents, as directed from time to time by the Company. The Company
will be permitted to obtain release of the Collateral Funds as follows: (a) any
amount of Collateral Funds for Permitted Expenditures, (b) in the event of a
Change of Control, the Change of Control Payment and (c) in the event of a
Special Offer to Purchase or a Special Mandatory Redemption, the purchase or
redemption price in connection therewith; provided that at least 60% of the
aggregate amount of Collateral Funds released from the Collateral Account for
Permitted Expenditures must be released in connection with Acquisition Costs or
Systems Costs directly related to Telecommunications Businesses in Peru.
The Proceeds Pledge and Escrow Agreement allows the Company to withdraw
from the Collateral Account such amounts as are estimated by the Company in
good faith and set forth in a written request (as such request may be amended
from time to time), accompanied by a supporting budget or other supporting
documentation, submitted to the Collateral Agent to be necessary for Permitted
Expenditures for the succeeding three months.
In the event that on or after October 27, 2000 Collateral Funds remain in
the Collateral Account, the Company shall make an offer to each holder of
Senior Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Senior Notes at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase and Liquidated Damages, if any;
provided that, if after the Special Offer to Purchase is consummated at least
$20.0 million in aggregate principal amount of Senior Notes does not remain
outstanding, the Company will be required by the terms of the Indenture to
redeem all of the Senior Notes at a redemption price in cash equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. If required by the
terms of the Indenture to make a Special Offer to Purchase, the Company will
mail a notice to each holder offering to repurchase Senior Notes in the Special
Offer to Purchase pursuant to the procedures required by the Indenture and
described in such notice. If required by the terms of the Indenture, within ten
days following the consummation of the Special Offer to Purchase, the Company
will mail a notice to each holder setting forth the terms of the Special
Mandatory Redemption pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the Special Offer to Purchase.
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In the event that the Indenture does not require the Company to make a
Special Mandatory Redemption, after the consummation of the Special Offer to
Purchase, the Company shall apply all funds held in the Collateral Account not
previously released pursuant to the terms of the Indenture and the Proceeds
Pledge and Escrow Agreement, at its option, to the acquisition of a controlling
interest in a Permitted Business, the making of a capital expenditure or the
acquisition of other assets, in each case, in a Permitted Business or to the
reduction of senior Indebtedness of the Company or Indebtedness of any
Restricted Subsidiary of the Company.
In the event of the Company's bankruptcy, the Company, as a debtor in
possession under Chapter 11 of the Bankruptcy Code, would be entitled to
petition the United States Bankruptcy Court having jurisdiction over its case
for permission, under Section 363 of the Bankruptcy Code, to use the Pledged
Securities pledged by it pursuant to the Proceeds Pledge and Escrow Agreement
and the Collateral Funds pledged by it pursuant to the Proceeds Pledge and
Escrow Agreement to fund its operations during the pendency of the
reorganization proceedings. Permission for such use is likely to be granted so
long as the interests of the Trustee, as Collateral Agent, for the benefit of
the holders of Senior Notes and itself as Trustee, are "adequately protected."
A secured creditor's interest in cash collateral to be used by a debtor in
possession may be adequately protected by, among other means, the granting of
liens on substitute collateral which may be substantially less liquid than Cash
Equivalents and Government Securities. See "Risk Factors--Effect of Bankruptcy
on Ability to Realize Upon Security."
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
October 27, 2002. Thereafter, the Senior Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon 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 Senior Notes at a redemption price equal
to 114% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds received by the Company after the date of the Indenture from the
issuance and sale of its Qualified Capital Stock to the public in a registered
public offering or to one or more Strategic Equity Investors to the extent that
such net cash proceeds have been, and continue to be, designated as Designated
Equity Proceeds to be used for such purpose as provided in the definition
thereof; provided that at least 662/3% of the original aggregate principal
amount of the Senior Notes remain outstanding immediately after the occurrence
of each such redemption; and provided, further, that such redemption shall
occur within 45 days of the date of the closing of any such public offering or
sale to such Strategic Equity Investors.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not
so listed, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided
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that no Senior Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Senior Notes to be redeemed
at its registered address. Notices of redemption may not be conditional. If any
Senior Note is to be redeemed in part only, the notice of redemption that
relates to such Senior Note shall state the portion of the principal amount
thereof to be redeemed. A new Senior Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Senior Note. Senior Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Senior Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth above under "--Proceeds Pledge and Escrow Agreement"
and as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash 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 Senior 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 Senior Notes as a result of
a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the paying
agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Senior Notes or
portions thereof being purchased by the Company. The paying agent will promptly
mail to each holder of Senior Notes so tendered the Change of Control Payment
for such Senior Notes, and the Trustee will promptly authenticate and mail (or
cause to be transferred by book entry) to each holder a new New Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided that each such new New Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Senior Notes to require that
the Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar transaction.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of (a) "all or
substantially all" of the assets of the Company and its Restricted Subsidiaries
taken as a whole and (b) "all or substantially all" of the assets of the
Company and its Restricted Subsidiaries taken as a whole that are related or
ancillary to the business conducted
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by the Company and its Restricted Subsidiaries in Peru. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of Senior Notes to require the Company to
repurchase such Senior Notes as a result of a sale, lease, transfer, conveyance
or other disposition of less than (a) all of the assets of the Company and its
Restricted Subsidiaries taken as a whole or (b) all of the assets of the
Company and its Restricted Subsidiaries taken as a whole that are related or
ancillary to the business conducted by the Company and its Restricted
Subsidiaries in Peru to another Person or group may be uncertain 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 Senior Notes or could attempt to
repay or refinance the borrowings that contain such restrictions. If the
Company did not obtain such a consent or repay or refinance such borrowings or
if the applicable laws of the jurisdictions under which the Company's
Subsidiaries are organized restrict such Subsidiaries' ability to pay dividends
or make other distributions to the Company, the Company would likely not have
the financial resources to purchase the Senior Notes and the Subsidiaries would
be restricted in paying dividends to the Company for the purpose of such
purchase. In addition, any future Indebtedness may prohibit the Company from
purchasing Senior Notes prior to their maturity, and may also provide that
certain change of control events with respect to the Company would constitute a
default thereunder. In the event a Change of Control occurs at a time when the
Company is prohibited from purchasing Senior Notes, the Company could seek the
consent of its lenders to the purchase of Senior Notes or could attempt to
repay or refinance the borrowings that contain such prohibition. If the Company
did not obtain such consent or repay or refinance such borrowings, the Company
would remain prohibited from purchasing Senior Notes. In such event, the
Company would be required to seek to refinance the Senior Notes or such other
borrowings, and there can be no assurance that the Company would be able to
consummate any such refinancing. See "Risk Factors--Substantial Leverage;
Ability to Service Indebtedness" and "--Holding Company Structure; Inability to
Access Cash Flow."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Senior Notes validly tendered and not withdrawn under
such Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Senior Notes or any
guarantee thereof) that are assumed by the transferee of any such assets or
Equity Interests pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
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Within 270 days after the Company's or any Restricted Subsidiary's receipt
of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary may apply such Net Proceeds, at its option, (a) to repay
Indebtedness under a Credit Facility (and to correspondingly reduce commitments
with respect thereto in the case of revolving borrowings) or (b) to the
acquisition of a Permitted Business or a controlling interest in a Permitted
Business or the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
Indebtedness under any Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute excess proceeds ("Excess
Proceeds"). When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all holders of Senior Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Senior
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate principal amount of Senior Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Senior Notes surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Senior Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or such Restricted Subsidiary or dividends
or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company; (iii) make any payment on or with respect to,
or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Notes, except a payment of
interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness (other than Permitted
Debt) pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described below under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of Indenture
(other than Restricted Payments permitted
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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 Senior Note Offering; (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of the Company or any Restricted Subsidiary of the Company held by any member
of the Company's (or any of its Restricted Subsidiaries') management pursuant
to any management equity subscription agreement, stock option agreement or
other similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; and (vii)
any payments specifically described in this Prospectus under the caption "Use
of Proceeds."
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, together with a
copy of any fairness opinion or appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary (other than
any Subsidiary of the Company that owns all or a material portion of the assets
(i) owned by the Company or any Subsidiary of the Company on the date of the
Indenture or (ii) owned by any Person described in this Prospectus under the
caption "The FirstCom Long Distance Acquisition" on the date of the acquisition
by the
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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
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually subordinated to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under Credit Facilities; provided that the aggregate principal
amount of all Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) outstanding under all Credit Facilities after giving effect to
such incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (i), does not exceed an amount equal to $40.0 million less the
aggregate amount of all Net Proceeds of Asset Sales that have been applied
since the date of the Indenture to repay Indebtedness under Credit
Facilities (or any such Permitted Refinancing Indebtedness) pursuant to the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;" provided, further, that the aggregate principal
amount of Indebtedness at any one time outstanding under Credit Facilities
that is incurred by, or secured by the Capital Stock or assets of, any
Restricted Subsidiary that is located, or that derives substantially all of
its revenue from the conduct of business, in Peru shall not exceed $15.0
million;
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Senior Notes;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such
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Indebtedness was incurred by the prior owner of such assets or such
Subsidiary prior to such acquisition by the Company or such Restricted
Subsidiary and was not incurred in connection with, or in contemplation of,
such acquisition by the Company or such Restricted Subsidiary; and provided
further that the principal amount (or accreted value, as applicable) of
such Indebtedness (or accreted value, as applicable), including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (iv), does not
exceed $5.0 million at any time outstanding;
(v) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Current Market Value as of the
date of issue of any Qualified Capital Stock of the Company issued to the
seller(s) of a Permitted Business as consideration for the acquisition of
such business and (B) the net cash proceeds received by the Company after
the date of the Indenture from the issuance and sale of its Qualified
Capital Stock to the extent that such net cash proceeds have been, and
continue to be, designated as Designated Equity Proceeds to be used for the
purpose of incurring additional Indebtedness pursuant to this clause (v) as
provided in the definition thereof; provided that, to the extent that any
such Qualified Capital Stock ceases to be outstanding for any reason, any
Indebtedness that was incurred as a result of the receipt of net cash
proceeds from the issuance of such Qualified Capital Stock shall cease (as
of the date on which such Qualified Capital Stock ceases to be outstanding)
to be permitted by virtue of this clause (v);
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness or Indebtedness pursuant to a Credit Facility)
that was permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (A) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Senior Notes and (B)(1) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary and
(2) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Wholly Owned Restricted Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(viii) the guarantee by the Company of Indebtedness of the Company or a
Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this covenant;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness of the Company or any Restricted Subsidiary of the
Company (A) in respect of statutory obligations, performance, surety or
appeal bonds or other obligations of a like nature incurred in the ordinary
course of business or (B) under Hedging Obligations; provided that such
agreements (1) are designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (2) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities
and compensation payable thereunder; and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted
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Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xi), not to exceed $5.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest and the accretion
of accreted value will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described below under the caption
"--Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value of the property that is the subject
of such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described above
under the caption "--Repurchase at the Option of Holders--Asset Sales."
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any indebtedness owed to the
Company or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
the terms of any Permitted Debt permitted to be incurred by any Restricted
Subsidiary of the Company, (b) Existing Indebtedness as in effect on the date
of the Indenture or by reason of any agreement or instrument in effect on the
date of the Indenture, (c) the Indenture and the Senior Notes, (d) applicable
law or regulation, (e) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (f) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money
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obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (i) any mortgage or other Lien on
real property acquired or improved by the Company or any Restricted Subsidiary
after the date of the Indenture that prohibit transfers of the type described
in (iii) above with respect to such real property, (j) any such customary
encumbrance or restriction contained in a security document creating a
Permitted Lien to the extent related to the property or assets subject to such
Permitted Lien, and (k) with respect to a Restricted Subsidiary, an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Company's Equity Interests in, or substantially all of the assets
of, such Restricted Subsidiary.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Senior Notes and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
(iv) such transaction will not result in the loss or suspension or material
impairment of any licenses or other authorizations that are material to the
future prospects of the Company and its Subsidiaries, taken as a whole; and (v)
except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company or into a parent corporation the principal purpose of
which transaction is to change the state of incorporation of the Company, the
Company or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth
in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration
in excess of $250,000, (1) a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of Directors or (2) an
opinion as to the fairness to the holders of such Affiliate Transaction from a
financial point of
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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.
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
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Interest of any Wholly Owned Restricted Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests of such Wholly Owned Restricted
Subsidiary owned by the Company or any of its Subsidiaries and (b) the Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales," and (ii) will not permit
any Wholly Owned Restricted Subsidiary of the Company to issue any of its
Equity Interests (other than, if required by applicable law, shares of Capital
Stock (y) constituting directors' qualifying shares and (z) of non-U.S.
Restricted Subsidiaries sold to non-U.S. nationals as required by the laws of
the jurisdiction of incorporation of such non-U.S. Restricted Subsidiary) to
any Person other than to the Company or a Wholly Owned Restricted Subsidiary of
the Company.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES
The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the guarantee of the payment of the Senior Notes by such Subsidiary, which
guarantee shall be senior to or 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 Senior Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's stock in, or all or substantially all the assets of,
such Subsidiary, which sale, exchange or transfer is made in compliance with
the applicable provisions of the Indenture. A form of such guarantee is
attached as an exhibit to the Indenture.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Senior Notes unless such
consideration is offered to be paid or is paid to all holders of the Senior
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding, the
Company will furnish to the holders of Senior Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Form 10-Q or, if the Company is eligible to file such
Form, Form 10-QSB and Form 10-K or, if the Company is eligible to file such
Form, Form 10-KSB if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case, within the time
periods set forth in the Commission's rules and regulations. In addition,
commencing after the consummation of the Exchange Offer, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing)
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within the time periods set forth in the Commission's rules and regulations and
make such information available to securities analysts and prospective
investors upon request. In addition, the Company has agreed that, for so long
as any Senior Notes remain outstanding, it will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Senior
Notes may declare all the Senior Notes to be due and payable immediately. Upon
such declaration, the principal of, premium, if any, and accrued and unpaid
interest and Liquidated Damages, if any, on the Senior Notes shall be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect
to the Company, any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, the foregoing amount
shall become due and payable without further action or notice. Holders of the
Senior Notes may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Senior Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from holders of the Senior Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest or Liquidated Damages, if any) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Senior Notes pursuant
to the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Senior Notes. If an Event of Default occurs
prior to October 27, 2002 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
the prohibition on redemption of the Senior Notes prior to October 27, 2002,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Senior
Notes.
The holders of a majority in aggregate principal amount of the Senior
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of principal or premium, if any, interest or Liquidated
Damages, if any on the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Senior Notes, the Subsidiary Guarantees, the Indenture or the
Proceeds Pledge and Escrow Agreement or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of Senior
Notes by accepting a Senior Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Senior
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages, if any, on such Senior Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or
stolen Senior Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Senior Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Senior Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Senior Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the
outstanding Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the outstanding Senior Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Restricted Subsidiaries is a party or by which the
Company or any of its Restricted Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Senior Notes over the
other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
Senior Notes to be redeemed.
The registered holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Senior Notes or the Proceeds Pledge and Escrow Agreement may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the Senior Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Senior Notes), and any existing default or compliance
with any provision of the Indenture, the Senior Notes or the Proceeds Pledge
and Escrow Agreement may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange offer for
Senior Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Senior Notes held by a non-consenting holder): (i)
reduce the principal amount of Senior Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any New Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders" and
certain provisions set forth under the caption "--Proceeds Pledge and Escrow
Agreement"), (iii) reduce the rate of or change the time for payment of
interest on any New Note, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest or Liquidated Damages,
if any, on the Senior Notes (except a rescission of acceleration of the Senior
Notes by the holders of at least a majority in aggregate principal amount of
the Senior Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any New Note payable in money other than that stated in
the Senior Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Senior Notes
to receive payments of principal of or premium, if any, or interest or
Liquidated Damages, if any, on the Senior Notes, (vii) waive a redemption
payment with respect to any New Note (other than a payment required by one of
the covenants described above under the caption "--Repurchase at the Option of
Holders" and certain provisions set forth under the caption "--Proceeds Pledge
and Escrow Agreement") or (viii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the covenants described under
the caption "--Proceeds Pledge and Escrow Agreement," including the related
definitions will require the consent of the holders of at least 75% in
aggregate principal amount of the Senior Notes then outstanding if such
amendment would adversely affect the rights of holders of Senior Notes.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's obligations to holders of
Senior Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of Senior Notes
or that does not adversely affect the legal rights under the Indenture of any
such holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Senior Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
Proceeds Pledge and Escrow Agreement and Registration Rights Agreement without
charge by writing to InterAmericas Communication Corporation, 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
Senior Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for Senior Notes. If (i) the Company is not permitted to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy or (ii) any holder of Transfer Restricted Securities
notifies the Company prior to the 20th day following consummation of the
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the Senior
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Senior Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Senior Notes by the holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission.
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, Senior Notes in exchange for all
Senior Notes tendered prior thereto in the Exchange Offer and (iv) if obligated
to file the Shelf Registration Statement, the Company will use its best efforts
to file the Shelf Registration
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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 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
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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,
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
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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 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,
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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 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 Senior Notes, each
Interest Payment Date.
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"Debt to Cash Flow Ratio" means, as of any date of determination, the
ratio of (a) the Consolidated Indebtedness of the Company as of such date to
(b) the Consolidated Cash Flow of the Company for the four most recent full
fiscal quarters ending immediately prior to such date for which internal
financial statements are available, determined on a pro forma basis after
giving effect to all acquisitions or dispositions of assets made by the Company
and its Restricted Subsidiaries from the beginning of such four-quarter period
through and including such date of determination (including any related
financing transactions) as if such acquisitions and dispositions had occurred
at the beginning of such four-quarter period. In addition, for purposes of
calculating Consolidated Cash Flow for the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which the
event for which the calculation of the Debt to Cash Flow Ratio is made (the
"Calculation Date") shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Equity Proceeds" means any net cash proceeds received by the
Company after the date of the Indenture from the issuance and sale of its
Qualified Capital Stock (other than Qualified Capital Stock sold to a
Subsidiary of the Company) providing the basis for (i) a redemption of Senior
Notes in a transaction consummated in compliance with the second paragraph of
the section captioned "--Optional Redemption," (ii) an addition to the
cumulative account calculated pursuant to clause (c) of the first paragraph of
the covenant described above under the caption "--Certain Covenants--Restricted
Payments," (iii) the incurrence of additional Indebtedness pursuant to clause
(v) of the second paragraph of the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" or (iv) an Investment pursuant to clause (f) of the definition of
"Permitted Investments," in each case, as designated by a written resolution of
the Board of Directors of the Company filed with the Trustee on or prior to the
date on which such net cash proceeds are received by the Company. In no event
shall the same net cash proceeds be treated as Designated Equity Proceeds for
more than one purpose under the Indenture. Once designated for a particular
purpose, such net cash proceeds may not be redesignated for an alternative
purpose. In addition, to the extent that any such Qualified Capital Stock
ceases to be outstanding for any reason, any Indebtedness, Restricted Payment
or Investment that was incurred or made as a result of the receipt of net cash
proceeds from the issuance of such Qualified Capital Stock shall cease (as of
the date on which such Qualified Capital Stock ceases to be outstanding) to be
permitted by virtue of the issuance of such Qualified Capital Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"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 Senior
Notes, provided, however, that prior to October 27, 2000, the failure by the
Company to pay interest on the Senior Notes within five days of an Interest
Payment Date will constitute an immediate Event of Default; (ii) default in
payment when due of the principal of or premium, if any, on the Senior Notes;
(iii) failure by the Company to comply with
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the provisions described under the captions "--Proceeds Pledge and Escrow
Agreement," "--Repurchase at the Option of Holders--Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments," "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets;" (iv) failure by the Company for 60 days after
notice to comply with any of its other agreements in the Indenture or the
Senior Notes; (v) breach by the Company of any material representation,
warranty or agreement set forth in the Proceeds Pledge and Escrow Agreement, or
repudiation by the Company of its obligations under the Proceeds Pledge and
Escrow Agreement or the unenforceability of the Proceeds Pledge and Escrow
Agreement against the Company for any reason; (vi) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Subsidiary shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
"Existing Indebtedness" means up to $1.0 million in aggregate principal
amount of (a) Indebtedness of the Company and its Restricted Subsidiaries in
existence on the date of the Indenture and (b) Acquired Debt incurred by the
Company and its Restricted Subsidiaries in connection with the Iusatel
Acquisition, until such amounts are repaid.
"Fair Market Value" means, with respect to assets, Equity Interests or any
other securities having a fair market value (a) of less than $5.0 million, the
fair market value of such assets, Equity Interests or any other securities
determined in good faith by the Board of Directors of the Company (including a
majority of the Independent Directors thereof) and evidenced by a board
resolution and (b) equal to or in excess of $5.0 million, the fair market value
of such assets, Equity Interests or any other securities as determined by an
investment banking firm of national standing; provided that the fair market
value of the assets purchased in an arm's-length transaction by an Affiliate of
the Company (other than a Subsidiary) from a third party that is not also an
Affiliate of the Company or such purchaser and contributed to the Company
within five Business Days of the consummation of the acquisition of such assets
by such Affiliate shall be deemed to be the aggregate consideration paid by
such Affiliate (which may include the fair market value of any non-cash
consideration to the extent that the valuation requirements of this definition
are complied with as to any such non-cash consideration); provided, further,
that the fair market value of Equity Interests issued and sold to the public in
a registered public offering or to one or more Strategic Equity Investors shall
be deemed to be the 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
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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 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
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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 Senior 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 Senior Notes being offered hereby) of the Company
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-U.S. holders" means persons other than U.S. holders.
"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.
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"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 Senior 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.
"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;
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(iii) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(iv) Liens existing on the date of the Indenture;
(v) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(vi) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(vii) Liens securing Indebtedness of any Restricted Subsidiary of the
Company that does not exceed $5.0 million at any one time outstanding
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of such Restricted
Subsidiary;
(viii) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(ix) Liens created pursuant to the Proceeds Pledge and Escrow Agreement;
(x) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary;
(xi) Liens securing the Senior Notes;
(xii) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects which, in the aggregate, are not
material in amount, and which do not, in any case, materially detract from
the value of the property subject thereto (as such property is used by the
Company or any of its Restricted Subsidiaries) or interfere with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(xiii) Liens arising by reason of any judgment, decree or order or any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(xiv) any interest or title of a lessor under any Capital Lease
Obligation; and
(xv) any extension, renewal or replacement, in whole or in part, of any
Permitted Lien, provided that any such extension, renewal or replacement
shall be no more restrictive in any material respects that the Lien so
extended, renewed or replaced and shall not extend to any additional
property or assets.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its
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Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Senior Notes on terms at least as favorable to the holders of Senior
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"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 Senior 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 Senior Notes, each Person who is a holder of Existing
Notes or Senior 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 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
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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 Senior 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 Senior 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 Senior 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
Senior Notes will have the right to require ICCA to repurchase all or any part
of such holder's Senior 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 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).
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"Subsidiary Guarantee" means any guarantee of payment of the Senior Notes
by a Subsidiary issued by such Subsidiary pursuant to the covenant described
above under the caption "--Certain Covenants--Limitations on Issuances of
Guarantees of Indebtedness by Subsidiaries."
"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 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
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designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than (i) directors' qualifying shares or
(ii) shares of non-U.S. Restricted Subsidiaries held by non-U.S. nationals as
required by the laws of the jurisdiction of incorporation of such non-U.S.
Restricted Subsidiary) shall at the time be owned by such Person or by one or
more Wholly Owned Restricted Subsidiaries of such Person; provided, that no
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which are not owned by such Person, shall in any
case be a "Wholly Owned Restricted Subsidiary" under the Indenture unless such
Person either alone or together with one or more Wholly Owned Restricted
Subsidiaries of such Person has the absolute right, pursuant to law, contract
or otherwise, to direct the payment of dividends or the making of other
distributions, loans or advances by such Restricted Subsidiary.
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DESCRIPTION OF CAPITAL STOCK
The following statements are qualified in their entirety by reference to
ICCA's Certificate of Incorporation and By-laws, copies of which are available
from the Company.
The authorized capital stock of ICCA consists of 50,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
COMMON STOCK
As of August 3, 1998, there were 19,084,300 outstanding shares of Common
Stock held of record by approximately 200 persons or entities. Holders of the
Common Stock are entitled to cast one vote for each share held of record on all
matters acted upon at any meeting of ICCA's shareholders. Holders of Common
Stock are entitled to receive ratably such dividends if and when declared by
the Board of Directors out of funds legally available therefor, subject to
preferences that may be applicable to any outstanding Preferred Stock. There
are no cumulative voting rights, the absence of which will, in effect, allow
the holders of a majority of the outstanding shares of the Common Stock to
elect all of the directors then standing for election. In the event of any
liquidation, dissolution or winding up of ICCA, each holder of Common Stock
will be entitled to participate, subject to the rights of any outstanding
Preferred Stock, ratably in all assets of ICCA remaining after payment of
liabilities. Holders of Common Stock have no preemptive or conversion rights.
All outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
As of August 3, 1998, there were no outstanding shares of Preferred Stock.
The Board of Directors has the authority to issue shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, redemption rights, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the
shareholders. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock. In
addition, because the terms of such Preferred Stock may be fixed by the Board
of Directors without shareholder action, the Preferred Stock could be
designated and issued quickly in the event ICCA requires additional equity
capital. The Preferred Stock could also be designated and issued with terms
calculated to defeat a proposed take-over of the Company or with terms that may
have the effect of delaying, deferring or preventing a change of control of
ICCA. Under certain circumstances, this could have the effect of decreasing the
market price of the Common Stock.
FEBRUARY 1997 WARRANTS
ICCA has outstanding warrants (the "February 1997 Warrants") to purchase
an aggregate of 100,000 shares of Common Stock, exercisable through February 2,
2002 at an exercise price of $5.00 per share, which price is subject to
adjustment under certain circumstances. The February 1997 Warrants were issued
in connection with the private placement of $1.5 million aggregate principal
amount of the 7% Convertible Debentures.
MAY 1997 WARRANTS
ICCA has outstanding warrants (the "May 1997 Warrants") to purchase an
aggregate of 20,000 shares of Common Stock, exercisable through June 30, 2002
at an exercise price of $2.37 per share, which price is subject to adjustments
under certain circumstances. The May 1997 Warrants were issued in connection
with the private placement of $2.0 million aggregate principal amount of the 8%
Convertible Debentures.
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TELEPORT CHILE UNIT WARRANTS
ICCA has outstanding warrants (the "Teleport Warrants") to purchase an
aggregate of 388,900 shares of Common Stock of ICCA, exercisable through
December 31, 1998, at an exercise price of $3.00 a share or at a price at which
any of ICCA's Common Stock is sold through a private placement or registered
offering through the expiration date of the Teleport Warrants. The Teleport
Warrants were issued in connection with the assignment to Teleport Chile of a
loan in the aggregate principal amount of $1.0 million made to the Company by
Cablex Electronique Ltd. dated July 8, 1994.
VISAT NOTE WARRANTS
ICCA has outstanding warrants (the "VISAT Note Warrants") to purchase an
aggregate of 200,000 shares of Common Stock at an exercise price of $3.50 a
share. The VISAT Note Warrants were issued in connection with a loan to ICCA
dated May 2, 1995.
BRIDGE WARRANTS
The Company has outstanding warrants (the "Bridge Warrants") to purchase
an aggregate of 95,000 shares of Common Stock at exercise prices between $2.56
and $3.06 per share. The Bridge Warrants were issued in connection with the
Bridge Notes.
UNIT WARRANTS
The Company has outstanding Unit Warrants to purchase an aggregate of
5,250,000 shares of Common Stock. The Unit Warrants were issued pursuant to a
Unit Warrant Agreement (the "Unit Warrant Agreement") between the Company and
State Street Bank and Trust Company, as Unit Warrant Agent (the "Unit Warrant
Agent"), a copy of which is available for inspection at InterAmericas
Communication Corporation, 2600 Douglas Road, Suite 501, Coral Gables, Florida
33134, Attn: Chief Financial Officer. The following summary of certain
provisions of the Unit Warrant Agreement does not purport to be complete and is
qualified in its entirety by reference to the Unit Warrant Agreement, including
the definitions therein of certain terms used below.
GENERAL
Each Unit Warrant, when exercised, will entitle the holder thereof to
receive one fully paid and non-assessable share of Common Stock of the Company,
par value $.001 per share ("Unit Warrant Share"), at an exercise price of $4.40
per share, subject to adjustment (the "Exercise Price"). The Exercise Price and
the number of Unit Warrant Shares are both subject to adjustment in certain
cases referred to below. The Unit Warrants will entitle the holders thereof to
purchase in the aggregate 5,250,000 Unit Warrant Shares, or approximately 15.2%
of the Company's Common Stock on a fully diluted basis as of the closing of the
Offering.
The Unit Warrants will become exercisable after the Separation Date.
Unless exercised, the Unit Warrants will automatically expire on October 27,
2007 (the "Expiration Date"). The Company will give notice of expiration not
less than 90 and not more than 120 days prior to the Expiration Date to the
registered holders of the then outstanding Unit Warrants. If the Company fails
to give such notice, the Unit Warrants will not expire until 90 days after the
Company gives such notice. In no event will holders be entitled to any damages
or other remedy for the Company's failure to give such notice other than any
such extension.
The Unit Warrants may be exercised by surrendering to the Company the
warrant certificates evidencing the Unit Warrants to be exercised with the
accompanying form of election to purchase properly completed and executed,
together with payment of the Exercise Price. Payment of the Exercise Price may
be made (A) by tendering Senior Notes having an aggregate principal amount,
plus accrued and unpaid interest, if any, thereon, to the date of exercise
equal to the Exercise Price, (B) by
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tendering Unit Warrants having a fair market value (as determined in good faith
by the Company's Board of Directors) equal to the Exercise Price or (C) by a
combination of Senior Notes and Unit Warrants. Upon surrender of the warrant
certificate and payment of the Exercise Price, the Company will deliver or
cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole shares of Common Stock to which
the holder is entitled. If less than all of the Unit Warrants evidenced by a
warrant certificate are to be exercised, a new warrant certificate will be
issued for the remaining number of Unit Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Unit Warrants. The Company will pay to the holder of the Unit Warrant at the
time of exercise an amount in cash equal to the current market value of any
such fractional share of Common Stock less a corresponding fraction of the
Exercise Price.
The holders of the Unit Warrants will have no right to vote on matters
submitted to the stockholders of the Company and will have no right to receive
dividends. The holders of the Unit Warrants will not be entitled to share in
the assets of the Company in the event of liquidation, dissolution or the
winding up of the Company. In the event of bankruptcy or reorganization is
commenced by or against the Company, a bankruptcy court may hold \that
unexercised Unit Warrants are executory contracts which may be subject to
rejection by the Company with approval of the bankruptcy court, and the holders
of the Unit Warrants may, even if sufficient funds are available, receive
nothing or a lesser amount as a result of any such bankruptcy case than they
would be entitled to if they had exercised their Unit Warrants prior to the
commencement of any such case.
In the event of a taxable distribution to holders of Common Stock that
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Unit Warrant may be exercised, the holders of the
Unit Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon exercise of Unit
Warrants and the Exercise Price will be subject to adjustment in certain events
including: (i) the payment by the Company of dividends and other distributions
on its Common Stock in Common Stock, (ii) subdivisions, combinations and
reclassifications of the Common Stock, (iii) the issuance to all holders of
Common Stock of rights, options or warrants entitled them to subscribe for
Common Stock or securities convertible into, or exchangeable or exercisable
for, Common Stock at an offering price (or with an initial conversion, exchange
or exercise price) which is less than the Fair Value per share (as defined) of
Common Stock, (iv) the distribution to all holders of Common Stock of any of
the Company's assets (including cash), debt securities, preferred stock or any
rights or warrants to purchase any such securities (excluding those rights and
warrants referred to in clause (iii) above), (v) the issuance of shares of
Common Stock for a consideration per share less than the Fair Value per share
of Common Stock (excluding securities issued in transactions referred to in
clauses (i) through (iv) above), (vi) the issuance of securities convertible
into or exchangeable for Common Stock for a conversion or exchange price plus
consideration received upon issuance less than the Fair Value per share of
Common Stock (excluding securities issued in transactions referred to in
clauses (i) through (iv) above), and (vii) certain other events that could have
the effect of depriving holders of the Unit Warrants of the benefit of all or a
portion of the purchase rights evidenced by the Unit Warrants.
"FAIR VALUE" per security at any date of determination shall be (l) in
connection with a sale to a party that is not an Affiliate of the Company in an
arm's-length transaction (a "Non-Affiliate Sale"), the price per security at
which such security is sold and (2) in connection with any sale to an Affiliate
of the Company, (a) the last price per security at which such security was sold
in a Non-Affiliate Sale within the three-month period preceding such date of
determination or (b) if clause (a) is not applicable, the fair market value of
such security determined in good faith by a nationally recognized investment
banking, appraisal or valuation firm, which is not an Affiliate of the Company,
in each case, taking into
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account, among all other factors deemed relevant by the Board of Directors or
such investment banking, appraisal or valuation firm, the trading price and
volume of such security on any national securities exchange or automated
quotation system on which such security is traded.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the Exercise Price; provided however, that any adjustment that is not made
will be carried forward and taken into account in any subsequent adjustment.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, each Unit Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such
consolidation, merger or sale had the Unit Warrants been exercised immediately
prior thereto.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of Common Stock as will be
issuable upon the exercise of all outstanding Unit Warrants. Such shares of
Common Stock, when paid for and issued, will be duly and validly issued, fully
paid and non-assessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issuance thereof.
AMENDMENTS
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Unit Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not materially adversely affect the rights of any
holder. Any amendment or supplement to the Warrant Agreement that has a
material adverse effect on the interests of the holders of the Unit Warrants
will require the written consent of the holders of a majority of the then
outstanding Unit Warrants (excluding Unit Warrants held by the Company or any
of its Affiliates). The consent of each holder of the Unit Warrants affected
will be required for any amendment pursuant to which the Exercise Price would
be increased or the number of shares of Common Stock purchasable upon exercise
of Unit Warrants would be decreased (other than pursuant to adjustments
provided in the Warrant Agreement).
REGISTRATION RIGHTS
The holders of the Unit Warrants and the Unit Warrant Shares are entitled
to certain rights with respect to the registration of the Unit Warrant Shares
under the Securities Act, including the right to have the Unit Warrant Shares
included in the Registration Statement of which this Prospectus forms a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock and warrant agent for the warrants
(other than the Unit Warrants) is OTC Transfer, Inc., Salt Lake City, Utah.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have outstanding
19,084,300 shares of Common Stock. All of such shares may be sold under Rule
144, subject to the volume and manner of sale limitations contained in Rule 144
and to the lock-up agreement referred to below.
During October 1997, the Company issued 851,162 shares of Common Stock in
connection with the conversion of $1.45 million aggregate principal amount of
its 8% Convertible Debentures, plus related accrued interest and issued 250,620
shares of Common Stock in connection with the conversion of $500,000 aggregate
principal amount of its 7% Convertible Debentures, plus, related accrued
interest.
All of the executive and directors and certain shareholders of ICCA were
deemed to beneficially own 8,922,083 shares of Common Stock (including options
to purchase 3,643,333 shares) upon consummation of the Senior Note Offering
have agreed not to sell, otherwise dispose of or pledge any shares of Common
Stock or securities convertible into or exercisable or exchangeable for such
Common Stock for a period of 180 days from the commencement of the Senior Note
Offering without the prior written consent of UBS Securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
within the meaning of Rule 144 ("Restricted Shares") for at least one year, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock and
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
SmallCap market during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding a sale, and
who owns restricted shares that were purchased from the Company (or any
affiliate) at least two years previously, will be entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
No prediction can be made as to the effect, if any, that future sales of
shares, the availability of shares for future sale, or the registration of
substantial amounts of currently restricted shares will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market, under Rule 144, pursuant to the
exercise of registration rights or otherwise, and even the potential for such
sales, could have a material adverse effect on the prevailing market price of
the Common Stock and impair the Company's ability to raise capital through the
sale of its equity securities. See "Risk Factors--Shares Eligible for Future
Sale."
PLAN OF DISTRIBUTION
The Shares are being offered hereby on behalf of the Registering
Stockholders. Except for the exercise price of the Registering Stockholders'
warrants and options, none of the proceeds from the sale of the Shares by the
Registering Stockholders pursuant to this Prospectus will be received by the
Company. The Shares may be sold or distributed by the Registering Stockholders
or by donees, transferees or pledges of, or the successors in interest to, the
Registering Stockholders from time to time in transactions for their own
account, in negotiated transactions, or a combination of such methods of sale,
at fixed prices which may change, at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices or at negotiated
prices. The sale of the Shares may be effected in one or more of the following
methods: (i) ordinary brokers' transactions, which may include long or short
sales; (ii) transactions involving cross or block trades or otherwise on the
Nasdaq Stock Market; (iii) purchases by brokers, dealers or underwriters as
principal and resale by such purchasers for their
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own accounts pursuant to this Prospectus; (iv) "at the market" to or through
market makers or into established trading markets, including direct sales to
purchasers or sales effected through agents; or (v) any combination of the
foregoing, or by any other legally available means. In addition, the
Registering Stockholders or their successors in interest may enter into hedging
transactions with broker-dealers who may engage in short sales of the Shares in
the course of hedging the position they assume with the Registering
Stockholders. The Registering Stockholders or their successors in interest may
also enter into option or other transactions with broker-dealers that require
the delivery by such broker-dealers of the Shares, which Shares may be resold
thereafter pursuant to this Prospectus. There can be no assurance that all or
any of the Shares will be issued to, or sold by, the Registering Stockholders.
Brokers-dealers, underwriters or agents participating in the sale of the
Shares may receive compensation in the form of commissions, discounts or
concessions from the Registering Stockholders and/or purchasers of the Shares
for whom such broker-dealers may act as agent, or to whom they may sell as
principal, or both (which compensation to a particular broker-dealer may be
less than or in excess of customary commissions). The Registering Stockholders
and any broker-dealers or other persons who act in connection with the sale of
the Shares hereunder may be deemed to be "Underwriters" within the meaning of
the Securities Act, and any commission they receive and proceeds of any sale of
the Shares may be deemed to be underwriting discounts and commission under the
Securities Act. Neither the Company nor any Registering Stockholders can
presently estimate the amount of such compensation. The Company knows of no
existing arrangements between any Selling Stockholder any other stockholders,
broker, dealer, underwriter or agent relating to the sale or distribution of
the Shares.
The Registering Stockholders and any other persons participating in the
sale or distribution of the Shares will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Registering
Stockholders or any other such persons. The foregoing may affect the
marketability of the Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify certain of the Registering Stockholders and
certain related persons against certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Legal matters with respect to the Common Stock offered hereby will be
passed upon for the Company by Baker & McKenzie, Miami, Florida.
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 contains
explanatory paragraphs relating to the terms of transactions and relationships
with related parties and to the restatement of its financial statements as
described in Note 5 and Note 2 to the Consolidated Financial Statements,
respectively) of PricewaterhouseCoopers LLP, independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of FirstCom Long Distance S.A., as of December
31, 1997 and 1996 and for each of the two years in the period ended December
31, 1997, included in this Prospectus, have been audited by Langton Clarke y
Cia Ltda.\Arthur Andersen, LLP, independent accountants, as stated in their
report appearing herein, and have been so included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
108
<PAGE>
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.
109
<PAGE>
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.
110
<PAGE>
MULTICARRIER AGREEMENT: The legislation passed by Chile's Ministry of
Telecommunications in 1994 which opens Chile's long distance market to
competition while temporarily limiting the market share in that market which
may be held by the CTC.
NODE: Devices on a network that demand or supply services or where
transmission paths are connected.
PBX (PRIVATE BRANCH EXCHANGE): A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
PDH (PLESIOCHRONOUS DIGITAL HIERARCHY): Refers to a digital transmission
system that operates as a Time Division Multiplexing (TDM) system by combining
multiple signals of 2 Mbit/s through the use of a multiplexor that operates by
adding "dummy" bits (otherwise known as justification bits). The justification
bits are recognized as such when multiplexing occurs, and discarded as original
signals. This process is known as plesiosynchronous operation. The use of
plesiochronous operation has led to the adoption of the term plesiochronous
digital hierarchy, or PDH.
POPS (POINTS OF PRESENCE): Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PTT (PUBLIC TELEPHONE AND TELEGRAPH): A government or privately-owned
monopoly carrier of telecommunications services or having a dominant market
share such as CTC.
PRIVATE LINE: Refers to a private, dedicated telecommunications connection
between different locations (excluding long distance carriers' POPs).
PUBLIC SWITCHED NETWORK: Refers to traditional public (not dedicated) LEC
networks that switch calls between different customers.
REDUNDANT ELECTRONICS: Describes a telecommunications facility using two
separate electronic devices to transmit the telecommunications signal so that
if one device malfunctions, the signal may continue without interruption.
RIGHT-OF-WAY: Rights negotiated with the appropriate entity, such as a
utility company or transportation agency, to secure access to poles, ducts,
conduits or subway tunnels, as the case may be, to install the fiber optic
lines.
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.
111
<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.
112
<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
FIRSTCOM LONG DISTANCE S.A.
Report of Independent Accountants .................................................. F-22
Balance Sheets at December 31, 1996 and 1997 ....................................... F-23
Statements of Operations for each of the two years ended December 31, 1996 and 1997 F-24
Statements of Cash Flows for each of the two years ended December 31, 1996 and 1997 F-25
Notes to Financial Statements ...................................................... F-26
</TABLE>
Ch$ = Chilean pesos
ThCh$ = Thousands of Chilean pesos
US$ = United States dollars
ThUS$ = Thousands of United States dollars
U.F. = The Unidad de Fomento, or U.F., is an inflation-indexed, peso
denominated monetary unit used in Chile. The U.F. rate is
set daily in advance based on the change in the Chilean
Price Index of the previous month.
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 5, 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.
As described in Note 2, the Company has restated its financial statements
for the years ended December 31, 1997 and 1996.
PricewaterhouseCoopers LLP
Miami, Florida
March 2, 1998, except as to Note 2
which is as of August 6, 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
------------ ----------- ----------------------
(AS RESTATED, NOTE 2) (AS RESTATED, NOTE 2)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 723 $ 14,936 $ 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 99,943 89,922
Restricted investments ............................................. -- 37,488 38,022
Telecommunications networks, net ................................... 3,956 9,348 15,030
Intangible assets, net ............................................. 9,568 15,186 14,949
Deferred financing costs ........................................... 42 14,971 14,766
--------- --------- ---------
Total assets ..................................................... $ 14,893 $ 176,936 $ 172,689
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 299 $ 4,023 $ 3,194
Convertible debentures ............................................ -- 1,550 --
Accrued interest .................................................. 83 3,925 9,047
Other accrued expenses ............................................ 591 2,631 916
Due to related parties ............................................ 416 263 --
Lease obligations, current ........................................ 114 313 233
Other current liabilities ......................................... 323 322 544
--------- --------- ---------
Total current liabilities ........................................ 1,826 13,027 13,934
Senior notes, net .................................................. -- 131,626 131,791
Lease obligations, less current portion ............................ 248 356 315
--------- --------- ---------
Total liabilities ................................................ 2,074 145,009 146,040
--------- --------- ---------
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 ........................................ 23,168 31,562 31,562
Warrants .......................................................... -- 26,737 26,737
Accumulated deficit ............................................... (10,287) (26,153) (31,431)
Cumulative translation adjustments ................................ (78) (238) (238)
--------- --------- ---------
Total stockholders' equity ....................................... 12,819 31,927 26,649
--------- --------- ---------
Total liabilities and stockholders' equity ....................... $ 14,893 $ 176,936 $ 172,689
========= ========= =========
</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)
------------- -------------- -------------- ------------- --------------
(AS RESTATED, NOTE 2) (AS RESTATED, NOTE 2)
<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 4,678 816 1,831
Non-cash compensation and
consulting .................. 12 73 4,640 -- --
Depreciation and
amortization ................ 396 842 1,201 278 523
---------- ----------- ----------- ----------- -----------
2,722 5,145 11,722 1,410 4,963
---------- ----------- ----------- ----------- -----------
Loss from operations .......... (2,498) (4,493) (10,592) (1,086) (1,636)
Interest expense .............. (319) (246) (6,521) (215) (5,403)
Interest income ............... 10 80 1,315 18 1,761
Other expense, net ............ (66) (103) (68) -- --
---------- ----------- ----------- ----------- -----------
Net loss ...................... (2,873) (4,762) (15,866) (1,283) (5,278)
========== =========== =========== =========== ===========
Net basic and diluted loss
per share .................... $ (.31) $ (.32) $ (.95) $ (.08) $ (.28)
========== =========== =========== =========== ===========
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 7,487
Imputed interest on related
party notes ............................... -- -- 40
Stock option grants ........................ -- -- 73
Currency translation adjustment ............ -- -- --
Net loss ................................... -- -- --
---------- --- -------
Balances at December 31, 1996
(As Restated, Note 2) ..................... 16,152,518 16 23,168
Conversion of debt ......................... 1,101,782 1 1,993
Beneficial conversion feature .............. -- -- 810
Reversal of beneficial conversion
feature upon redemption of debt ........... -- -- (344)
Stock issued to a former director in
connection with the FirstCom Long
Distance Acquisition ...................... 100,000 -- 205
Stock issued as compensation to officers
and former directors ...................... 1,350,000 2 3,756
Stock option grants to officers and
former directors .......................... -- -- 882
Conversion of liabilities .................. 80,000 -- 240
Stock issued for past financial
assistance ................................ 300,000 -- 852
Warrants to purchase common stock .......... -- -- --
Currency translation adjustment ............ -- -- --
Net loss ................................... -- -- --
---------- --- -------
Balances at December 31, 1997
(As Restated, Note 2) ..................... 19,084,300 19 31,562
Net loss (unaudited) ....................... -- -- --
---------- --- -------
Balances at March 31, 1998 (unaudited)
(As Restated, Note 2) ..................... 19,084,300 $19 $31,562
========== === =======
<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 .............. -- -- -- 7,488
Imputed interest on related
party notes ............................... -- -- -- 40
Stock option grants ........................ -- -- -- 73
Currency translation adjustment ............ -- -- (108) (108)
Net loss ................................... -- (4,762) -- (4,762)
--------- --------- ------ ---------
Balances at December 31, 1996
(As Restated, Note 2) ..................... -- (10,287) (78) 12,819
Conversion of debt ......................... -- -- -- 1,993
Beneficial conversion feature .............. -- -- -- 810
Reversal of beneficial conversion
feature upon redemption of debt ........... -- -- -- (344)
Stock issued to a former director in
connection with the FirstCom Long
Distance Acquisition ...................... -- -- -- 205
Stock issued as compensation to officers
and former directors ...................... -- -- -- 3,758
Stock option grants to officers and
former directors .......................... -- -- -- 882
Conversion of liabilities .................. -- -- -- 240
Stock issued for past financial
assistance ................................ -- -- -- 852
Warrants to purchase common stock .......... 26,737 -- -- 26,737
Currency translation adjustment ............ -- -- (160) (160)
Net loss ................................... -- (15,866) -- (15,866)
--------- --------- ------ ---------
Balances at December 31, 1997
(As Restated, Note 2) ..................... 26,737 (26,153) (238) 31,927
Net loss (unaudited) ....................... -- (5,278) -- (5,278)
--------- --------- ------ ---------
Balances at March 31, 1998 (unaudited)
(As Restated, Note 2) ..................... $ 26,737 $ (31,431) $ (238) $ 26,649
========= ========= ====== =========
</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
-------------- -------------- -------------
(AS RESTATED, NOTE 2)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $(2,873) $(4,762) $ (15,866)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense ........................................ 396 842 1,201
Amortization of deferred financing costs and original issue discounts ........ -- -- 518
Beneficial conversion features on convertible debentures, net ................ -- -- 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 4,602
Due to related parties ...................................................... (66) (251) (179)
Other current liabilities ................................................... -- 171 (105)
Deferred taxes .............................................................. (6) -- --
---------- ------- ----------
Cash used in operating activities .......................................... (2,150) (3,934) (4,889)
--------- ------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ........................................ (720) (1,453) (2,763)
Restricted cash and investments ............................................... -- -- (118,920)
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) (127,482)
--------- ------- ----------
Cash flows from financing activities:
Issuance of Senior Notes ...................................................... -- -- 150,000
Deferred financing costs ...................................................... -- -- (7,000)
Proceeds from credit agreements ............................................... -- -- --
Proceeds from convertible debentures .......................................... -- -- 3,500
Repayment of convertible debentures ........................................... -- -- --
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 7,570 146,584
--------- ------- ----------
Net increase (decrease) in cash and cash equivalents ........................... (57) 668 14,213
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 $ 14,936
========= ========= ==========
Cash paid for interest ........................................................ $ 2 $ 153 $ 545
========= ========= ==========
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1997 1998
(UNAUDITED) (UNAUDITED)
------------- ----------------------
(AS RESTATED, NOTE 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $ (1,283) $ (5,278)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense ........................................ 278 523
Amortization of deferred financing costs and original issue discounts ........ -- 297
Beneficial conversion features on convertible debentures, net ................ 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) 2,678
Due to related parties ...................................................... -- (263)
Other current liabilities ................................................... 242 122
Deferred taxes .............................................................. -- --
-------- --------
Cash used in operating activities .......................................... (1,002) (1,788)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ........................................ (392) (5,762)
Restricted cash and investments ............................................... (350) 5,713
Acquisition of FirstCom Long Distance ......................................... -- --
Acquisition of Visat .......................................................... -- --
Acquisition of FirstCom Networks .............................................. -- --
-------- --------
Cash used in investing activities .......................................... (742) (49)
-------- --------
Cash flows from financing activities:
Issuance of Senior Notes ...................................................... -- --
Deferred financing costs ...................................................... -- --
Proceeds from credit agreements ............................................... 2,054 --
Proceeds from convertible debentures .......................................... -- --
Repayment of convertible debentures ........................................... -- (1,550)
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 ................................. 2,054 (1,671)
-------- --------
Net increase (decrease) in cash and cash equivalents ........................... 310 (3,508)
Effect of exchange rate changes on cash ........................................ (17) --
Cash and cash equivalents at beginning of year ................................. 723 14,936
-------- --------
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 $7,490 has been substantially allocated to a local
carrier concession. A fair value of $5.99 was assigned to each share issued to
the shareholders of Resetel (See Note 2).
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.
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
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)
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 $ 11,145
Net loss ................... (33,011) (36,702)
Net loss per share ......... $ (2.22) $ (2.20)
</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 ............................ 7,494 13,770 20 years
Goodwill ............................... 1,289 1,289 10 years
------ --------
9,949 16,225
Less: accumulated amortization ......... (381) (1,039)
------ --------
$9,568 $ 15,186
====== ========
</TABLE>
F-8
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
2. RESTATED FINANCIAL INFORMATION AND AMENDED QUARTERLY FINANCIAL INFORMATION
During August 1998, the Company restated its December 31, 1997 and 1996
financial statements to reflect the effect of revising the price per share of
Company common stock issued in connection with the May 1996 acquisition of
Resetel (see Note 1) from $2.25 to $5.99 per share. The revised price per share
is based on the average closing price of the Company's common stock for the
period of 14 days before and after the date the terms of the acquisition were
announced. The previously recorded purchase price was based on the Company's
March 1996 private placement. The effect of the change in price per share
increased the reported purchase price from approximately $2,800 to $7,500. The
effect of the restatement on (1) the Company's annual statements of operations,
related to increased amortization expense, was to increase net loss by $136 and
$234, resulting in a net loss of $4,762 and $15,866 for the years ended
December 31, 1996 and 1997, respectively (2) on the Company's stockholders'
equity, related to the increased purchase price, was to increase additional
paid in capital by $4,675, resulting in additional paid in capital of $23,168
and $31,562 as of December 31, 1996 and 1997, respectively and (3) on the
Company's net basic and diluted loss per share, related to increased
amortization expense of $0.01 per share, resulting in net basic and diluted
loss per share of $0.32 and $0.95 for the years ended December 31, 1996 and
1997. The related impact on the interim March 31, 1998 unaudited financial
statements was to increase net loss by $58, increase additional paid in capital
by $4,675 and increase net basic and diluted loss per share by $0.01.
During October 1997 and August 1998 the Company amended certain financial
information as reported on Forms 10-QSB during 1996 and 1997. A summary of the
original and amended unaudited financial information and a description of the
related impact of the Company's statement of operations follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues ................................. $ 58 $ 113 $ 477
Loss from Operations ..................... (591) (1,646) (2,911)
Net loss, as amended ..................... $ (621) $(1,711) $(2,981)
====== ======= =======
Net basic and diluted loss per
share, as amended ....................... $(0.05) $(0.13) $(0.21)
====== ======= =======
General and administrative
expenses ................................ 247 (a) 247 (a)
Depreciation expense ..................... 110 (a) 240 (a) 240 (a)
Interest expense ......................... 36 (a) 36 (a)
Amortization expenses .................... 64 (c) 122 (c)
------- -------
Net loss, as originally reported ......... $ (511) $(1,124) $(2,336)
====== ======= =======
Net basic and diluted loss per
share, as originally reported ........... $(0.04) $(0.08) $(0.16)
====== ======= =======
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997
-------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues ................................. $ 324 $ 585 $ 853
Loss from Operations ..................... (1,085) (2,384) (8,574)
Net loss, as amended ..................... $(1,283) $ (2,881) $ (10,069)
======= ======== =========
Net basic and diluted loss per
share, as amended ....................... $ (0.08) $ (0.18) $ (0.61)
======= ======== =========
General and administrative
expenses ................................
Depreciation expense .....................
Interest expense ......................... 178 (b)
Amortization expenses .................... 58 (c) 116 (c) 176 (c)
------- -------- ---------
Net loss, as originally reported ......... $(1,047) $ (2,765) $ (9,893)
======= ======== =========
Net basic and diluted loss per
share, as originally reported ........... $ (0.06) $ (0.17) $ (0.61)
======= ======== =========
</TABLE>
- ----------------
(a) Reflects (i) adjustment identified in the fourth quarter of 1996 to provide
depreciation on assets placed in use during the first quarter of 1996,
for which depreciation initially had not commenced until the second
quarter of 1996 and (ii) adjustments for various expenses and costs
identified by the Company in the fourth quarter of 1996 as relating to
earlier 1996 quarters.
(b) Reflects additional interest identified in the fourth quarter of 1997
related to the beneficial conversion feature inherent in the 7%
Convertible Debentures issued in February 1997 (see Note 4). Of the total
adjustment of $310, the amount of $132 was capitalized as part of the
Company's fiber optic network.
(c) Reflects the quarterly effect of the Resetel purchase price described in
the introductory language to the table above.
F-9
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. 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
Through December 31, 1997, the Company's subsidiaries used the following
functional currency: Resetel-Peruvian sole, FirstCom Networks and VISAT-Chilean
peso. As such, 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.
As a result of (1) the Company's U.S. dollar denominated senior note
financing during October 1997, (2) the acquisition of FirstCom Long Distance on
December 17, 1997 and (3) the fact that FirstCom Long Distance and FirstCom
Networks operate as one functional entity of which FirstCom Long Distance
represents the majority of the operations, effective January 1, 1998 the
Company's Chilean 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.
Effective January 1, 1998 the Company's Peruvian subsidiary, Resetel, will
use the U.S. dollar as its functional currency. Although, through December 31,
1997 Resetel incorrectly used the local currency as its functional currency, the
impact of using the U.S. Dollar as Resetel's functional currency on prior
periods is not significant. 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.
F-10
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
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 4) to be used, in accordance with the terms of the related indenture
agreement, primarily for the purchase of the telecommunications equipment in
Peru and Chile. Restricted investments are U.S. Treasury Notes that are
restricted for the repayment of interest on the senior notes, and are stated at
amortized cost, which approximated fair value at December 31, 1997. These
investments mature at various dates through October 2000. Management designated
these investments as held-to-maturity.
TELECOMMUNICATIONS NETWORKS
Telecommunications networks are recorded at cost and are depreciated on a
straight-line method over the estimated useful lives of the related assets.
Construction, engineering, interest and labor costs directly related to the
development of the Company's networks are capitalized. The Company begins
depreciating these costs when the networks become commercially operational.
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.
F-11
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
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 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
F-12
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
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 $ (4,762) $ (15,866)
Pro forma (7,646) (21,471)
Net loss per share .......... As Reported (.32) ( .95)
Pro forma (.52) (1.29)
</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.
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.
F-13
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED ITEMS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are presented below:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforwards .......... $ 1,900 $ 8,953
Accounts receivable ....................... -- 438
Non-cash compensation ..................... -- 309
-------- --------
1,900 9,700
Less: valuation allowance ................. (1,900) (9,700)
-------- --------
Net deferred tax asset .................... $ -- $ --
======== ========
</TABLE>
Income tax expense for the years ended December 31, 1997, 1996 and 1995
differred from the amounts computed by applying the statutory income tax rate
applicable to the countries in which the Company and its subsidiaries operate
as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax benefit .......... $ (773) $ (1,020) $ (4,929)
Increase in valuation allowance .......... 773 1,020 4,929
------ -------- --------
$ -- $ -- $ --
====== ======== ========
</TABLE>
The domestic and foreign components of net loss are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Domestic .......... $ (1,710) $ (2,021) $ (12,402)
Foreign ........... (1,163) (2,605) (3,230)
-------- -------- ---------
$ (2,873) $ (4,626) $ (15,632)
======== ======== =========
</TABLE>
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
F-14
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
4. 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 5--Related Party Transactions and Note 6--Stock Options and
Warrants, describes the most significant of these transactions.
SENIOR NOTE OFFERING
On October 27, 1997, the Company completed a private offering (the "Senior
Note Offering") pursuant to Rule 144A and Regulation S promulgated under the
U.S. Securities Act of 1933 of 150,000 Units, consisting of an aggregate of
$150,000 aggregate principal amount of 14% Senior Notes due October 27, 2007
("Senior Notes") and 5,250,000 warrants (the "Unit Warrants") to purchase
5,250,000 shares of Common Stock of the Company at an exercise price of $4.40
per share. In addition, UBS Securities LLC, the initial purchaser of the Units
in the Senior Note Offering, was granted 2,250,000 warrants (the "Initial
Warrants") to acquire 2,250,000 shares of Common Stock of the Company at an
exercise price of $4.40 per share. The Unit Warrants are exercisable on the
earlier of April 27, 1998 or the registration with the SEC of the Senior Notes
and the Initial Warrants are immediately exercisable and both expire on October
27, 2007. Interest is payable semi-annually beginning on April 1, 1998.
The fair value of the Unit Warrants which is approximately $18,500 is
reflected as an original issue discount on the Senior Notes in the accompanying
consolidated balance sheet. Additionally, the Company incurred direct financing
costs of approximately $14,900, including the fair value of $7,900 of the
Initial Warrants, 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 fair value of the Unit Warrants and Initial Warrants was
determined by an investment banking firm using the Black-Scholes option pricing
model with the following assumptions: volatility of 90%, risk-free interest
rate of 6.24%, zero dividend yield and an expected life of 10 years.
The Senior Notes are redeemable on or after October 27, 2002 at the option
of the Company, in whole or in part from time to time, at specified redemption
prices declining annually to 100% of the principal amount on or after October
27, 2005, plus accrued and unpaid interest. Upon a change in control, the
Company is required to make an offer to purchase the Senior Notes at a purchase
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any. The Senior Notes contain certain restrictive covenants
that, among other things, limit the ability of the Company to incur additional
debt or issue preferred stock, pay dividends, enter into related party
transactions or make certain other restricted payments.
The net proceeds to the Company from the Senior Note Offering were
approximately $142,500, after deducting the underwriting discount and offering
expenses. Approximately $57,300 of the proceeds were used to purchase a
portfolio of securities that was deposited in escrow for payment of interest on
the Senior Notes through October 27, 2000 and, under certain circumstances, as
security for repayment of principal of the Senior Notes. During November and
December of 1997, the Company used the net proceeds of the Senior Note Offering
as follows: (i) $5,900 for the acquisition of FirstCom Long Distance, (ii)
$4,300 for the purchase of telecommunications equipment and the repayment of
its subsidiaries liabilities, (iii) $2,600 to settle all of the Company's
outstanding obligations related to convertible debentures and (iv) $975 to
repay certain bridge notes. The Company expects to use the remaining proceeds
primarily to expand and operate the Company's telecommunications businesses in
Peru and Chile.
F-15
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
4. CAPITALIZATION--(CONTINUED)
In addition to the deposit of a portion of the proceeds from the Senior
Note Offering to fund interest payments on the Senior Notes through October
2000, the Company deposited $62 million of the proceeds from the Senior Note
Offering in a separate account under a trustee's control pending application of
such funds by the Company for the payment of: (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.
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 recorded $810 as interest cost
and additional paid in capital related to the value of the beneficial
conversion feature.
During 1997, the Company issued 1,101,782 shares of Common Stock in
connection with the conversion of $1,950 aggregate principal amount of the
Convertible Debentures, plus related accrued interest. Effective December 31,
1997 the Company entered into an agreement for early extinguishment of the
Company's remaining financial obligations related to the Convertible Debentures
for $2,600 in cash. The cash payment was made on January 5 and 8, 1998.
Such settlement, including the related loss on extinguishment of $255
classified as interest expense, has been accrued for as of December 31, 1997
and related to the following items:
F-16
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
4. CAPITALIZATION--(CONTINUED)
<TABLE>
<S> <C>
Outstanding principal ......... $1,550
Accrued interest .............. 128
Redemption premiums ........... 335
Penalties ..................... 587
------
$2,600
======
</TABLE>
The above redemption premiums and penalties have been included in interest
expense in the accompanying statement of operations. As a result of such
settlement and redemption of outstanding principal, $344 of paid-in capital
related to the beneficial conversion feature was reversed.
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's Board of Directors authorized the
issuance of 850,000 shares of common stock to two officers and the Company
recognized related non-cash compensation expense of $2,338.
5. RELATED PARTY TRANSACTIONS
TELECTRONIC S.A. AND MR. HERNAN STREETER
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.
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.
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.
F-17
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
5. RELATED PARTY TRANSACTIONS--(CONTINUED)
On July 24, 1995, Mr. Donoso received 1,425,000 shares of Common Stock
(the "Donoso Shares") from the Company in exchange for his ownership interest
in HSI, a company which was acquired by the Company, in a transaction which was
exempt from the registration requirements of the Securities Act pursuant to
Regulation S and Section 4(2) thereof. On September 14, 1995, Mr. Donoso loaned
the Donoso Shares to Laura Investments, Ltd., a company owned and controlled by
Mr. Streeter.
From September 14, 1995 to March 1996, Laura Investments, Ltd. loaned the
Company an aggregate amount of $1,631,550. During March 1996, the Company
converted the original principal amount of $1,631,550, plus accrued interest of
$7,000 into 839,235 shares of Common Stock which were registered in the name of
Laura Investments, Ltd. and issued in a transaction which was exempt from the
registration requirements of the Securities Act pursuant to Regulation S and
Section 4(2) thereof.
During September 1997, Laura Investments Ltd. agreed to transfer 839,235
shares of the Company's Common Stock to Mr. Donoso in an attempt to satisfy its
obligatons to Mr. Donoso in connection with the transfer of the Donoso Shares
to Laura Investments, Ltd. which occurred on September 14, 1995. However, Mr.
Donoso claimed that the Company owed him additional shares of Common Stock in
consideration of the initial transaction between Mr. Donoso and Laura
Investments Ltd. on September 14, 1995 (or the equivalent monetary
consideration). The Company issued 300,000 shares of Common Stock to Mr. Donoso
in October 1997 in settlement of all outstanding claims by Mr. Donoso against
the Company. The Company recognized interest expense of $852,000 related to the
aggregate fair value of such shares of Common Stock issued to Mr. Donoso. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Sections 4(2) and 4(6) thereof.
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, $21, of such warrants (determined using the
Black-Scholes option pricing model with the following assumptions: volatility
of 90% risk free interest rate of 6.7%, zero dividend yield and expected life
of two years) was recorded as original issue discount and subsequently expensed
upon repayment of the bridge notes.
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.
Mr. Streeter was the founder and Chief Executive Officer of FirstCom
Networks, which was acquired by the Company during 1996. Prior to its
acquisition, FirstCom Networks provided approximately $237 of telecommunication
services to the Company. Mr. Streeter also was the primary shareholder and
General Manager of FirstCom Long Distance, which was acquired by the Company
during 1997. Prior to this acquisition, the Company made sales of $162 to
FirstCom Long Distance. Pursuant to provisions of the FirstCom Long Distance
purchase agreement, the Company agreed to pay Mr. Streeter a consulting fee of
$120 during 1998.
F-18
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
5. RELATED PARTY TRANSACTIONS--(CONTINUED)
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. The services provided by
Messrs. Moore and Magiera related to their functions as directors of 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.
OTHER RELATED PARTY TRANSACTIONS
The Company paid approximately $865 in legal fees in 1997 to a law firm
having a senior partner who is also a current director of the Company.
F-19
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
6. 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 OPTIONS EXERCISABLE
---------------------------------------- --------------------------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE
PRICE OUTSTANDING PRICE LIFE EXERCISABLE PRICE PRICE
- ---------------- ------------- --------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ .35 100,000 $ .35 7 100,000 $ .35 $ .35
1.83 to 1.96 1,110,000 1.96 8 1,063,194 1.96 1.83 to 1.96
2.00 to 2.42 3,130,000 2.23 9 1,801,736 2.24 2.00 to 2.42
2.50 to 2.81 1,655,000 2.70 8 1,511,917 2.71 2.50 to 2.81
4.00 to 4.40 1,100,000 4.36 10 493,518 4.32 4.00 to 4.40
6.00 to 8.00 200,000 7.00 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.
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.
F-20
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
6. STOCK OPTIONS AND WARRANTS--(CONTINUED)
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.
7. 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.
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
F-21
<PAGE>
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
7. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of FirstCom Long Distance S.A.:
We have audited the accompanying balance sheets of FirstCom Long Distance
S.A. (the "Company") as of December 31, 1996 and 1997, and the related
statements of operations and cash flows for each of the two years ended
December 31, 1997, all expressed in thousands of constant Chilean pesos. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with generally accepted
auditing standards in Chile, which are substantially the same as those followed
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FirstCom Long Distance S.A.
at December 31, 1996 and 1997, and the results of their operations and cash
flows for each of the two years ended December 31, 1997, in conformity with
generally accepted accounting principles in Chile.
The accompanying financial statements have been prepared assuming that
FirstCom Long Distance S.A. continues as a going concern. FirstCom Long
Distance S.A. has shown recurring operating losses and shows negative working
capital and shareholders' equity that raise substantial doubt about its ability
to continue as a going concern. Management's actions regarding these situations
are described in Note 20. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Accounting principles generally accepted in Chile vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected the
determination of net income for each of the two years in the period ended
December 31, 1997 and the determination of shareholders' equity as of December
31, 1996 and 1997 to the extent summarized in Note 30 to the financial
statements.
JUAN PABLO HESS LANGTON CLARKE
Santiago, February 25, 1998
(except for Note 30, for which
the date is June 2, 1998)
F-23
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
BALANCE SHEETS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED
IN THOUSANDS OF CONSTANT CHILEAN PESOS (THCH$) AND THOUSANDS
OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1997 1997
THCH$ THCH$ THUS$
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ..................................................... 25,255 66,485 151
Time deposits ............................................ -- -- --
Trade accounts receivable, net (Note 5) .................. 1,077,002 898,049 2,045
Notes receivable ......................................... 76,800 47,602 108
Sundry accounts receivable (Note 6) ...................... 20,569 14,362 33
Inventories .............................................. 5,653 5,730 13
Taxes recoverable (Note 7) ............................... 216,514 166,020 378
Prepaid expenses (Note 8) ................................ 143,025 6,651 15
Other .................................................... 677 327 1
--------- ------- -----
Total current assets ................................... 1,565,495 1,205,226 2,744
--------- --------- -----
FIXED ASSETS: (Note 9)
Land ..................................................... 33,094 33,094 75
Machinery & equipment .................................... 1,640,497 1,626,421 3,703
Other fixed assets ....................................... 647,484 262,052 597
Accumulated depreciation ................................. (405,093) (504,444) (1,148)
--------- --------- ------
Total fixed assets ..................................... 1,915,982 1,417,123 3,227
--------- --------- ------
OTHER ASSETS: (Note 10)
Intangibles .............................................. 4,263 4,235 10
Other .................................................... 32,111 1,756 4
--------- --------- ------
Total other assets ..................................... 36,374 5,991 14
--------- --------- ------
Total assets .......................................... 3,517,851 2,628,340 5,985
========= ========= ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term bank liabilities (Note 11) .................... 3,565,210 5,010 11
Current portion of lease obligations (Note 12) ........... 104,209 107,301 244
Accounts payable (Note 13) ............................... 761,985 902,310 2,055
Notes payable (Note 14) .................................. 290,667 312,512 712
Sundry creditors ......................................... 2,823 8,024 18
Amounts payable to related companies (Note 15) ........... 178,145 553,634 1,261
Accrued liabilities (Note 16) ............................ 201,457 373,019 849
Withholding taxes (Note 17) .............................. 40,703 36,850 84
Other (Note 18) .......................................... -- 14,238 32
--------- --------- ------
Total current liabilities .............................. 5,145,199 2,312,898 5,266
--------- --------- ------
LONG-TERM LIABILITIES:
Long-term portion of lease obligations (Note 12) ......... 75,067 18,227 42
Notes payable (Note 14) .................................. 261,456 70,146 159
Amounts payable to related companies (Note 15) ........... 2,474,768 -- --
Other (Note 18) .......................................... 37,579 8,313 19
--------- --------- ------
Total long-term liabilities ............................ 2,848,870 96,686 220
--------- --------- ------
SHAREHOLDERS' EQUITY: (Note 20)
Paid-in capital .......................................... 808,442 6,887,013 15,682
Accumulated losses ....................................... (3,684,305) (5,284,660) (12,033)
Loss for the year ........................................ (1,600,355) (1,383,597) (3,150)
---------- ---------- -------
Total shareholders' equity ............................. (4,476,218) 218,756 499
---------- ---------- -------
Total liabilities & shareholders' equity .............. 3,517,851 2,628,340 5,985
========== ========== =======
</TABLE>
The accompanying notes 1 to 30 form an integral part of these financial
statements
F-24
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
STATEMENTS OF OPERATIONS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED
IN THOUSANDS OF CONSTANT CHILEAN PESOS (THCH$) AND THOUSANDS
OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1997 1997
THCH$ THCH$ THUS$
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING RESULTS:
Operating revenues ................................ 3,590,628 4,199,618 9,562
Operating expenses excluding Depreciation ......... (2,135,179) (3,096,099) (7,050)
Operating depreciation ............................ (201,148) (127,945) (291)
---------- ---------- ------
Operating margin .................................. 1,254,301 975,574 2,221
Administrative and selling expenses excluding
depreciation .................................... (2,315,668) (1,858,229) (4,231)
General and administrative depreciation ........... (36,197) (83,510) (190)
---------- ---------- ------
Operating loss ................................... (1,097,564) (966,165) (2,200)
NON-OPERATING RESULTS:
Financial income .................................. 4,219 3,517 8
Other non-operating income ........................ -- 29,542 67
Financial expenses ................................ (624,182) (172,052) (392)
Other non-operating expenses ...................... (114,537) (352,135) (802)
Price-level restatement (Note 4) .................. 231,709 73,696 168
---------- ---------- ------
Non-operating income ............................. (502,791) (417,432) (951)
---------- ---------- ------
Loss before income taxes .......................... (1,600,355) (1,383,597) (3,151)
Income taxes ...................................... -- --
---------- ----------
Net loss ......................................... (1,600,355) (1,383,597) (3,151)
========== ========== ======
</TABLE>
The accompanying notes 1 to 30 form an integral part of these financial
statements
F-25
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
STATEMENTS OF CASH FLOWS RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED
IN THOUSANDS OF CONSTANT CHILEAN PESOS (THCH$)
AND THOUSANDS OF US DOLLARS (THUS$) (NOTES 2(C) & 2(L))
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1997 1997
THCH$ THCH$ THUS$
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ................................................... (1,600,355) (1,383,597) (3,151)
ITEMS NOT AFFECTING CASH:
Loss on sale of fixed assets ............................... -- 70,275 160
Depreciation ............................................... 237,346 211,455 481
Write-offs and accrued liabilities ......................... 575,605 734,907 1,673
Net price-level restatement ................................ (231,709) (73,696) (168)
CHANGES IN ASSETS AFFECTING CASH FLOW:
(Increase) decrease in accounts receivable ................. (1,137,354) (172,919) (394)
(Increase) decrease in inventories ......................... (5,246) (15) --
(Increase) decrease in others assets ....................... -- 175,590 400
CHANGE IN LIABILITIES AFFECTING CASH FLOW:
Increase (decrease) in accounts payable relating to
operating results ........................................ 476,511 275,683 628
Net increase (decrease) in income taxes payable ............ 3,425 (3,144) (7)
Increase (decrease) in interest payable .................... -- 28,063 64
Net increase (decrease) in VAT and other similar payables 17,612 -- --
---------- ---------- ------
Net cash flow (used) provided by operating Activities ..... (1,664,165) (137,398) (314)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings from banks and others ........................... 198,539 28,525 65
Borrowings from related parties ............................ -- 1,003,160 2,284
Payments on borrowings from banks and other ................ -- (23,243) (53)
Payments on borrowings from related parties ................ -- (471,746) (1,074)
Other financing activities ................................. 1,816,433 -- --
---------- ---------- ------
Net cash flow provided by financing ....................... 2,014,972 536,696 1,222
Activities ...............................................
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from the sale fixed assets ........................ -- 76,634 175
Fixed assets acquired ...................................... (404,428) (431,271) (982)
---------- ---------- ------
Net cash flow used by investing activities ................. (404,428) (354,637) (807)
---------- ---------- ------
Total net (decrease) increase in cash and cash ............ (53,621) 44,661 101
Equivalents ..............................................
EFFECT OF INFLATION ON CASH AND CASH
EQUIVALENTS ............................................... 2,260 (3,431) (8)
---------- ---------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................... (51,361) 41,230 93
---------- ---------- ------
CASH AND CASH EQUIVALENTS-- BEGINNING OF
YEAR ...................................................... 76,616 25,255 58
---------- ---------- ------
CASH AND CASH EQUIVALENTS--END OF YEAR ...................... 25,255 66,485 151
========== ========== ======
</TABLE>
The accompanying notes 1 to 30 form an integral part of these financial
statements
F-26
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS
RESTATED FOR GENERAL PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF CONSTANT
CHILEAN PESOS (THCH$) AND THOUSANDS OF US DOLLARS (THUS$)
1. NATURE OF OPERATIONS AND BACKGROUND OF THE COMPANY:
Name and registration in the Securities Register:
FirstCom Long Distance S.A. (the "Company") was originally incorporated
under the name of TDI S.A. under public deed dated March 3, 1992.
On May 19, 1994, the minutes of the first extraordinary shareholders
meeting held on May 5, 1994 were recorded under public deed. This meeting
approved the change of the Company's name to Telecomunicaciones Digitales
Internacionales S.A. and a capital increase, whereby Grupo Iusacell S.A. de
C.V. ("Iusacell") purchased 51% of the share capital.
On August 1, 1994, the minutes of the second extraordinary shareholders
meeting held on July 28, 1994 were recorded under public deed. This meeting
approved the change of the Company's name to Iusatel S.A., the expansion of the
Company's objectives and the related change in its bylaws. From that date, the
Company began the final phase of its start-up, principally characterized by
investment in its infrastructure.
Subsequently on December 30, 1997, the minutes of an extraordinary
shareholders meeting held on December 29, 1997 were recorded under public deed.
This meeting approved the change of the Company's name to FirstCom Long
Distance S.A.
The principle objective of the Company is to engage in business within the
telecommunications industry.
The Company is registered under No. 494 in the Securities Register and is
therefore subject to the regulatory authority of the Chilean Superintendency of
Securities and Insurance (the "Superintendency").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Presentation:
The financial statements have been prepared in accordance with generally
accepted accounting principles in Chile ("Chilean GAAP") and the regulations
established by the Superintendency. The Company is also subject to specific
provisions contained in Corporations Law 18,046 and its related regulations.
(b) Comparative financial statements:
For comparative purposes, the financial statements and the amounts
disclosed in the related notes for the year ended December 31, 1996 have been
restated in terms of Chilean pesos of December 31, 1997 purchasing power. In
accordance with Chilean regulations and accounting practices, the restatement
was calculated based on the Official Consumer Price Index of the National
Institute of Statistics, which was 6.6% and 6.3% for the years ended
December31, 1996 and 1997, respectively. The
F-27
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(b) Comparative financial statements:--(Continued)
index is based on the "prior month rule", pursuant to which the inflation
adjustments are based on the Consumer Price Index at the close of the month
preceding the close of the respective period or transaction. This index is
considered by the business community, the accounting profession and the Chilean
government to be the index which most closely complies with the technical
requirement to reflect the variation in the general level of prices in the
country and, consequently, is widely used for financial reporting purposes in
Chile.
(c) Price-level restatement:
The financial statements, which are expressed in Chilean pesos, have been
restated to reflect the effects of variations in the purchasing power of the
local currency during each year. For this purpose, and in conformity with
current Chilean regulations, non-monetary assets and liabilities, equity
accounts and income and expense accounts have been restated each year in terms
of year-end constant pesos. The resulting net charge or credit to income arises
as a result of the gain or loss in purchasing power from the holding of
monetary assets and liabilities exposed to the effects of inflation.
The above-mentioned price-level restatements do not purport to present
appraised or replacement values and are only intended to restate all
non-monetary financial statement components in terms of local currency of
similar purchasing power and to include in the net result for each year the
gain or loss in purchasing power arising from the holding of monetary assets
and liabilities exposed to the effects of inflation.
Certain assets and liabilities are denominated in U.F. units (Unidades de
Fomento). A U.F. is a Chilean inflation-indexed peso denominated monetary unit
which is set daily in advance based on changes in the Consumer Price Index. The
adjustments to the closing balance of U.F.-denominated assets and liabilities
are included in the Price-level restatement account in the Statement of Income.
Each U.F. was equivalent to Ch$ 13,280.43 and Ch$ 14,096.93 at December 31,
1996 and 1997, respectively.
(d) Assets and liabilities in US dollars:
Balances in foreign currency included in the balance sheet have been
translated into Chilean pesos at the "Observed Exchange Rate" determined by the
Central Bank of Chile in effect at each year end using the following exchange
rates:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- ------------------
<S> <C> <C>
US Dollar ("observed" rate) ......... 424.87 439.18
</TABLE>
(e) Allowance for doubtful accounts and long-distance revenue recognition
criteria:
(i) Revenue for all services is recognized in the period during which the
services are provided. Billing of contracted clients is performed by the
Company and billing for dial-up clients is performed by the respective local
carrier.
Revenues recorded relate to (i) the Company's switch and (ii) billing
reports received from local carriers. The information from (i) and (ii),
whether for contracted or dial-up services, is valued at the corresponding
tariff and the resultant revenues are recognized.
F-28
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(e) Allowance for doubtful accounts and long-distance revenue recognition
criteria:--(Continued)
(ii) The allowance for doubtful accounts is calculated based upon an aging
of account receivable balances using historical rates of collection by type of
account balance detailed as follows:
<TABLE>
<CAPTION>
DAYS
RECEIVABLES DIAL-UP % CONTRACTED % DIAL-UP % CONTRACTED %
AGED 1996 1996 1997 1997
- ------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
271+ 40 40 100 100
181-270 20 20 100 95
151-180 10 10 95 90
121-150 8 8 90 80
91-120 5 5 85 70
61-90 4 4 20 6
31-60 3 3 10 4
0-30 2 2 5 2
</TABLE>
No provision has been recorded against un-billed traffic.
Given the significant collection risk associated with the "audio-text"
(data transmission) receivables, the Company has recorded a 100% provision
against the related receivable balance in the amount of ThCh$317,456. As of
December 31, 1996, these services were no longer being provided by the Company.
(f) Fixed assets:
Fixed assets are shown at restated acquisition or import cost, including,
in the latter case, "deferred customs duties". Assets received under lease
contracts are shown at the present value of the contract.
Depreciation is calculated using the straight-line method on the restated
value of the assets over the related useful lives. Depreciation expense
amounted to ThCh$ 237,346 and ThCh$211,455 for the years ended December 31,
1996 and 1997, respectively.
(g) Staff severance indemnities:
The Company has no obligation for the payment of staff severance
indemnities as employee severance benefits are neither legally required nor
included under the terms and conditions of employee contracts.
(h) Staff vacations:
The Company has recorded the cost of staff vacations on an accrued basis
as the vacations are earned by the employees in accordance with Technical
Bulletins Nos. 47 and 48 of the Chilean College of Accountants A.G.
F-29
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(i) Income tax:
The Company has made no provision for first category income tax as it has
incurred tax losses. The Company has provided for Article 21 Tax under the
Income Tax Law.
(j) Statement of cash flows:
Cash flows generated from operating activities include all core business
related cash flows, interest paid, investment income and all other cash flows
not included in investing or financing activities.
(k) Reclassifications:
Certain reclassifications have been made to the December 31, 1996 figures
to enhance the comparability of the financial statements as of December 31,
1997.
(l) Convenience translation to US dollars (unaudited):
The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The United States dollar amounts disclosed in the
accompanying financial statements as of December 31, 1996 and 1997 are
presented solely for the convenience of the reader at the December 31, 1997
exchange rate of Ch$ 439.18 per US$ 1. This translation should not be construed
as representing that the Chilean peso amounts actually represent or have been,
or could be, converted into United States dollars.
3. ACCOUNTING CHANGES:
Effective January 1, 1996, Technical Bulletin No. 50 of the Chilean
College of Accountants A.G. required the presentation of a statement of cash
flows instead of the statement of changes in financial position. Beginning
January 1, 1997 the S.V.S. instructed companies to eliminate the statement of
changes in financial position, and required the presentation of the cash flows
statement under the direct method for fiscal years 1996 and 1997. Therefore,
the financial statements as of December 31, 1997, include the presentation of
cash flows for the two years in the period ended December 31, 1997.
F-30
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
4. PRICE-LEVEL RESTATEMENT:
Price-level restatement is summarized as follows:
<TABLE>
<CAPTION>
(CHARGE)/CREDIT TO INCOME
YEAR ENDED DECEMBER 31,
1996 1997
THCH$ THCH$
------------ ------------
<S> <C> <C>
Current assets ...................................... 6,470 560
Fixed assets ........................................ 104,327 96,856
Other assets ........................................ 255 187
Non-monetary liabilities ............................ (95,634) --
Shareholders' equity ................................ 178,056 (73,367)
------- -------
Balance of price-level restatements account ......... 193,474 24,236
Income statement accounts (net) ..................... 38,235 49,460
------- -------
Price-level restatement ............................. 231,709 73,696
======= =======
</TABLE>
5. TRADE ACCOUNTS RECEIVABLE:
Net trade accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1996 1997
THCH$ THCH$
------------ ------------
<S> <C> <C>
Billed accounts receivable ...................................... 952,510 1,261,948
Accrued accounts receivable ..................................... 516,081 416,594
Accounts receivable under Reciprocal carrier agreements ......... 117,945 --
------- ---------
Total trade receivables ......................................... 1,586,536 1,678,542
Allowance for doubtful accounts ................................. (509,534) (780,493)
--------- ---------
Total ......................................................... 1,077,002 898,049
========= =========
</TABLE>
6. SUNDRY ACCOUNTS RECEIVABLE:
Sundry accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1997
THCH$ THCH$
--------- --------
<S> <C> <C>
Current accounts .............. 5,854 48
Advances to suppliers ......... 3,064 8,352
Other ......................... 11,651 5,962
------ -----
Totals ...................... 20,569 14,362
====== ======
</TABLE>
F-31
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
7. TAXES RECOVERABLE:
Taxes recoverable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1996 1997
THCH$ THCH$
----------- ----------
<S> <C> <C>
VAT fiscal credit ................ 214,316 164,975
Training expense credits ......... 5,623 1,255
(-) Income taxes payable ......... (3,425) (210)
------- -------
Total .......................... 216,514 166,020
======= =======
</TABLE>
8. PREPAID EXPENSES:
Prepaid expenses are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1997
THCH$ THCH$
---------- --------
<S> <C> <C>
Insurance ................... 4,761 3,012
Prepaid advertising ......... 106,501 1,557
Prepaid taxes ............... -- 1,806
Other ....................... 9,866 276
Commissions ................. 21,897 --
------- -----
Total ..................... 143,025 6,651
======= =====
</TABLE>
F-32
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
9. FIXED ASSETS:
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1996 1997
THCH$ THCH$
------------ ------------
<S> <C> <C>
Land: ............................................ 33,094 33,094
------ ------
Machinery & equipment:
Earth station ................................... 723,904 724,762
Miscellaneous machinery & equipment ............. 13,319 13,320
International switch ............................ 432,606 113,231
National Switch ................................. -- 349,055
Network ......................................... 9,766 9,765
Internal communications equipment ............... 7,215 7,216
Call-back switch ................................ 54,653 --
Furniture & installations ....................... 191,916 165,536
Vehicles ........................................ 6,446 6,446
Office equipment ................................ 181,323 195,328
Customer equipment .............................. 19,349 33,971
Other ........................................... -- 7,791
------- -------
Subtotal ....................................... 1,640,497 1,626,421
--------- ---------
Other fixed assets:
Leased assets ................................... 332,653 249,920
Telephone trunk lines ........................... 12,132 12,132
Imported equipment in transit ................... 299,794 --
Other ........................................... 2,905 --
--------- ---------
Subtotal ....................................... 647,484 262,052
--------- ---------
Total fixed assets (gross) ..................... 2,321,075 1,921,567
--------- ---------
Less:
Accumulated depreciation for the period ......... (405,093) (504,444)
--------- ---------
Total fixed assets (net) ....................... 1,915,982 1,417,123
========= =========
</TABLE>
10. OTHER ASSETS:
Other assets are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1997
THCH$ THCH$
--------- --------
<S> <C> <C>
Telephone lines ..................... 4,263 4,235
Long-term deferred interest ......... 8,078 1,748
Long-term time deposits ............. 23,088 --
Other ............................... 945 8
------ -----
Total ............................. 36,374 5,991
====== =====
</TABLE>
F-33
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
11. SHORT-TERM BANK LIABILITIES:
Short-term bank liabilities are summarized as follows:
<TABLE>
<CAPTION>
MONTHLY
INTEREST ACCRUED TOTAL
RATE AMOUNT AMOUNT INTEREST 1996
BANK (%) IN U.F. IN THCH$ THCH$ THCH$
- -------------------------- ---------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Sud Americano ......... 1.49 249,361 3,520,253 13,067 3,533,320
Sud Americano ......... 1.49 -- 31,890 -- 31,890
------- --------- ------ ---------
Total ............... 249,361 3,552,143 13,067 3,565,210
======= ========= ====== =========
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
INTEREST ACCRUED TOTAL
RATE AMOUNT AMOUNT INTEREST 1997
BANK (%) IN U.F. IN THCH$ THCH$ THCH$
- -------------------------- ---------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Sud Americano ......... 0.84 -- 4,946 64 5,010
----- -- -----
Total ............... 4,946 64 5,010
===== == =====
</TABLE>
12. LEASING OBLIGATIONS:
At December 31, 1996 and 1997, the Company had fixed asset lease contracts
outstanding with financial institutions and others, whose installments have the
following maturities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1997
THCH$ THCH$
--------- ----------
<S> <C> <C>
Short term ......... 104,209 107,301
Long term .......... 75,067 18,227
------- -------
Total ............ 179,276 125,528
======= =======
</TABLE>
13. ACCOUNTS PAYABLE:
Accounts payable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1997
THCH$ THCH$
--------- ----------
<S> <C> <C>
Domestic suppliers ............... 584,728 851,680
Sundry accounts .................. 11,212 6,084
------- -------
Total domestic suppliers ......... 595,940 857,764
Foreign suppliers ................ 166,045 15,281
Correspondants ................... -- 29,265
------- -------
Total accounts payable ........... 761,985 902,310
======= =======
</TABLE>
F-34
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
14. NOTES PAYABLE:
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1996 1997
THCH$ THCH$
--------- ----------
<S> <C> <C>
Short-term ......... 290,667 312,512
Long-term .......... 261,456 70,146
======= =======
Total ............ 552,123 382,658
======= =======
</TABLE>
15. AMOUNTS PAYABLE TO RELATED COMPANIES:
(a) Short-term:
Short-term amounts payable to related companies at December 31, 1996
include amounts payable of ThCh$ 178,145, to Satelitron S.A., Mexico, a company
related to Iusacell, for satellite space rentals. At December 31, 1997
Satelitron S.A., Mexico was no longer a related party, and such amounts payable
to this entity are included in notes payable.
At December 31, 1997 the Company owed ThCh$112,986 to Inversiones Druma
S.A. related to financing provided to the Company.
At December 31, 1997 the Company owed Hewster Chile S.A., a new
shareholder of the Company, ThCh$440,648, related to a December 1997 loan and
certain telecommunication services provided to the Company.
(b) Long-term:
Long-term amounts payable to related parties represent capital
contributions of ThCh$ 2,474,768, at December 31, 1996, from Iusacell S.A.
These capital contributions were legally formalized in January of 1997 upon
approval by the Superintendency.
16. ACCRUED LIABILITIES:
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1997
THCH$ THCH$
--------- ---------
<S> <C> <C>
Vacations (Note 2(g)) ......... 43,560 24,879
Pending Invoices .............. 89,854 278,752
Other ......................... 68,043 69,388
------ -------
Total ....................... 201,457 373,019
======= =======
</TABLE>
17. WITHHOLDING TAXES:
Withholding taxes relate to remuneration, taxes and social security
deductions for the month of December, amounting to ThCh$ 40,703 and
ThCh$ 36,850 at December 31, 1996 and 1997, respectively.
F-35
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
18. OTHER LONG-TERM LIABILITIES:
As of December 31, 1996 and 1997, this account balance included deferred
customs duties, in accordance with Law 18,634, as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1997
THCH$ THCH$
--------- ---------
<S> <C> <C>
Short-term ............................ -- 14,238
Long-term ............................. 37,579 8,313
====== ======
Total deferred customs duties ......... 37,579 22,551
====== ======
</TABLE>
19. INCOME TAXES:
No provision was made for first category income tax at December 31, 1996
and 1997, as there were tax losses amounting to approximately Ch$ 5,024 million
and Ch$ 5,979 million, respectively. The amounts provided for at December 31,
1996 and 1997 of ThCh$3,425 and ThCh$210, respectively, relate to taxes due on
certain non-deductible (as defined by Article 21 of the Income Tax Law)
expenses incurred by the Company.
20. SHAREHOLDERS' EQUITY:
(a) The movements in shareholders' equity for the years ended December 31,
1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
FULLY PAID FULLY PAID
AND AND
OUTSTANDING OUTSTANDING NET LOSS
SERIES A SERIES B PAID-IN ACCUMULATED FOR THE
COMMON COMMON CAPITAL DEFICIT PERIOD TOTAL
SHARES SHARES THCH$ THCH$ THCH$ THCH$
------------- ------------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1995 .............................. 22,350 23,263 713,442 (830,882) (2,420,478) (2,537,918)
Transfer of previous year's
results ........................... -- -- -- (2,420,478) 2,420,478 --
Equity price-level restatement ..... -- -- 47,087 (224,590) -- (167,603)
Loss for the year .................. -- -- -- -- (1,505,508) (1,505,508)
------ ------ ------- ---------- ---------- ----------
Balances at December 31, 1996 22,350 23,263 760,529 (3,465,950) (1,505,508) (4,210,929)
------ ------ ------- ---------- ---------- ----------
Balance at December 31, 1996
restated in constant Chilean
pesos of December 31, 1997 ........ 808,442 (3,684,305) (1,600,355) (4,476,218)
------- ---------- ---------- ----------
Transfer of previous year's
results ........................... -- -- -- (1,505,508) 1,505,508 --
Issuance of new class of shares 574,014,799 (23,263)
Increase in capital ................ 5,739,915 -- -- 5,739,915
--------- ---------- ---------- ----------
Equity price-level restatement ..... 386,569 (313,202) -- 73,367
Loss for the year .................. -- -- (1,383,597) (1,383,597)
--------- ---------- ---------- ----------
Balances at December 31, 1997 574,037,149 -- 6,887,013 (5,284,660) (1,383,597) 218,756
=========== ======= ========= ========== ========== ==========
</TABLE>
F-36
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
20. SHAREHOLDERS' EQUITY:--(CONTINUED)
(b) Shareholders' Equity:
At the extraordinary shareholder's meeting on January 24, 1997 the
following decisions were made:
1 The increase in common stock and changes to the Company's by-laws, made
pursuant to the December 4, 1995 extraordinary meeting of the Company's
shareholders were kept in effect
2 Series A and B common stock, which comprised the Company's 45,613 common
shares outstanding, were rescinded and a sole class of common stock was
created.
3 The Company's capital which was Ch$713,441,959 at December 31, 1996,
excluded price level restatements; the Company's authorized capital was
increased to Ch$11,968,177,959, made up of 1,125,519,213 common shares of
a sole class without par value representing an increase in the number of
authorized shares of Common Stock of 1,125,473,600 new common shares
without par value.
4 At the same meeting, the Grupo Iusacell subscribed to and paid for
573,991,536 common shares making up 51% of the new common shares issued in
the following manner:
Ch$3,411,817,157 via the capitalization of amounts owed to Iusacell that
resulted from Iusacell repaying the Company's debt to Banco Sud Americano
on January 14, 1997.
Ch$2,328,098,143 via that capitalization of amounts that had been lent to
the Company by Iusacell.
With respect to the remaining 49% of the common shares, it was agreed to
leave such common shares available for sale for the next three years. The
increases of the Company's capital are subject to the approval of the
Superintendencia de Valores y Seguros.
In addition to the above share issuance that has substantially improved
liquidity, the Company has been involved in continuous efforts to formulate a
restructuring plan to improve future operations. Such efforts have resulted in
the development of a new business plan and strategy to address the Company's
current financial situation and recent financial performance.
(c) Share ownership:
<TABLE>
<CAPTION>
1996 1997
------------- -----------------
NO. NO.
TYPE OF SHAREHOLDER S/H % S/H %
- ---------------------------------------------------------------- ----- ----- ----- ---------
<S> <C> <C> <C> <C>
Holding of 10% or more ...................................... 3 100 1 99.9
Less than 10% holding but investment of U.F. 200 or
more ....................................................... -- -- --
Less than 10% holding but investment less than U.F. 200 ..... -- 1 0.1
--- -- ----
Total ....................................................... 3 100 2 100
===== === == ====
Control of the Company ...................................... 1 51 1 99.9
===== === == ====
</TABLE>
F-37
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
21. OTHER NON OPERATIONAL EXPENSES:
The components of this account was as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1997
THCH$ THCH$
--------- ----------
<S> <C> <C>
Legal settlements ............................. 57,535 --
Write-off of switch ........................... -- 215,983
Write-off of installations .................... -- 15,920
Loss on sale of fixed asset ................... 133 70,275
Additional reserve for foreign vendor ......... 50,267 17,727
Other ......................................... 6,602 32,230
------ -------
114,537 352,135
======= =======
</TABLE>
With the objective of improving customer service, the Company decided to
upgrade its communications technology via the purchase of a new switch and will
significantly restrict the use of the switch currently in service. As a result
of this decision, the carrying amount of the switch currently in service has
been written down to its fair value, as determined by Company management, based
on quoted market prices for such switch.
22. INTERMEDIATE SERVICE CONCESSION:
The Company carries out its business on the basis of Decree Law No. 188 of
the Undersecretary of Telecommunications dated December 17, 1993, whereby TDI
S.A. was granted a concession for intermediate telecommunications services.
Under public deed dated September 24, 1994, the name TDI S.A. was changed
to Telecomunicaciones Digitales Internacionales S.A. with a capital increase to
permit Iusacell to purchase a controlling interest in the Company. On August 3,
1994, the bylaws of the Company were amended and its name was changed to
Iusatel S.A.
23. DIRECTORS' REMUNERATION:
Payments made to directors for attending meetings during 1997 amounted to
Ch$4,221,000.
Mr. Rafael Cristi Diaz, named a director of the Company during January
1997, received total payments of Ch$24,856,000 of which Ch$11,901,000 pertained
to accrued service indemnities related to years of service while an employee of
the Company, relating to his termination of employment dated June 18, 1997.
No payments were made to directors for attending meetings during the years
ended December 31, 1996.
24. SANCTIONS:
Neither the Company nor any of its directors have been subject to any
sanctions by any governmental tax agency.
25. COMMON STOCK TRANSACTIONS
On January 30, 1997, Grupo Iusacell S.A. de C.V. sold and transferred all
interest in 23,263 shares of the Company's common stock to Inversiones Druma
S.A., which was represented by Mr. Hernan Streeter Rios.
F-38
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
25. COMMON STOCK TRANSACTIONS--(CONTINUED)
The purchase price of these shares of the Company's common stock was
Ch$46,040.526 per share and such purchase price will be paid in accordance with
article nine of the related stock purchase agreement which has been registered
with the Chilean consulate in Mexico City.
According to the common stock register updated through December 31, 1997,
there were the following common stock transactions:
On December 16, 1997, Inversiones y Servicios Santa Teresa Limitada, owner
of 11,625 of the Company's shares sold and transferred all interest to Grupo
Iusacell S.A. de C.V. 11,624 shares and to Gabriel Caceres Squella 1 share.
Additionally, Sergio Munoz Ramirez, owner of 10,725 of the Company's shares,
sold and transferred all interest in such shares to Grupo Iusacell S.A. de C.V.
Simultaneously, Grupo Iusacell S.A. de C.V. sold and transferred all
interest of 573,991,536 shares of the Company to Inversiones Druma S.A.
On the same date, Inversiones Druma S.A., owner of 574,014,799 shares of
the Company sold and transferred all interest to InterAmericas Communications
Corporation 573,440,762 shares and to Hewster Chile S.A. (today FirstCom
Networks S.A.) 574,037 shares.
On December 17, 1997 Grupo Iusacell S.A. de C.V. sold and transferred all
interest in 22,349 shares of the Company to InterAmericas Communications
Corporation and Gabriel Caceres Squella sold and transferred all interest in 1
share of the Company to InterAmericas Communications Corporation.
In summary, the Company's shareholders at December 31, 1997 are:
InterAmericas Communications Corporation with 573,463,112 shares (99.9%
ownership) and Hewster Chile S.A. (today FirstCom Networks S.A.) with 574,037
shares (0.1% ownership).
There were no transactions involving the Company's common stock during
1996.
26. GUARANTEES:
(a) National:
With the purpose of guaranteeing the Company's payment of amounts due
related to the Company's purchase of an advanced performance switch NS-2000
(the NS-2000 Switch), and in accordance with an amendment to the contract, if
the Company is greater than 60 days past due on any related amounts, North
Supply S.A. (the vendor) has the right to repossess the NS-2000 Switch. The
amount of such guarantee at December 31, 1997 was US$773,133.
Additionally, the amendment to the contracts stipulates that payment is
due upon acceptance of the equipment.
There were no national guarantees during 1996.
F-39
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
26. GUARANTEES:--(CONTINUED)
(b) International:
There were no international guarantees during 1997.
A Stand-by letter of credit in the amount of ThUS$ 8,000 at December 31,
1996, given by its then majority shareholder, Iusacell, in favor of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1997
THUS$ THUS$
<S> <C> <C>
Banco Sud Americano (Bank of Nova Scotia N.Y.) ......... 8,504 --
Citibank N.A. (N.Y.) ................................... -- --
----- --
8,504 --
===== ==
</TABLE>
27. CONTINGENCIES AND COMMITMENTS:
At December 31, 1997 the following contingencies existed:
Mr. Claudio Sancho Caceres is demanding ThCh$4,400 for unjustified
termination of employment.
Mr Oscar Ligardi is demanding ThCh$48,000 related to employment severance
indemnities.
At December 31, 1996 the Company was unaware of any significant
contingencies or commitments affecting the financial statements
28. RELEVANT FACTS:
1. An extraordinary meeting of the board of directors held on June 27,
1996, agreed to accept the resignation of then, general manager of the
Company, Gaston Pereira, and appointed Luis Alberto Reyes as interim
general manager and Alberto Herrerias as executive director of the
Company.
2. On January 30, 1997, Inversiones Druma S.A., a company which until such
date was not a shareholder of the Company, acquired a controlling interest
in the Company's common stock.
3. During September 1997 the Company concluded the evaluation of it's
internet division which resulted in the sale of such division to
Interacces S.A. on October 6,1997. The related agreement was formally
notarized on November 18, 1997.
4. On December 16, 1997 the controlling shareholder of the Company changed
from Inversiones Druma S.A. to InterAmericas Communications Corporation.
5. On December 30, 1997 the Company's name was formally changed from
Iusatel Chile S.A. to FirstCom Long Distance S.A.
F-40
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
29. STATEMENT OF CASH FLOWS:
(a) Other sources of financing for the year ended December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1996
THCH$
----------
<S> <C>
Iusacell capital contribution (Note 15(b)) ......... 1,816,433
=========
</TABLE>
(b) The following financing activities did not result in cash outflows
during the current year but commit future cash flows:
<TABLE>
<CAPTION>
1996 1997
THCH$ THCH$
--------- ----------
<S> <C> <C>
Purchase of Switch ........................... 300,415 221,820
PCS call processing platform machine ......... 54,653 --
------- -------
Total ........................................ 355,068 221,820
======= =======
</TABLE>
30. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
Chilean GAAP varies in certain important respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Such
differences involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by U.S. GAAP.
(a) Differences in Measurement Methods
The principal methods applied in the preparation of the accompanying
financial statements which have resulted in amounts that differ from those that
would have otherwise been determined under U.S. GAAP are as follows:
(i) Inflation accounting:
Chilean GAAP requires that the financial statements be restated to reflect
the full effects of loss in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The method,
described in Note 2(c), is based on a model which enables calculation of net
inflation gains or losses caused by monetary assets and liabilities exposed to
changes in the purchasing power of local currency. The model prescribes that
the historical cost of all non-monetary accounts be restated for general
price-level changes between the date of origin of each item and the year-end,
but allows direct utilization of latest cost values for the restatement of
inventories, as an alternative to the price-level restatement of those assets
only if the resulting variation is not material.
The inclusion of price-level adjustments in the accompanying financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Chilean economy. Accordingly, the effect of
price-level changes is not eliminated in the reconciliation to U.S. GAAP
included under paragraph (a)(vii) below.
F-41
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
30. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:--(CONTINUED)
(ii) Income taxes:
The accounting treatment of income taxes under Chilean GAAP and U.S. GAAP
differs in respect to accounting for deferred income taxes. Under U.S. GAAP,
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", all temporary differences arising as a result of
transactions that have different accounting and tax treatments are recognized
as deferred tax assets and liabilities as of the balance sheet date. A
valuation allowance is provided against deferred tax assets that are not
recoverable on a more-likely-than-not basis. Under Chilean GAAP, only deferred
tax assets and liabilities that are non-recurring are recognized in the
financial statements. Chilean GAAP also permits not providing for deferred
income taxes where a deferred tax asset or liability is not expected to be
realized.
The Company has deferred tax assets relating to tax loss carryforwards
amounting to ThCh$ 753,676 and ThCh$ 902,630, at December 31, 1996 and 1997,
respectively, for which the Company has recorded a full valuation allowance due
to the uncertainty of the realization of such tax loss carryforwards.
The Company's management considers that the net effect of applying SFAS
No. 109 for all periods presented in paragraph (a)(vii) below to be immaterial.
(iii) Impairment of Long-Lived Assets:
Under U.S. GAAP, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", requires that
assets to be disposed of be valued at the lower of carrying amount or fair
value less cost to sell. Furthermore, companies are required to review
long-lived assets and certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to hold
and use should be based on the fair value of the asset. Under Chilean GAAP, the
impairment loss related to the Company's long-lived assets was recorded in the
period that the Company's management decided to dispose of such assets.
The effect of the application of SFAS No. 121 is presented in paragraph
(a) (vii) below
Under U.S. GAAP, such adjustments would be included in the operating costs
of the Company.
(iv) Allowance for doubtful accounts and unrealizable "audio-text" revenue
Based upon information available subsequent to the issuance of the Chilean
financial statements, the Company reduced its estimate of recoverable amounts
related to certain accounts receivable which existed as of December 31, 1996
and determined that certain revenues reorganized in 1996 related to
"audio-text" services (see Note 2(e)) were unrealizable. As a result of this
change in estimate, an additional allowance for doubtful accounts and a
reduction of revenue has been recorded for U.S. GAAP purposes. The effect of
the above adjustment is presented in paragraph (a) (vii) below.
F-42
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
30. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:--(CONTINUED)
(v) Push-Down Accounting
In accordance with Staff Accounting Bulletin 54 "Pushdown Basis of
Accounting in Financial Statements of Subsidiaries", FirstCom Long Distance,
being at December 31, 1997 a wholly owned subsidiary of InterAmericas
Communications Corporation, should establish a new basis of accounting for its
assets and liabilities. The new basis of accounting should be based on the
parents accounting for the acquisition in accordance with APB 16. The only
impact resulting from InterAmericas purchasing accounting under APB 16 for its
acquisition of the Company is the push-down to the Company of the excess
purchase price which was allocated to the Company's long-distance carrier
concession.
(vi) Capital Contributions
Amounts reflected as long-term due to related parties at December 31, 1996
represents funds that were given to the Company during 1996 with the intention
of being capital contributions. However, these funds given to the Company were
not legally declared capital contributions until January 1997 and as a result
are recorded as amounts due to related parties in the accompanying December 31,
1996 Chilean GAAP balance sheet. Under U.S. GAAP, the formalization of such
contributions during January 1997 constitutes a subsequent event, the effects
of which should be reflected on the December 31, 1996 balance sheet. As a
result, for U.S. GAAP purposes, the long-term due to related parties at
December 31, 1996 has been reclassified as a capital contribution.
(vii) Effects of conforming to U.S. GAAP:
The adjustments to reported Net income required to conform with U.S. GAAP
are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1997
THCH$ THCH$
--------------- ---------------
<S> <C> <C>
Net loss as shown in the Chilean GAAP financial statements ......... (1,600,355) (1,383,597)
Impairment of long-lived assets (paragraph a(iii)) ................. (212,418) 212,418
Allowance for doubtful accounts and unrealizable "audio-text"
revenue (paragraph a(iv)) ......................................... (312,520) 312,520
---------- ----------
Subtotal ........................................................... (524,938) 524,938
---------- ----------
Net loss in accordance with U.S. GAAP .............................. (2,125,293) (858,659)
========== ==========
U.S. GAAP loss per share ........................................... (3.70) (1.50)
========== ==========
Weighted average number of common stock outstanding
(Note 20) ......................................................... 574,037,149 574,037,149
=========== ===========
</TABLE>
F-43
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
30. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:--(CONTINUED)
(viii) Effects of conforming to U.S. GAAP:
The adjustments required to conform to shareholders' equity amounts with
U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1996 1997
THCH$ THCH$
--------------- ------------
<S> <C> <C>
Shareholders' equity as shown in the Chilean GAAP
financial statements ...................................... (4,476,218) 218,756
Impairment of long-lived assets (paragraph a(iii)) ......... (212,418) --
Capital contributions (paragraph a(vi) ..................... 2,474,768
Push-down accounting (paragraph a(v) ....................... -- 2,485,402
Allowance for doubtful accounts (paragraph a(iv)) .......... (312,520) --
---------- ---------
Subtotal ................................................... 1,949,830 2,485,402
---------- ---------
Shareholders' equity in accordance with U.S. GAAP .......... (2,526,388) 2,704,158
========== =========
</TABLE>
(b) Additional Disclosure:
(i) Cash Flow Information:
The cash flow statement prepared in conformity with Chilean GAAP are set
out on page 4. The principal difference between these statements and cash flow
statements prepared under US GAAP is the inclusion of the effect of price-level
restatement in each caption for the calculation of the cash from operating,
investing and financing activities, under Chilean GAAP, which removed and
included within operating activities under US GAAP.
A summary of the Company's operating, investing and financing activities
classified in accordance with USGAAP is presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997
THCH$ THCH$
--------------- -------------
<S> <C> <C>
Cash used in operating activities ............. (1,934,339) (208,888)
Cash provided by financing activities ......... 2,065,319 382,936
Cash used in investing activities ............. (182,341) (132,818)
---------- --------
Net (decrease) increase in cash ............... (51,361) 41,230
Balance at the beginning of the year .......... 76,616 25,255
---------- --------
Balance at the end of the year ................ 25,255 66,485
========== ========
</TABLE>
F-44
<PAGE>
FIRSTCOM LONG DISTANCE S.A.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
30. DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:--(CONTINUED)
Supplemental Non-cash Investing and Financing Activities:
a. During the year ended December 31, 1996 and 1997, the Company financed
certain capital expenditures totaling ThCh$ 218,651 and ThCh$ 0,
respectively by entering into capital leasing arrangements.
b. During the year ended December 31, 1996 and 1997, the Company acquired
assets and assumed a corresponding liability with related parties totaling
ThCh$ 410,078 and ThCh$ 0, respectively.
c. During the year ended December 31, 1997, approximately ThCh$ 6,078,571
of liabilities previously held as short-term bank liabilities and amounts
payable to related parties were reclassified to equity subsequent to the
Superintendency's approval of the capital increase. See Note 20.
(ii) Bad Debt Expense and Fixed Asset Write-Downs:
During 1996 and 1997, the Company recorded bad debt expense and fixed
asset write-downs as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
--------- ----------
THCH$ THCH$
<S> <C> <C>
Bad debt expense ............... 464,449 301,157
======= =======
Fixed asset write-down ......... 3,514 221,816
======= =======
</TABLE>
F-45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE MAKING OF THE
EXCHANGE OFFER PURSUANT TO THIS PROSPECTUS NOR THE ACCEPTANCE OF THE EXISTING
NOTES FOR SURRENDER FOR EXCHANGE PURSUANT THERETO SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
PAGE
----------
Notice to New Hampshire Residents ........... 2
Exchange Rate Data .......................... 3
Available Information ....................... 3
Prospectus Summary .......................... 5
Risk Factors ................................ 14
Use of Proceeds ............................. 24
Capitalization .............................. 24
Selected Historical Financial Data .......... 28
Management's Discussion and Analysis
of Financial Condition and
Results of Operations .................... 30
Business .................................... 40
Management .................................. 60
Certain Relationships and
Related Party Transactions ............... 65
Selling Stockholders ........................ 68
Description of Senior Notes ................. 71
Description of Capital Stock ................ 103
Shares Eligible for Future Sale ............. 107
Plan of Distribution ........................ 107
Legal Matters ............................... 108
Experts ..................................... 108
Glossary of Defined Terms ................... 109
Index to Financial Statements ............... F-1
[LOGO TO COME]
-----------------------------------
COMMON STOCK
-----------------------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering, all of which are to be paid by
the Registrant, in connection with the issuance and distribution of the
securities registered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee .................... $ 12,039.29
Printing and Engraving Expenses ......... 50,000.00
Legal Fees and Expenses ................. 85,000.00
Accounting Fees and Expenses ............ 60,000.00
Miscellaneous Expenses .................. 5,000.00
------------
Total ................................. $ 212,089.29
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ICCA's Certificate of Incorporation and By-laws contain certain provisions
that eliminate the liability of its director and officers to the fullest extent
permitted by the Texas Business Corporation Act, except that they do not
eliminate liability for: (i) any breach of the duty of loyalty to the Company
or its shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act or omission
for which the liability of a director is expressly provided by an applicable
statute; or (iv) any transaction from which the director derived an improper
personal benefit. The Texas Business Corporation Act provides that Texas
corporations may indemnify any director, officer or employee made or threatened
to be made a party to a proceeding, by reason of the former or present official
capacity of such person, if such person (i) conducted himself in good faith and
(ii) reasonably believed that his conduct was not unlawful and opposed to the
corporation's best interests. The indemnification provision does not permit
indemnification of officers, directors and employees (i) when such persons are
found liable to the corporation or (ii) for any transaction from which such
person derive improper personal benefits. The foregoing provisions may reduce
the likelihood of derivative litigation against directors, officers and
employees of the Company and may discourage or deter shareholders or management
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties, even though such an action, if successful, might otherwise
have benefited the Company and its shareholders.
The Company has entered into an indemnification agreement with each
director (an "Indemnitee"). Pursuant to the indemnification agreement, the
Company will indemnify an Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by the
agreement, ICCA's Articles of Incorporation and By-laws, or statute. In
addition, the Company will indemnify each Indemnitee against any and all
expenses incurred in connection with claims relating to the fact that such
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company or any subsidiary of the Company, and the Company will advance all such
expenses. The Company maintains directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by the Company during the
past three years, involving issuances of the Company's securities that were not
registered under the Securities Act:
On January 1, 1996, the Company converted $35,000 of principal related to
a promissory note due to Maroon Bells Capital Partners, Inc. into 20,000 shares
of the Company's Common Stock. The conversion price was $1.75 per share of
Common Stock. Such shares were issued pursuant to an exemption from the
registration requirements of the Securities Act in accordance with Section 4(2)
of the Securities Act. The recipient of such shares represented its intention
to acquire such shares for
II-1
<PAGE>
investment only and not with a view to sell such shares in connection with any
distribution thereof and an appropriate restrictive legend was affixed to the
share certificate. The recipient of such shares represented that it was an
accredited investor as defined in Rule 501 under the Securities Act.
On March 1, 1996, the Company converted $281,000 and $30,000 of principal
and interest, respectively, related to promissory notes due Maroon Bells
Capital Partners, Inc. into 152,506 shares of the Company's Common Stock. The
conversion prices were $1.75 and $2.25 per share of Common Stock. Such shares
were issued pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Section 4(2) of the Securities Act. The
recipient of such shares represented its intention to acquire such shares for
investment only and not with a view to sell such shares in connection with any
distribution thereof and an appropriate restrictive legend was affixed to the
share certificate. The recipient of such shares represented that it was an
accredited investor as defined in Rule 501 under the Securities Act.
On March 31, 1996, the Company converted $1,632,000 and $7,000 of
principal and interest, respectively, related to promissory notes due to Laura
Investments, Ltd. into 839,235 shares of the Company's Common Stock. The
conversion prices were $1.87 and $1.96 per share of Common Stock. Such shares
were issued pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Regulation S and Section 4(2) of the
Securities Act. The recipient of such shares represented its intention to
acquire such shares for investment only and not with a view to sell such shares
in connection with any distribution thereof and an appropriate restrictive
legend was affixed to the share certificate. The recipient of such shares
represented that it was an accredited investor as defined in Rule 501 under the
Securities Act.
On March 31, 1996, the Company issued 500,000 shares of Common Stock to
RaboBank Hong Kong. The price per share of Common Stock was $2.40 and the
Company raised proceeds of $1,120,000, net of $80,000 of expenses. The private
placement agent was Dinton Trader, Ltd. Such shares were issued pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Regulation S and Section 4(2) of the Securities Act. The
recipients of such shares represented their intention to acquire such shares
for investment only and not with a view to sell such shares in connection with
any distribution thereof and an appropriate restrictive legend was affixed to
the share certificates. The recipients of such shares represented that they
were accredited investors as defined in Rule 501 under the Securities Act.
During August 1996, the Company completed a private placement of 1,439,042
shares of Common Stock (purchasers: Vanguard Mining Corp., Faisal Finance,
Cholet Dupont, United Overseas Bank, Rowe Price Fleming, Bank of England
Pension Fund, Arbinter-Omnivalor, Boxall Asset Management, Synalgest, Leopold
Joseph and Sons, Green Acres Enterprises, Inverlat International, Ltd., John
Walker, Banque Privee Edmond, Personal Pension Management Ltd., Cantrade Ormond
Burrus, Russel Gulamerian and Jeffery R. Chernoff). The price per share of
Common Stock was $4.80 and the Company raised proceeds of $6,400,000, net of
$520,000 of expenses. The private placement agent was Dinton Trader, Ltd. Such
shares were issued pursuant to an exemption from the registration requirements
of the Securities Act in accordance with Regulation D and Section 4(2) of the
Securities Act. The recipients of such shares represented their intention to
acquire such shares for investment only and not with a view to sell such shares
in connection with any distribution thereof and an appropriate restrictive
legend was affixed to the share certificate. The recipients of such shares
represented that they were accredited investors as defined in Rule 501 under
the Securities Act.
On May 7, 1996, the Company issued 1,250,000 shares of Common Stock to
acquire Resetel, a Peruvian corporation, to Kayhelm, Ltd., Bethany Investments,
Ltd., Margarita Ulloa de Beeck, Guillermo Villanueva Pinto, Jesus Otto
Vallanueva Napuri, Guillermo Jose Soto Abanto, Eteban Viton Ramirez, Humberto
Guillen Luque, and Maria Jesus Hume Hurtado. Such shares were issued pursuant
to an exemption from the registration requirements of the Securities Act in
accordance with Regulation S and Section 4(2) of the Securities Act. The
recipients of such shares represented their intention to acquire such shares
for investment only and not with a view to sell such shares in connection with
any
II-2
<PAGE>
distribution thereof and an appropriate restrictive legend was affixed to the
share certificate. The recipients of such shares represented that they were
accredited investors as defined in Rule 501 under the Securities Act.
On February 3, 1997, the Company issued $1.5 million aggregate principal
amount of 7% Convertible Debentures due February 3, 2000 and warrants to
purchase an aggregate of 100,000 shares of Common Stock exercisable through
February 2, 2002 at an exercise price of $5.00 per share to NU Investments, LLC
and KA Investments, LDC. Such securities were issued pursuant to an exemption
from the registration requirements of the Securities Act in accordance with
Regulation D and Section 4(2) of the Securities Act. The recipients of such
securities represented their intention to acquire such shares for investment
only and not with a view to sell such shares in connection with any
distribution thereof and an appropriate restrictive legend was affixed to the
debentures. The recipients of such securities represented that they were
accredited investors as defined in Rule 501 under the Securities Act.
On May 6, 1997, the Company issued $2.0 million aggregate principal amount
of 8% Convertible Debentures due April 30, 1998 and warrants to purchase an
aggregate of 20,000 shares of Common Stock exercisable through June 30, 2002 at
an exercise price of $2.37 per share to Arcadia Importers & Exporters, Inc.
Such securities were issued pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Regulation D and Section
4(2) of the Securities Act. The recipient of such securities represented its
intention to acquire such shares for investment only and not with a view to
sell such shares in connection with any distribution thereof and an appropriate
restrictive legend was affixed to the debentures. The recipient of such
securities represented that it was an accredited investor as defined in Rule
501 under the Securities Act.
On July 10, 1997, the Company converted $250,000 and $7,572 of principal
and interest, respectively, related to convertible debentures due to NU
Investments, LLC and KA Investments, LDC into 132,060 shares of the Company's
Common Stock. The conversion price was $1.95 per share of Common Stock. Such
shares were issued pursuant to an exemption from the registration requirements
of the Securities Act in accordance with Section 4(2) of the Securities Act.
The recipients of such shares represented their intention to acquire such
shares for investment only and not with a view to sell such shares in
connection with any distribution thereof and an appropriate restrictive legend
was affixed to the share certificates. The recipients of such shares
represented that they were accredited investors as defined in Rule 501 under
the Securities Act.
During March, 1997, the Company converted $240,000 of liabilities owed to
Maroon Bells Capital Partners, Inc. related to services provided to the Company
into 80,000 shares of the Company's Common Stock. The conversion price was
$3.00 per share of Common Stock. Such shares were issued pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Section 4(2) of the Securities Act. The recipient of such
shares represented its intention to acquire such shares for investment only and
not with a view to sell such shares in connection with any distribution thereof
and an appropriate restrictive legend was affixed to the share certificate. The
recipient of such shares represented that it was an accredited investor as
defined in Rule 501 under the Securities Act.
On August 27, 1997, the Company converted $1,450,000 and $32,667 of
principal and interest, respectively, related to convertible debentures due to
Arcadia Importers & Exporters, Inc. into 851,162 shares of the Company's Common
Stock. The conversion price was $1.74 per share of Common Stock. Such shares
were issued pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Section 4(2) of the Securities Act. The
recipient of such shares represented its intention to acquire such shares for
investment only and not with a view to sell such shares in connection with any
distribution thereof and an appropriate restrictive legend was affixed to the
share certificate. The recipient of such shares represented that it was an
accredited investor as defined in Rule 501 under the Securities Act.
On September 2, 1997, the Company converted $250,000 and $6,099 of
principal and interest, respectively, related to convertible debentures due to
NU Investments, LLC and KA Investments, LDC
II-3
<PAGE>
into 118,560 shares of the Company's Common Stock. The conversion price was
$2.19 per share of Common Stock. Such shares were issued pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Section 4(2) of the Securities Act. The recipients of such
shares represented their intention to acquire such shares for investment only
and not with a view to sell such shares in connection with any distribution
thereof and an appropriate restrictive legend was affixed to the share
certificates. The recipients of such shares represented that they were
accredited investors as defined in Rule 501 under the Securities Act.
During October 1997, the Company entered into an agreement with Maroon
Bell Capital Partners, Inc. and its principals, Theodore Swindells, Paul Moore
and Phillip Magiera, to compensate them for services rendered to the Company.
The services provided by Messrs. Moore and Magiera related to their functions
as directors of the Company. Pursuant to such agreement, the Company made a
cash payment to Maroon Bell Capital Partners, Inc. 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 (i) the grant date fair value of the Common Stock
of $1,420,000 and (ii) the intrinsic value of the stock options of $355,000.
Messrs. Moore and Magiera resigned from the Company's Board of Directors
effective as of the date of the agreement. Such shares were issued pursuant to
an exemption from the registration requirements of the Securities Act in
accordance with Section 4(2) of the Securities Act. The recipients of such
shares represented their intention to acquire such shares for investment only
and not with a view to sell such shares in connection with any distribution
thereof and an appropriate restrictive legend was affixed to the share
certificates. The recipient of such shares represented that they were
accredited investors as defined in Rule 501 under the Securities Act.
On October 27, 1997, the Company consummated the Senior Note Offering of
150,000 units (the "Units") pursuant to Rule 144A and Regulation S under the
Securities Act, consisting of (i) $150.0 million aggregate principal amount of
14% Senior Notes due October 27, 2007 (the "Existing Notes") and (ii) 5,250,000
Unit Warrants to purchase an aggregate of 5,250,000 shares of Common Stock, at
an exercise price of $4.40 per share. The Senior Note Offering resulted in net
proceeds to the Company of approximately $142.5 million. The Units were
originally issued and sold by the Company in a transaction which was exempt
from the registration requirements of the Securities Act. The Company has filed
a Form S-4 and Form S-1 Registration Statements with the SEC to register under
the Securities Act (i) New Notes which contain substantially identical terms as
the Existing Notes and are being offered in exchange for the Existing Notes and
(ii) the Common Stock underlying the Unit Warrants, respectively. 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, 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 Existing Notes and Unit Warrants
were sold (i) to qualified institutional buyers (as defined in Rule 144A under
the Securities Act) in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 144A and the position of
the Commission's staff as set forth in certain no-action letters issued to
other parties in other transactions and (ii) outside the U.S. in compliance
with Regulation S under the Securities Act.
During October 1997, the Company issued 600,000 and 250,000 shares of
Common Stock to Patricio Northland and Douglas G. Geib II, respectively, as
compensation for their past services as officers of the Company. Such shares
were issued pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Section 4(2) of the Securities Act. The
recipients of such shares represented their intention to acquire such shares
for investment only and not with a view to sell such shares in connection with
any distribution thereof and an appropriate restrictive legend was affixed to
the share certificates. The recipients of such shares represented that each was
an accredited investor as defined in Rule 501 under the Securities Act.
During October 1997, the Company issued 300,000 shares of Common Stock to
Eleazar Donoso in settlement of all outstanding claims by Mr. Donoso against
the Company. Such shares were issued
II-4
<PAGE>
pursuant to an exemption from the registration requirements of the Securities
Act in accordance with Sections 4(2) and 4(6) of the Securities Act. The
recipient of such shares represented his intention to acquire such shares for
investment only and not with a view to sell such shares in connection with any
distribution thereof and an appropriate restrictive legend was affixed to the
share certificate. The recipient of such shares represented that he was an
accredited investor as defined in Rule 501 under the Securities Act.
On December 16, 1997, the Company issued Patricio Silva 100,000 shares of
Common Stock in connection with his facilitating the Company's acquisition of
FirstCom Long Distance S.A. Such shares were issued pursuant to an exemption
from the registration requirements of the Securities Act in accordance with
Section 4(2) and Regulation S of the Securities Act. The recipient of such
shares represented his intention to acquire such shares for investment only and
not with a view to sell such shares in connection with any distribution thereof
and an appropriate restrictive legend was affixed to the share certificate. The
recipient of such shares represented that he was an accredited investor as
defined in Rule 501 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of September 9, 1997, as amended, between
InterAmericas Communications Corporation and Inversiones Druma S.A. for the
Acquisition of 99.9% of the Outstanding shares of capital of Iusatel Chile S.A., previously
filed as an exhibit to Registrant's Current Report on Form 8-K, filed with the Commission on
September 24, 1997 and incorporated herein by reference.
3.1 Articles of Incorporation of InterAmericas Communications Corporation previously filed as
an exhibit to the Registrant's Form 8-A Registration Statement, filed with the Commission
on November 29, 1994 and incorporated herein by reference.
3.2 By-laws of InterAmericas Communications Corporation previously filed as an exhibit to
Amendment No. 4 to the Form S-4 Registration Statement of the Registrant, filed with the
Commission on August 12, 1998 and incorporated herein by reference.
4.1 Purchase Agreement, dated as of October 21, 1997 by and among InterAmericas
Communications Corporation, Hewster Chile S.A. Red de Servicios Empresariales de
Telecomunicaciones S.A. and UBS Securities LLC previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.2 Form of Existing Note previously filed as an exhibit to Registrant's Registration Statement
on Form S-4, filed with the Commission on December 10, 1997 and incorporated herein by
reference.
4.3 Indenture, dated as of October 27, 1997 between InterAmericas Communications
Corporation and State Street Bank & Trust Company, N.A. previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.4 A/B Exchange Registration Rights Agreement, dated as of October 27, 1997, between
InterAmericas Communications Corporation and UBS Securities LLC previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.5 Warrant Agreement, dated as of October 27, 1997, between the Registrant and State Street
Bank & Trust Company, N.A. previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997 and incorporated
herein by reference.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
4.6 Warrant Registration Rights Agreement, dated as of October 27, 1997 between
InterAmericas Communications Corporation and UBS Securities LLC previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.7 Specimen of InterAmericas Communications Corporation 14% Senior Note due October 27,
2007 previously filed as an exhibit to Registrant's Registration Statement on Form S-4, filed
with the Commission on December 10, 1997 and Incorporated herein by reference.
4.8 Proceeds Pledge and Escrow Agreement, dated as of October 27, 1997 between
InterAmericas Communications Corporation and State Street Bank and Trust Company,
N.A., previously filed as an exhibit to Registrant's Registration Statement on Form S-4, filed
with the Commission on December 10, 1997 and incorporated herein by reference.
5.1 Opinion of Baker & McKenzie.
10.1 Employment Agreement, dated as of October 7, 1997, between InterAmericas
Communications Corporation and Patricio E. Northland, previously filed as an exhibit to
Amendment No. 4 to the Form S-4 Registration Statement of the Registrant filed with the
Commission on August 12, 1998 and incorporated herein by reference.
10.2 Employment and Severance Agreement, dated as of April 14, 1997, between InterAmericas
Communications Corporation and Douglas G. Geib previous filed as an exhibit to
Amendment No. 4 to the Form S-4 Registration Statement of the Registrant filed with the
Commission on August 12, 1998 and incorporated herein by reference.
21.1 Subsidiaries of the Registrant previously filed as an exhibit to Registrant's Form 10-KSB,
filed with the Commission on March 10, 1998 and incorporated herein by reference.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Baker & McKenzie (included in Exhibit 5.1).
23.3 Consent of Arthur Andersen/Langton Clarke y Cia.
25.1 Statement of Eligibility of State Street Bank and Trust Company, N.A. previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
99.1 Form of Letter of Transmittal previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997 and incorporated
herein by reference.
99.2 Form of Notice of Guaranteed Delivery previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.
99.3 Form of Exchange Agent Agreement previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.
99.4 Form of Information Agent Agreement previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.
</TABLE>
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the 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.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions of its Articles of
Incorporation and By-Laws of the Registrant, the Texas Business Corporation
Act, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the issuer of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a
II-7
<PAGE>
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.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 16 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.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Miami, State of Florida on August 12, 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, August 12, 1998
- ----------------------------------- President and Chief Executive Officer
Patricio E. Northland (Principal Executive Officer)
/s/ DOUGLAS G. GEIB II Chief Financial Officer and Director August 12, 1998
- ----------------------------------- (Principal Financial and
Douglas G. Geib II Accounting Officer)
/s/ DAVID C. KLEINMAN* Director August 12, 1998
- -----------------------------------
David C. Kleinman
/s/ GEORGE A. CARGILL* Director August 12, 1998
- -----------------------------------
George A. Cargill
/s/ ANDREW HULSH Director August 12, 1998
- -----------------------------------
Andrew Hulsh
</TABLE>
- ----------------
<TABLE>
<S> <C>
*By: /s/ DOUGLAS G. GEIB II
------------------------------
Douglas G. Geib II
Attorney-in-fact
</TABLE>
II-9
<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>
2.1 Stock Purchase Agreement, dated as of September 9, 1997, as amended, between
InterAmericas Communications Corporation and Inversiones Druma S.A. for the
Acquisition of 99.9% of the Outstanding shares of capital of Iusatel Chile S.A.,
previously filed as an exhibit to Registrant's Current Report on Form 8-K, filed
with the Commission on September 24, 1997 and incorporated herein by reference.
3.1 Articles of Incorporation of InterAmericas Communications Corporation
previously filed as an exhibit to the Registrant's Form 8-A Registration Statement,
filed with the Commission on November 29, 1994 and incorporated herein by
reference.
3.2 By-laws of InterAmericas Communications Corporation previously filed as an
exhibit to Amendment No. 4 to the Registrant's Form S-4 Registration Statement
of the Registrant, filed with the Commission on August 12, 1998 and incorporated
herein by reference.
4.1 Purchase Agreement, dated as of October 21, 1997 by and among InterAmericas
Communications Corporation, Hewster Chile S.A. Red de Servicios Empresariales
de Telecomunicaciones S.A. and UBS Securities LLC previously filed as an exhibit
to Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.2 Form of Existing Note previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.
4.3 Indenture, dated as of October 27, 1997 between InterAmericas Communications
Corporation and State Street Bank & Trust Company, N.A. previously filed as an
exhibit to Registrant's Registration Statement on Form S-4, filed with the
Commission on December 10, 1997 and incorporated herein by reference.
4.4 A/B Exchange Registration Rights Agreement, dated as of October 27, 1997,
between InterAmericas Communications Corporation and UBS Securities LLC
previously filed as an exhibit to Registrant's Registration Statement on Form S-4,
filed with the Commission on December 10, 1997 and incorporated herein by
reference.
4.5 Warrant Agreement, dated as of October 27, 1997, between the Registrant and
State Street Bank & Trust Company, N.A. previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
4.6 Warrant Registration Rights Agreement, dated as of October 27, 1997 between
InterAmericas Communications Corporation and UBS Securities LLC previously
filed as an exhibit to Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein by reference.
4.7 Specimen of InterAmericas Communications Corporation 14% Senior Note due
October 27, 2007 previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997 and
Incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<S> <C> <C>
4.8 Proceeds Pledge and Escrow Agreement, dated as of October 27, 1997 between
InterAmericas Communications Corporation and State Street Bank and Trust
Company, N.A., previously filed as an exhibit to Registrant's Registration
Statement on Form S-4, filed with the Commission on December 10, 1997 and
incorporated herein by reference.
5.1 Opinion of Baker & McKenzie.
10.1 Employment Agreement, dated as of October 7, 1997, between InterAmericas
Communications Corporation and Patricio E. Northland, previously filed as an
exhibit to Amendment No. 4 to the Form S-4 Registration Statement of the
Registrant filed with the Commission on August 12, 1998 and incorporated herein
by reference.
10.2 Employment and Severance Agreement, dated as of April 14, 1997, between
InterAmericas Communications Corporation and Douglas G. Geib previous filed
as an exhibit to Amendment No. 4 to the Form S-4 Registration Statement of the
Registrant filed with the Commission on August 12, 1998 and incorporated herein
by reference.
21.1 Subsidiaries of the Registrant previously filed as an exhibit to Registrant's Form
10-KSB, filed with the Commission on March 10, 1998 and incorporated herein by
reference.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Baker & McKenzie (included in Exhibit 5.1).
23.3 Consent of Arthur Andersen/Langton Clarke y Cia.
25.1 Statement of Eligibility of State Street Bank and Trust Company, N.A. previously
filed as an exhibit to Registrant's Registration Statement on Form S-4, filed with
the Commission on December 10, 1997 and incorporated herein by reference.
99.1 Form of Letter of Transmittal previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10,
1997 and incorporated herein by reference.
99.2 Form of Notice of Guaranteed Delivery previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
99.3 Form of Exchange Agent Agreement previously filed as an exhibit to Registrant's
Registration Statement on Form S-4, filed with the Commission on December 10,
1997 and incorporated herein by reference.
99.4 Form of Information Agent Agreement previously filed as an exhibit to
Registrant's Registration Statement on Form S-4, filed with the Commission on
December 10, 1997 and incorporated herein by reference.
</TABLE>
EXHIBIT 5.1
[Baker & McKenzie Letterhead]
ANDREW HULSH
[email protected]
(305) 789-8985
August 12, 1998
InterAmericas Communications Corporation
2600 Douglas Road, Suite 501
Coral Gables, Florida 33134
Gentlemen:
InterAmericas Communications Corporation, a Texas corporation (the
"Company"), has filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (the "Registration Statement") (Registration No.
333-41839) under the Securities Act of 1933, as amended (the "Act"). Such
Registration Statement relates to the sale by certain stockholders of the
Company which are identified under the caption "Selling Stockholders" in the
Registration Statement (the "Stockholders") of those number of shares of Common
Stock, par value $.01 per share (the "Common Stock"), identified under the
caption "Selling Stockholders" in the Registration Statement (the "Offering").
We have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement.
In connection with the Registration Statement, we have examined,
considered and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation, as amended to date,
and Bylaws, as currently in effect; (ii) resolutions of the Company's Board of
Directors authorizing the Offering and related matters; (iii) the Registration
Statement and schedules and exhibits thereto and (iv) such other documents and
instruments that we have deemed necessary for the expression of the opinions
herein contained. In making the foregoing examinations, we have assumed, without
investigation, the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to various questions of fact material to the opinion expressed
below, we have relied, to the extent we deemed reasonably appropriate, upon the
representations or certificates of officers and/or directors of the Company upon
documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such certificates, documents, records or
instruments.
Based upon the foregoing examination, and subject to the qualifications
set forth below, we are of the opinion that the Common Stock to be sold by the
Stockholders in the Offering has been duly and validly authorized, fully paid
and non-assessable assuming, to the extent applicable, that with respect to the
shares of Common Stock issuable upon the exercise of options and warrants, that
such options and warrants have been validly exercised in accordance with their
respective terms and that the underlying shares of Common Stock have been paid
for as provided for therein.
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the laws of the State of Texas.
The opinions expressed herein concern only the effect of the laws (excluding the
principles of conflict of laws) of the State of Texas as currently in effect.
This opinion letter is limited to the matters stated herein and no opinions may
be implied or inferred beyond the matters expressly stated herein. The opinions
expressed herein are given as of this
<PAGE>
InterAmericas Communications Corporation
August 12, 1998
Page 2
date, and we assume no obligation to update or supplement our opinions to
reflect any facts or circumstances that may come to our attention or any change
in law that may occur or become effective at a later date.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement. This consent is not to be construed as an admission that we are a
person whose consent is required to be filed with the Registration Statement
under the Act.
Very truly yours,
BAKER & McKENZIE
By: /s/ ANDREW HULSH
--------------------------------
Andrew Hulsh
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of InterAmericas Communications Corporation
of our report dated March 2, 1998, except as to Note 2 which is as of August 6,
1998, relating to the financial statements of InterAmericas Communications
Corporation, which appears in such Prospectus. We also consent to the
references to us under the headings "Experts", "Summary Condensed Consolidated
Historical and Pro Forma Combined Financial Data" and "Selected Historical
Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Summary
Condensed Consolidated Historical and Pro Forma Combined Financial Data" and
"Selected Historical Financial Data."
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
Miami, Florida
August 10, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 25, 1998 (except for Note 30 for which the date is
June 2, 1998) on our audits of the financial statements of FirstCom Long
Distance, S.A. at December 31, 1996 and 1997 and for the two years in the
period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
/s/ LANGTON CLARKE
Santiago, Chile
August 10, 1998
