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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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FIRSTCOM CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PRELIMINARY COPY
SUBJECT TO COMPLETION, DATED MARCH 21, 2000
[FIRSTCOM LETTERHEAD]
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of shareholders
of FirstCom Corporation to be held at ______________________, at 10:00 a.m.,
local time, on _______________ 2000.
On October 31, 1999, our board of directors approved and adopted an
agreement and plan of merger providing for the merger of FirstCom with and into
a wholly-owned subsidiary of AT&T Latin America Corp. FirstCom, AT&T Corp., AT&T
Latin America (formerly named Kiri Inc.) and Frantis, Inc., a wholly-owned
subsidiary of AT&T Latin America, signed the merger agreement on November 1,
1999. In the merger, our shareholders will receive one share of Class A common
stock of AT&T Latin America in exchange for each common share of FirstCom and
one share of Series A convertible preferred stock of AT&T Latin America in
exchange for each Series A convertible preferred share of FirstCom. At the
special meeting, you will be asked to consider and vote upon a proposal to
approve the merger.
AT&T Corp. formed AT&T Latin America in October 1999. AT&T Latin
America's principal asset is its 100% indirect ownership of Netstream Telecom
Ltda., a Brazilian communications carrier. AT&T Latin America is currently owned
90% by AT&T Corp. and 10% by an affiliate of Promon Ltda., a leading Brazilian
engineering and construction company that is the former parent of Netstream.
After the merger, the former FirstCom common shareholders and Promon's
affiliate will each own shares of Class A common stock of AT&T Latin America,
which will be publicly listed and traded on the Nasdaq National Market under the
symbol "ATTL." AT&T Corp. will own shares of Class B common stock of AT&T Latin
America, which will not be publicly listed or traded. Class A shares will have
one vote per share and Class B shares will have ten votes per share. The Class A
and Class B shares will have the same economic rights.
After the merger, on a fully-diluted basis, former shareholders of
FirstCom will own about 34%, AT&T Corp. will own about 59% and Promon's
affiliate will own about 7% of the common stock of AT&T Latin America. If before
the merger AT&T Latin America completes its pending acquisition of Keytech LD
S.A., a development stage broadband communications company in Argentina, those
percentages will be reduced slightly and the former shareholders of Keytech LD
will own approximately 1% of the common stock of AT&T Latin America in the form
of Class A Shares.
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OUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS ADVISABLE AND
IN THE BEST INTERESTS OF FIRSTCOM AND ITS SHAREHOLDERS. ACCORDINGLY, OUR BOARD
OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
The attached proxy statement/prospectus explains the terms of the
proposed merger and related matters. Please carefully review and consider all of
this information. Completion of the merger is subject to the satisfaction or
waiver of certain conditions, including approval of the merger and the merger
agreement by the requisite vote of the holders of a majority of our common
shares and Series A convertible preferred shares. It is very important that your
shares are represented at the special meeting, whether or not you plan to attend
in person. To ensure that your vote is represented at the special meeting,
please sign, date and mail the proxy card in the enclosed envelope. You are, of
course, welcome to attend the meeting and to vote your shares in person.
I look forward to seeing you at the special meeting.
Sincerely yours,
Patricio E. Northland
Chairman of the Board, President
and Chief Executive Officer
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NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY __, 2000
- --------------------
To the shareholders of FirstCom Corporation:
Notice is hereby given that a special meeting of shareholders of
FirstCom Corporation will be held at _________________________ at 10:00 a.m.,
local time on May __, 2000, for the following purposes:
1. To consider and vote upon a proposal to approve the merger
and the Agreement and Plan of Merger, dated as of November 1, 1999, as
amended, by and among FirstCom, AT&T Corp., AT&T Latin America Corp.
(formerly Kiri Inc.) and Frantis, Inc., which is a wholly-owned
subsidiary of AT&T Latin America. The merger agreement provides for the
merger of FirstCom with and into Frantis.
2. To transact such other business as may properly be brought
before the special meeting.
A copy of the merger agreement is attached as Annex A to the proxy
statement/prospectus accompanying this notice.
Only shareholders of record on ______ __, 2000 are entitled to notice
of and to vote at the special meeting. A list of shareholders entitled to vote
at the special meeting will be available for examination at our executive
offices during regular business hours beginning on _________, 2000 and at the
special meeting.
A form of proxy and a proxy statement/prospectus containing more
detailed information about the matters to be considered at the special meeting
accompanies this notice.
THE BOARD OF DIRECTORS RECOMMENDS UNANIMOUSLY THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
You are cordially invited to attend the special meeting in person. If
you attend the special meeting, you may revoke your proxy and vote in person.
Your proxy may be revoked at any time before it is voted.
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY
FIRSTCOM'S BOARD OF DIRECTORS. AN ADDRESSED RETURN ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE.
By order of the board of directors,
Patricio E. Northland
Chairman of the Board
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[AT&T LATIN AMERICA LOGO] [FIRSTCOM LOGO]
SUBJECT TO COMPLETION, DATED MARCH 21, 2000
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
On October 31, 1999, the board of directors of FirstCom Corporation
approved and adopted an agreement and plan of merger providing for the merger of
FirstCom with and into a wholly-owned subsidiary of AT&T Latin America Corp. In
the merger, the holders of FirstCom common shares will receive one share of
Class A common stock of AT&T Latin America in exchange for each common share of
FirstCom. Holders of Series A convertible preferred shares of FirstCom will
receive one share of Series A convertible preferred stock of AT&T Latin America
in exchange for each FirstCom Series A convertible preferred share. The shares
of Class A common stock of AT&T Latin America will be listed and traded on the
Nasdaq National Market under the symbol "ATTL."
This document serves two purposes. It is a proxy statement of FirstCom
to solicit approval of the merger from FirstCom's shareholders. It is also a
prospectus covering the shares of Class A common stock of AT&T Latin America
that will be issued in the merger.
AT&T Latin America and FirstCom can only complete the merger if
FirstCom's shareholders approve the merger. FirstCom will hold a special meeting
of its shareholders on May __, 2000 to vote on the merger proposal.
A copy of the merger agreement is attached as Annex A to this proxy
statement/prospectus.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR A DESCRIPTION OF
CERTAIN RISKS RELATING TO THE MERGER AND TO AT&T LATIN AMERICA AND FIRSTCOM.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus, dated __________________, was first
mailed to FirstCom's shareholders on or about ____________, 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about FirstCom from documents that FirstCom has filed with the SEC but have not
been included in or delivered with this document. If you write or call FirstCom,
it will send you these documents, excluding exhibits unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement/prospectus, without charge. You can contact FirstCom at:
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 448-4422
Attn: Chief Financial Officer
PLEASE REQUEST DOCUMENTS BY _____________, 2000 TO RECEIVE THEM BEFORE
THE SPECIAL MEETING. IF YOU REQUEST ANY INCORPORATED DOCUMENTS, FIRSTCOM WILL
MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY PROMPT MEANS, BY THE
NEXT BUSINESS DAY AFTER FIRSTCOM RECEIVES YOUR REQUEST.
See "Where You Can Find More Information" on page __ for more
information about FirstCom and the documents referred to in this document.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER .............................................................. 1
FORWARD-LOOKING STATEMENTS .......................................................................... 6
SUMMARY ............................................................................................. 8
Overview--The Creation of AT&T Latin America and the Merger ..................................... 8
General Background .......................................................................... 8
Business Strategy ........................................................................... 9
Business Descriptions of AT&T Latin America and FirstCom .................................... 11
The Merger ...................................................................................... 12
Merger Consideration ........................................................................ 12
FirstCom Common Share Market Price and Other Information .................................... 14
Determination of FirstCom's Board of Directors .............................................. 14
Opinion of FirstCom's Financial Advisor ..................................................... 14
Required Vote of FirstCom Shareholders ...................................................... 14
Voting Agreements ........................................................................... 15
Certain U.S. Federal Income Tax Consequences ................................................ 15
Accounting Treatment ........................................................................ 15
Conditions to Completion of the Merger ...................................................... 15
Termination of the Merger Agreement ......................................................... 16
Compensation Payable if Merger is Not Completed ............................................. 17
Interests of Members of FirstCom's Board of Directors and Management in the Merger .......... 17
Comparison of Rights of FirstCom Shareholders and AT&T Latin America Shareholders ........... 18
Regulatory Matters .......................................................................... 18
SELECTED FINANCIAL INFORMATION ...................................................................... 19
General ......................................................................................... 19
Selected Historical Financial Information of AT&T Latin America, Netstream and FirstCom ......... 20
AT&T Latin America .......................................................................... 20
Netstream ................................................................................... 21
FirstCom .................................................................................... 21
Selected AT&T Latin America Unaudited Pro Forma Combined Financial Information .................. 23
Comparative Share Data .......................................................................... 25
Market Price of FirstCom Common Shares .......................................................... 26
RISK FACTORS ........................................................................................ 27
Risks Relating to the Merger .................................................................... 27
Industry and Business Risks ..................................................................... 30
THE SPECIAL MEETING ................................................................................. 39
Matters to be Considered at the FirstCom Special Meeting ........................................ 39
Votes Required for Approval ..................................................................... 39
How Shares Will be Voted at the Special Meetings ................................................ 40
How to Revoke a Proxy ........................................................................... 40
Solicitation of Proxies ......................................................................... 40
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THE MERGER .......................................................................................... 42
General ......................................................................................... 42
Background of the Merger ........................................................................ 44
Reasons for the Merger; Recommendation of FirstCom's Board of Directors ......................... 47
Opinion of FirstCom's Financial Advisor ......................................................... 50
Introduction to Financial Analyses .......................................................... 52
FirstCom Analysis ........................................................................... 53
Netstream Analysis .......................................................................... 54
Relative Contribution Analysis .............................................................. 55
Other Factors ............................................................................... 55
Voting Agreements ............................................................................... 57
Interests of Certain Persons in the Merger ...................................................... 57
AT&T Latin America Common Stock to be Received by FirstCom's Directors and
Executive Officers......................................................................... 59
Insurance ................................................................................... 59
Nasdaq National Market Listing of AT&T Latin America Shares of Class A Common Stock ............. 59
Accounting Treatment ............................................................................ 60
Certain U.S. Federal Income Tax Consequences .................................................... 60
Regulatory Matters .............................................................................. 61
U.S. Antitrust Laws ......................................................................... 61
Federal Communications Commission ........................................................... 62
Foreign Regulatory Matters .................................................................. 62
Federal Securities Law Consequences ............................................................. 62
FirstCom's 14% Senior Notes ..................................................................... 62
Rights of Dissenting Shareholders ............................................................... 63
THE MERGER AGREEMENT ................................................................................ 64
Timing of the Merger ............................................................................ 64
Merger Consideration ............................................................................ 64
Treatment of FirstCom Options and Warrants ...................................................... 64
Exchange Procedures ............................................................................. 64
Representations and Warranties .................................................................. 65
Representations and Warranties by FirstCom .................................................. 65
Representations and Warranties by AT&T Corp. ................................................ 66
Principal Covenants ............................................................................. 67
No Solicitation of Transactions by FirstCom ................................................. 67
Board's Covenant to Recommend the Merger .................................................... 68
Conduct of Business Pending the Merger ...................................................... 69
AT&T Corp.'s Ownership of AT&T Latin America ................................................ 70
Conduct of the Business of AT&T Latin America and Netstream ................................. 70
Senior Notes ................................................................................ 71
Insurance ................................................................................... 71
Conditions to Completion of the Merger .......................................................... 72
Conditions to Completion of the Merger of All Parties to the Merger Agreement ............... 72
Additional Conditions to AT&T and AT&T Latin America's Completion of the Merger ............. 72
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Additional Conditions to FirstCom's Completion of the Merger ................................ 73
Termination of the Merger Agreement ............................................................. 73
Termination Fees ................................................................................ 74
Other Fees and Expenses ......................................................................... 75
Assignment, Amendment and Waiver ................................................................ 75
OTHER MATERIAL AGREEMENTS AND ARRANGEMENTS .......................................................... 76
Regional Vehicle Agreement with AT&T Corp. ...................................................... 76
AT&T Latin America Services ................................................................. 76
Restrictions on AT&T Latin America's Business Activities .................................... 77
Possible Future Restrictions on Business Activities ......................................... 77
Non-Competition Obligations of AT&T Corp. ................................................... 77
Future Acquisitions by AT&T Corp. ........................................................... 78
AT&T Latin America's Supply of Services to AT&T Corp. ....................................... 79
AT&T Latin America's Supply of Services to AT&T Global Network Companies .................... 79
AT&T Latin America's Supply of Services to Concert .......................................... 79
Distribution of Concert Services ............................................................ 79
Purchase of Concert Services ................................................................ 80
Distribution Arrangements between AT&T Latin America and the AT&T Global Network ............ 80
Glossary of Certain Terms Used in the Regional Vehicle Agreement ............................ 80
Service Mark License Agreement with AT&T Corp. .................................................. 83
Service Marks ............................................................................... 83
Brand Fee ................................................................................... 83
Term; Termination ........................................................................... 84
Credit Facility ................................................................................. 84
AT&T Latin America-Promon Shareholders' Agreement ............................................... 84
Registration Rights ......................................................................... 84
Sale of Shares; Participation Rights ........................................................ 85
AT&T Latin America Shareholders' Agreement with Former Keytech Shareholders ................. 85
Registration Rights ......................................................................... 85
Sale of Shares .............................................................................. 86
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION .................................................. 87
INDUSTRY OVERVIEW ................................................................................... 99
General ......................................................................................... 99
Local Access Market ............................................................................. 99
Argentina ....................................................................................... 100
Brazil .......................................................................................... 101
Chile ........................................................................................... 102
Colombia ........................................................................................ 103
Peru ............................................................................................ 105
THE COMPANIES ....................................................................................... 107
Description of AT&T Latin America ............................................................... 107
General ..................................................................................... 107
Competitive Position ........................................................................ 108
Networks .................................................................................... 109
Services .................................................................................... 111
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Customers ................................................................................... 112
Sales, Marketing and Customer Service ....................................................... 113
Competition ................................................................................. 114
Regulation and Licenses ..................................................................... 116
Employees ................................................................................... 117
Legal Matters ............................................................................... 117
Management's Discussion and Analysis of Financial Condition and Results of Operations of
AT&T Latin America .......................................................................... 117
Company Overview ............................................................................ 118
Results of Operations - AT&T Latin America .................................................. 118
Liquidity and Capital Resources -AT&T Latin America ......................................... 120
Management and Governance of AT&T Latin America ................................................. 122
Directors and Executive Officers ............................................................ 122
Proposed Composition of AT&T Latin America's Board and Committees ........................... 123
Compensation of AT&T Latin America's Named Executive Officers ............................... 123
Long-Term Incentive Plan ........................................................................ 124
Certain Relationships and Related Transactions .................................................. 129
Principal Stockholders of AT&T Latin America .................................................... 129
Description of FirstCom ......................................................................... 130
General ..................................................................................... 130
DESCRIPTION OF AT&T LATIN AMERICA'S CAPITAL STOCK ................................................... 133
Authorized Capital Stock ........................................................................ 133
Common Stock .................................................................................... 133
Voting Rights ............................................................................... 133
Dividends ................................................................................... 133
Issuance of Shares of Class B Common Stock, Options or Warrants ............................. 133
Merger or Consolidation ..................................................................... 134
Conversion of Class B Shares ................................................................ 134
Liquidation ................................................................................. 134
Preemptive Rights; Redemption ............................................................... 134
Nasdaq Listing .............................................................................. 134
Preferred Stock ................................................................................. 134
Generally ................................................................................... 134
Series A Convertible Preferred Stock ........................................................ 135
Provisions of AT&T Latin America's Certificate of Incorporation and Bylaws That Could Delay,
Defer or Prevent Changes of Control ......................................................... 136
Territorial Restrictions in AT&T Latin America's Certificate of Incorporation ................... 137
Other Provisions of AT&T Latin America's Certificate of Incorporation and Bylaws ................ 137
Board of Directors; Disinterested Directors ................................................. 137
Board Policy ................................................................................ 137
Transactions with AT&T Corp. Affiliates ..................................................... 138
COMPARISON OF CERTAIN RIGHTS OF FIRSTCOM SHAREHOLDERS AND AT&T LATIN AMERICA STOCKHOLDERS ........... 139
Voting Rights; Quorum ........................................................................... 139
Number, Election and Removal of Directors ....................................................... 139
Director Liability .............................................................................. 140
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Indemnification ................................................................................. 141
Voting Rights on Business Combinations; Transactions with Interested Stockholders ............... 143
Right to Call Special Meetings .................................................................. 144
Duration of Proxies ............................................................................. 144
Shareholder Action by Written Consent ........................................................... 145
Amendment of Articles/Certificate of Incorporation and Bylaws ................................... 145
Dissenters' Rights .............................................................................. 146
Preemptive Rights And Cumulative Voting ......................................................... 147
Payment of Dividends ............................................................................ 148
Inspection of Books and Records ................................................................. 148
Shareholder Rights Plan ......................................................................... 148
LEGAL MATTERS ....................................................................................... 149
EXPERTS ............................................................................................. 150
WHERE YOU CAN FIND MORE INFORMATION ................................................................. 151
ANNEXES
Annex A Agreement and Plan of Merger dated November 1, 1999, as amended
Annex B Opinion of CIBC World Markets Corp.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE MERGER?
A: FirstCom will merge into a wholly-owned subsidiary of AT&T Latin
America.
Q: WHY ARE THE TWO COMPANIES MERGING?
A: AT&T Latin America and FirstCom believe that by combining they can
develop a company that is a leader in providing broadband
communications services mainly to business customers in Latin America.
They believe that, if that objective can be achieved, significant
shareholder value will be created.
Q: WHEN DO THE PARTIES EXPECT TO COMPLETE THE MERGER?
A: AT&T Latin America and FirstCom hope to complete the merger as soon as
possible after the FirstCom special shareholders' meeting on May __,
2000, if FirstCom's shareholders approve the merger. However, there are
a number of other conditions to the merger and AT&T Latin America and
FirstCom cannot predict if or when all of those conditions will be
satisfied. Either AT&T Corp. or FirstCom may terminate the merger
agreement if the merger is not completed by May 31, 2000.
Q: WHAT IS AT&T LATIN AMERICA?
A: AT&T Corp. formed AT&T Latin America to be a leading provider of
broadband communications services mainly to business customers in Latin
America. AT&T Latin America will focus on providing broadband services,
including high-capacity and value-added data, voice, video
conferencing, Internet and electronic commerce services, to its target
markets. Today, AT&T Latin America operates only in Brazil. AT&T Latin
America also plans to operate in Argentina after completing its pending
acquisition of Keytech LD S.A., a development stage broadband
communications company in Argentina that AT&T Latin America agreed to
acquire on February 23, 2000. After the merger is completed, AT&T Latin
America will also operate where FirstCom operates today in Chile,
Colombia and Peru.
Q: WHAT WILL FIRSTCOM'S SHAREHOLDERS RECEIVE IN THE MERGER?
A: Holders of FirstCom common shares will receive one share of Class A
common stock of AT&T Latin America for each share of FirstCom common
stock. Holders of FirstCom Series A convertible preferred shares will
receive one share of Series A convertible preferred stock of AT&T Latin
America for each FirstCom Series A convertible preferred share.
Holders of fractional interests in FirstCom shares will receive cash,
without interest, instead of certificates representing fractional
shares of AT&T Latin America. The amount of cash will be equal to a pro
rata portion of the net proceeds received by the exchange agent from
the public sale of shares of AT&T Latin America Class A common stock.
The number of shares sold will equal the aggregate number of shares
received by
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the exchange agent in excess of the aggregate number of shares
distributed in the merger in exchange for whole FirstCom common shares.
Q: WHO OWNS AT&T LATIN AMERICA?
A: Today, AT&T Latin America's capital stock is owned 90% by a subsidiary
of AT&T Corp. and 10% by an affiliate of Promon Ltda.
AT&T Corp. is among the world's communications leaders, providing
voice, data and video communications services to large and small
businesses, consumers and government entities. AT&T Corp. and its
subsidiaries furnish domestic long distance, international long
distance, regional, local and wireless communications services, and
cable television and Internet communications transmission services.
Promon is a leading engineering and construction group based in Brazil.
Promon has broad experience, in Brazil and throughout Latin America, in
providing integrated engineering solutions and construction management
services to the communications, power, petrochemicals and manufacturing
industries.
Q: AFTER COMPLETION OF THE MERGER, WHAT WILL BE THE SHARE OWNERSHIP OF
AT&T LATIN AMERICA?
A: As a result of the merger, on a fully-diluted basis, former
shareholders of FirstCom (including current officers and directors of
FirstCom) will own about 34% of the total common stock of AT&T Latin
America. AT&T Corp. will own indirectly about 59% and an affiliate of
Promon will own about 7% of that common stock. If AT&T Latin America
completes its pending acquisition of Keytech LD before the merger,
those percentages will be reduced slightly and the former shareholders
of Keytech LD will own approximately 1% of the common stock of AT&T
Latin America on a fully-diluted basis. Until the exercise or
conversion of the outstanding options, warrants and shares of
convertible preferred stock of FirstCom, which will become options,
warrants and convertible preferred stock of AT&T Latin America upon
completion of the merger, the percentage economic interest in AT&T
Latin America of FirstCom's current shareholders will be significantly
lower and the percentage economic interests of AT&T Corp. and the other
AT&T Latin America shareholders will be significantly higher than the
percentages described above.
The former common shareholders of FirstCom, Promon's affiliate and, if
the pending acquisition of Keytech LD is completed, the former
shareholders of Keytech LD will own shares of Class A common stock of
AT&T Latin America. AT&T Corp. will own all of the shares of Class B
common stock of AT&T Latin America.
Q: WHAT DO YOU MEAN BY "FULLY-DILUTED" BASIS?
A: "Fully-diluted" means that we count both the shares of AT&T Latin
America that are outstanding when the merger is completed and
additional shares that AT&T Latin America may issue in the future when
outstanding options and warrants to acquire common stock of AT&T Latin
America are exercised or shares of its convertible preferred stock are
converted. When the merger is completed, outstanding options and
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warrants to acquire the common stock of FirstCom will be converted
automatically into options and warrants to purchase shares of Class A
common stock of AT&T Latin America. These new options and warrants will
be for the same number of shares of AT&T Latin America and be
exercisable at the same prices as the former options and warrants of
FirstCom.
Q: ARE THERE ANY DIFFERENCES BETWEEN THE SHARES OF CLASS A AND CLASS B
COMMON STOCK OF AT&T LATIN AMERICA?
A: Yes. The shares of Class A common stock have one vote per share and the
shares of Class B common stock have ten votes per share. Upon
completion of the merger, the Class A shares will trade on the Nasdaq
National Market under the symbol "ATTL." The Class B shares will not be
publicly listed or traded.
The Class A and Class B shares will have the same economic rights per
share, including with respect to participation in earnings of AT&T
Latin America and any future dividends.
Q: WHAT ARE THE ASSETS OF AT&T LATIN AMERICA TODAY?
A: The principal assets of AT&T Latin America today consist of:
o 100% of the equity interest in Netstream Telecom Ltda., a
Brazilian communications carrier that owns and manages fiber
optic networks in the cities of Sao Paulo, Rio de Janeiro,
Belo Horizonte and Barueri/Alphaville. AT&T Latin America
plans to construct additional networks in the cities of
Brasilia, Campinas, Curitiba, Porto Alegre and Salvador;
o cash and liquid assets representing the proceeds from $50
million of cash equity contributions received from its
stockholders (affiliates of AT&T Corp. and Promon) in early
December 1999. Before the merger, AT&T Latin America will have
received an additional $20 million in cash equity
contributions from its stockholders. Some of these
contributions have been, and continue to be, used to finance
AT&T Latin America's growth and operations;
o an agreement by AT&T Corp. to provide a license under a
service mark license agreement with AT&T Corp. to use the AT&T
brand name and logo in the areas of Latin America in which
AT&T Latin America may operate; and
o an agreement to acquire Keytech LD, a development stage
broadband communications company in Argentina. Keytech LD has
licenses that authorize or will authorize it by November 8,
2000 to provide domestic and international long distance
services, local telephony services, value-added services and a
range of data
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services. Keytech LD also has rights to use 1910-1930 MHz wireless
spectrum for fixed wireless links in nine of Argentina's largest
cities.
Q: WHERE WILL AT&T LATIN AMERICA CONDUCT ITS BUSINESS?
A: AT&T Latin America will be permitted under its charter and its
agreements with AT&T Corp. to provide services in countries in South
America and the Caribbean, plus Panama, but excluding Cuba and
Venezuela. In this proxy statement/ prospectus, AT&T Latin America and
FirstCom refer to these countries collectively as the "Region." AT&T
Latin America is not currently permitted under its charter and its
agreements with AT&T Corp. to provide services in Mexico, in Central
American countries other than Panama or anywhere else outside of the
Region.
Immediately after the merger, AT&T Latin America will conduct its
business in Brazil, where it currently operates, and in Chile, Colombia
and Peru, where FirstCom currently operates. AT&T Latin America also
plans to conduct business in Argentina after completing its pending
acquisition of Keytech LD, which AT&T Latin America expects will occur
in the same time frame as the merger.
Q: WHAT ARE AT&T LATIN AMERICA'S TARGET MARKETS?
A: AT&T Latin America's principal target markets are business customers in
the Region, including financial services companies, media and content
providers, technology companies, government entities, multinational
corporations, Internet service providers and communications carriers,
as well as small and medium sized businesses.
Q: WHO WILL LEAD AT&T LATIN AMERICA?
A: John A. Haigh, who is president of the International Ventures
Organization of AT&T Corp., will serve also as chairman of the board of
directors of AT&T Latin America. Patricio E. Northland, the chairman of
the board, president and chief executive officer of FirstCom, will be
the president and chief executive officer of AT&T Latin America. Other
key executives of the company will be appointed by AT&T Latin America's
board of directors.
Q: HOW WILL THE BOARD OF DIRECTORS OF AT&T LATIN AMERICA BE CONSTITUTED
AFTER THE MERGER?
A: The board of directors will have nine members. Three members will be
"disinterested" individuals who have no affiliation with AT&T Corp. or
AT&T Latin America. The other six members will be nominated by AT&T
Corp. and will include the chief executive officer of AT&T Latin
America.
Q: WHAT DO I NEED TO DO TO VOTE ON THE MERGER PROPOSAL?
A: After reviewing this document, you should mark your vote on your proxy
card and then sign and mail the card in the enclosed return envelope as
soon as possible so that the proxy holder may vote your shares at the
FirstCom shareholders' meeting.
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Q: HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A: If you sign and send in your proxy card but do not mark your vote,
FirstCom will count your proxy as a vote "FOR" the merger.
Q: WHAT WILL BE THE EFFECT IF I DO NOT VOTE?
A: If you are a FirstCom shareholder and you fail to return your proxy
card, it will have the same effect as voting "AGAINST" the merger,
unless you then vote your shares in person in favor of the merger at
the FirstCom shareholders' meeting.
Q: CAN I VOTE MY SHARES IN PERSON?
A: Yes. You may attend the FirstCom shareholders' meeting and vote your
shares in person, rather than signing and mailing your proxy card. The
meeting will occur at [ ] on May [__], 2000 at [ ].
Q: CAN I REVOKE MY PROXY AND CHANGE MY VOTE?
A: Yes. You may revoke your proxy on or before the day of the FirstCom
shareholders' meeting by following the directions on page __. At that
time, you can either change your vote or attend the shareholders'
meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker on
how to vote. Your broker will send you directions on how you can
instruct your broker to vote. Your broker cannot vote your shares
without instructions from you.
Q: WILL I HAVE ANY "DISSENTERS' RIGHTS" IF I VOTE AGAINST THE MERGER?
A: No.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, you will receive written instructions
on how to exchange your stock certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger, or if you would like
additional copies of this document, you should contact FirstCom's proxy
solicitation agent as follows:
[ ]
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FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "The Companies"
and elsewhere in this proxy statement/prospectus are forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of AT&T
Latin America to be materially different from any future results, performance or
achievements of AT&T Latin America expressed in or implied by the
forward-looking statements.
Forward-looking statements include but are not limited to statements
and references about the following matters:
o expectations and estimates as to completion dates,
construction costs and subsequent maintenance expenses and
growth of the networks to be built or expanded;
o AT&T Latin America's ability to implement successfully its
operating strategy and to sell capacity on its networks; and
o future financial performance, including growth in sales and
income.
In addition to matters that are described in this proxy
statement/prospectus, particularly the cautionary statements included in "Risk
Factors," the following factors, among others, could cause AT&T Latin America's
actual results to differ materially from those expressed in or implied by any
forward-looking statements contained in this proxy statement/prospectus:
o the rate of expansion of AT&T Latin America's networks and
customer base;
o inaccurate forecasts of customer or market demand;
o loss of one or more important customers;
o highly competitive market conditions;
o changes in or developments under laws, regulations and
licensing requirements in the Region;
o changes in communications technology;
o currency fluctuations; and
o changes in economic, regulatory and political conditions in
the Region.
THESE FACTORS SHOULD NOT BE CONSTRUED AS EXHAUSTIVE.
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THIS PROXY STATEMENT/PROSPECTUS ALSO INCLUDES STATISTICAL DATA ABOUT
THE COMMUNICATIONS INDUSTRY THAT AT&T LATIN AMERICA AND FIRSTCOM HAVE OBTAINED
FROM INDUSTRY AND OTHER PUBLICATIONS. THESE PUBLICATIONS GENERALLY STATE THAT
THEY HAVE OBTAINED INFORMATION FROM SOURCES THAT THEY BELIEVE ARE RELIABLE, BUT
THAT THEY DO NOT GUARANTEE THE ACCURACY AND COMPLETENESS OF THE INFORMATION.
AT&T LATIN AMERICA AND FIRSTCOM BELIEVE THAT THESE INDUSTRY PUBLICATIONS ARE
RELIABLE, BUT THEY HAVE NOT INDEPENDENTLY VERIFIED THEIR DATA. AT&T LATIN
AMERICA AND FIRSTCOM ALSO HAVE NOT SOUGHT THE CONSENT OF ANY OF THESE
PUBLICATIONS TO REFER TO THEIR DATA IN THIS PROXY STATEMENT/PROSPECTUS.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT
DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. AT&T LATIN
AMERICA AND FIRSTCOM URGE YOU TO READ CAREFULLY THE ENTIRE DOCUMENT AND THE
OTHER DOCUMENTS REFERRED TO IN THIS DOCUMENT TO UNDERSTAND THE MERGER. FOR A
GUIDE TO WHERE YOU CAN OBTAIN MORE INFORMATION ON FIRSTCOM GENERALLY, SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE __. YOU SHOULD ALSO READ THE MERGER
AGREEMENT, AS AMENDED, ATTACHED AS ANNEX A TO THIS DOCUMENT. IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE MERGER.
OVERVIEW--THE CREATION OF AT&T LATIN AMERICA AND THE MERGER
GENERAL BACKGROUND. AT&T Corp. created AT&T Latin America Corp.
(formerly Kiri Inc.) in October 1999 to be a leading provider of broadband
communications services mainly to business customers throughout the Region.
Through its operating subsidiaries, AT&T Latin America plans to provide data,
voice, video conferencing, Internet and electronic commerce services to its
target markets. AT&T Latin America will offer its services in key metropolitan
areas.
In August 1999, AT&T Corp. agreed to acquire from Promon Ltda. and its
affiliates 100% of Netstream Telecom Ltda., a Brazilian communications carrier.
In December 1999, AT&T Corp. completed the Netstream acquisition and contributed
all of its interest in Netstream, plus $10 million in cash, to AT&T Latin
America. As a result of the acquisition, AT&T Latin America today owns and
operates fiber optic networks in Sao Paulo, Rio de Janeiro, Belo Horizonte and
Barueri/Alphaville. It continues to expand its existing networks and has plans
to begin building additional networks in the Brazilian cities of Brasilia,
Campinas, Curitiba, Porto Alegre and Salvador during 2000.
Immediately after AT&T Corp. completed its acquisition of Netstream, SL
Participacoes S.A., an affiliate of Promon, contributed $40 million in cash to
AT&T Latin America in exchange for a 10% equity interest. Promon is a leading
engineering and construction group based in Brazil, which has broad experience,
in Brazil and throughout Latin America, providing integrated engineering
solutions and construction management services to the communications, power,
petrochemicals and manufacturing industries.
AT&T Corp., AT&T Latin America and FirstCom agreed to the merger on
November 1, 1999.
As provided in AT&T Latin America's certificate of incorporation and in
agreements with AT&T Corp., AT&T Latin America's sole business will be the
provision of communications services in countries in South America and the
Caribbean, plus Panama, but excluding Cuba and Venezuela. In this proxy
statement/prospectus, these countries are referred to collectively as the
"Region." AT&T Latin America is not currently permitted under its charter and
its agreements with AT&T Corp. to provide services in Mexico, in Central
American countries other than Panama or anywhere else outside the Region.
The types of communications services to be provided by AT&T Latin
America are governed in part by agreements with AT&T Corp. Further, AT&T Corp.
and its other affiliates also may offer communications services in the Region,
subject to some restrictions on competing
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with AT&T Latin America. See "Other Material Agreements and Arrangements -
Regional Vehicle Agreement with AT&T Corp."; and "Service Mark License Agreement
with AT&T Corp." and "Description of AT&T Latin America's Capital Stock -
Territorial Restrictions in AT&T Latin America's Certificate of Incorporation"
for more information about the scope of AT&T Latin America's business activities
and the competition restrictions relating to AT&T Corp. and its affiliates.
In connection with the merger, AT&T Corp. will also license to AT&T
Latin America the AT&T brand name and logo for use in the Region. See "Other
Material Agreements and Arrangements - Service Mark License Agreement with AT&T
Corp."
On February 23, 2000, AT&T Latin America agreed to acquire 100% of
Keytech LD, a development stage broadband communications company in Argentina.
Keytech LD has licenses that authorize or will authorize it by November 8, 2000
to provide domestic and international long distance services, local telephony
services, value-added services and a range of data services. Keytech LD also has
rights to use 1910-1930 MHz wireless spectrum for fixed wireless links in nine
of Argentina's largest cities. The purchase price for Keytech LD is 1,178,689
shares of AT&T Latin America Class A common stock (of which 550,000 shares will
be placed in escrow to cover indemnity obligations of the selling stockholders),
plus $5 million in cash. AT&T Latin America will also pay up to an additional
$1.5 million to the selling stockholders one year after the acquisition if
certain business milestones are accomplished.
BUSINESS STRATEGY. AT&T Latin America's objective is to become a
leading provider of broadband communications services mainly to business
customers throughout the Region. To achieve this objective, AT&T Latin America
intends to:
o FOCUS ON HIGH-DEMAND BUSINESS CUSTOMERS. AT&T Latin America
plans to deploy its assets in key metropolitan markets in the
Region where there are concentrations of customers with high
demand for broadband services. It will target financial
services companies, media and content providers, technology
companies, government entities, multinational corporations,
Internet service providers and communications carriers, as
well as small and medium sized businesses.
o OFFER BUNDLED PACKAGES OF COMMUNICATIONS SERVICES. AT&T Latin
America will bundle a number of data, voice, video
conferencing, Internet and electronic commerce services to
provide its customers with a full suite of products. It
believes that bundling these services will enhance its ability
to penetrate markets quickly and to build and maintain
customer loyalty.
o ACCELERATE ITS INTERNET OFFERINGS. AT&T Latin America intends
to capitalize on the substantial demand for Internet services
within the Latin American business community. It plans to
accelerate deployment of high-speed Internet access services,
web hosting services, data center management, hosting of
mission critical applications and other Internet-related
services.
o USE THE AT&T BRAND TO ENHANCE MARKET PENETRATION AND
ACCEPTANCE. AT&T Latin America will use the
internationally-known AT&T brand and logo to unify and build
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market support for its services in the Region. The company
believes that the AT&T brand connotes high quality and
reliable products and services. Accordingly, it expects that
using the AT&T brand will shorten sales cycles, speed market
penetration and increase market share.
o CAPITALIZE ON RELATIONSHIPS WITH AT&T CORP., CONCERT AND AGNS.
AT&T Latin America intends to benefit from the worldwide
customer base and global connectivity of AT&T Corp. and its
affiliates and ventures, including AT&T Global Network
Services ("AGNS") and the "Concert" global venture between
AT&T Corp. and British Telecommunications plc. AT&T Latin
America will supply services to AGNS and Concert, which should
enable AT&T Latin America to benefit from the demand for
communications services of local offices of AGNS' and
Concert's multinational customers.
o PROVIDE SUPERIOR CUSTOMER SERVICE. AT&T Latin America plans to
provide best-in-class service and to maintain a company-wide
commitment to quality and customer loyalty. AT&T Latin America
believes that its emphasis on customer care and service will
result in a distinct competitive advantage in the Region.
o DEPLOY A TECHNOLOGICALLY ADVANCED NETWORK. AT&T Latin America
will combine ATM/IP based network platforms with SDH
technology to offer fully integrated data, voice, video
conferencing, Internet and electronic commerce services, all
delivered to the customer through a single connection. The
company also intends to use advanced networks to offer service
level agreements and to enable multi-service platform
offerings to its business customers.
o DEVELOP NETWORKS TO PROVIDE BOTH REGIONAL REACH AND LOCAL
PRESENCE. AT&T Latin America intends to expand its network
coverage to the business, industrial and commercial sectors
within the Region's major cities to achieve high penetration
of buildings passed and wired. The company's networks will use
fiber optic technology and introduce high-speed wireless
connectivity, where appropriate, to broaden network coverage
without sacrificing service quality.
o EXPLOIT ECONOMIES OF SCALE AND SCOPE. AT&T Latin America plans
to use its regional presence to generate significant economies
of scale and scope. Those economies include potentially
increased buying power with key vendors, regional marketing
campaigns, increased centralized customer service, common
billing platforms and shared expertise in network management
and development, engineering and maintenance.
o PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. AT&T Latin
America intends to pursue suitable acquisitions and alliances
to increase its network coverage, customer base and service
offerings.
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BUSINESS DESCRIPTIONS OF AT&T LATIN AMERICA AND FIRSTCOM
AT&T Latin America Corp.
2333 Ponce de Leon Blvd.
Coral Gables, Florida 33134
(305) 774-2040
AT&T Latin America was organized in October 1999. It currently conducts
operations in Brazil through its subsidiary, Netstream. Its principal assets
consist of:
o 100% of the equity interest in Netstream, a Brazilian
communications carrier that owns and manages fiber optic
networks in the cities of Sao Paulo, Rio de Janeiro, Belo
Horizonte and Barueri/Alphaville. AT&T Latin America plans to
construct additional networks in the cities of Brasilia,
Campinas, Curitiba, Porto Alegre and Salvador;
o cash and liquid assets representing the proceeds from $50
million of cash equity contributions received from its
stockholders (affiliates of AT&T Corp. and Promon) in early
December 1999. Before the merger, AT&T Latin America will have
received an additional $20 million in cash equity
contributions from its stockholders. Some of these
contributions have been, and continue to be, used to finance
AT&T Latin America's growth and operations;
o an agreement by AT&T Corp. to provide a license under a
service mark license agreement with AT&T Corp. to use the AT&T
brand name and logo in the Region; and
o an agreement to acquire Keytech LD, a development stage
broadband communications company in Argentina. Keytech LD has
licenses that authorize or will authorize it by November 8,
2000 to provide domestic and international long distance
services, local telephony services, value-added services and a
range of data services. Keytech LD also has rights to use
1910-1930 MHz wireless spectrum for fixed wireless links in
nine of Argentina's largest cities.
AT&T Latin America provides broadband communications services,
including data, voice, video conferencing, Internet and electronic commerce
services to its target markets in Brazil. See "The Companies - Description of
AT&T Latin America."
AT&T Latin America's fiber optic networks provide "first-mile"
Asynchronous Transfer Mode ("ATM") and Internet Protocol ("IP") links within a
given metropolitan area and connectivity to points outside each metropolitan
area. ATM/IP is an information transfer standard that is one of a general class
of digital packet-based technologies. ATM/IP can be used by many different
information systems, including local area networks, to deliver traffic at
varying rates, permitting a mix of data, voice, video and Internet applications.
AT&T Latin America provides its broadband communications services through a
single customer connection. AT&T Latin America's networks are compatible with
other digital and analog transmission networks in the Region, including public
networks.
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As of December 31, 1999, AT&T Latin America had installed 197 route
kilometers of fiber optic primary and secondary backbone and access cable, had
connected 451 buildings and served 866 users. See "The Companies - Description
of AT&T Latin America."
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 448-4422
FirstCom provides broadband communications services mainly to business
customers in four major metropolitan business centers in the Region: Santiago,
Chile; Lima/Callao, Peru; and Bogota and Cali, Colombia. FirstCom primarily
targets business customers, communications carriers and high volume users by
offering a wide range of high bandwidth integrated services including data,
voice, video, audio and Internet access. Specific service offerings vary
depending on the current concessions held by FirstCom in each particular
country, as well as local laws and regulations and the infrastructure in each
country.
Until November 1996, FirstCom was a development stage company whose
activities primarily consisted of the acquisition of licenses, concessions and
rights-of-way in selected Latin American communications markets. Since that
time, it has focused on the development and operation of high-capacity fiber
optic networks in Latin American business centers. FirstCom currently operates
fiber optic ATM/IP networks in Santiago, Chile, Lima/Callao, Peru, and Bogota
and Cali, Colombia. As of December 31, 1999, FirstCom's primary and secondary
backbone and access cable consisted of the following, by country:
o CHILE: 276 route kilometers extending through Santiago's
downtown business district and the outlying industrial and
airport corridor;
o PERU: 1,007 route kilometers extending through Lima's major
commercial and industrial districts and the port city of
Callao; and
o COLOMBIA: 715 route kilometers extending through the major
commercial and industrial districts of the cities of Bogota
and Cali.
As of December 31, 1999, FirstCom had installed 1,998 route kilometers
of fiber optic primary and secondary backbone and access cable, connected 1,091
buildings and served 3,767 ports.
THE MERGER
MERGER CONSIDERATION - WHAT FIRSTCOM'S SHAREHOLDERS WILL RECEIVE IN THE
MERGER. In the merger, FirstCom shareholders will receive one share of Class A
common stock of AT&T Latin America in exchange for each share of FirstCom common
stock they own and one share of Series A convertible preferred stock of AT&T
Latin America in exchange for each FirstCom Series A convertible preferred share
they own. Holders of fractional interests in FirstCom shares will receive cash,
without interest, instead of certificates representing fractional shares of AT&T
Latin America. The amount of cash will be equal to a pro rata portion of the net
proceeds received by the exchange agent from the public sale of shares of AT&T
Latin America Class A common stock. The number of shares sold will equal the
aggregate number of shares received
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by the exchange agent in excess of the aggregate number of shares distributed in
the merger in exchange for whole FirstCom common shares.
When the merger is completed, all FirstCom options and warrants will be
converted automatically into options and warrants to acquire shares of Class A
common stock of AT&T Latin America on substantially the same terms and
conditions. See "The Merger Agreement Treatment of FirstCom Options and
Warrants." The merger agreement permits AT&T Latin America to grant up to
625,000 options and FirstCom to grant up to 300,000 additional options between
November 1, 1999 and the completion of the merger.
As a result of the merger, the common stock of AT&T Latin America will
be owned as follows, on a fully-diluted basis:
o approximately 34% will be owned by former shareholders of
FirstCom, including current directors, officers and employees
of FirstCom and its subsidiaries, in the form of shares of
Class A common stock;
o approximately 59% will be owned indirectly by AT&T Corp., in
the form of shares of Class B common stock; and
o approximately 7% will be owned indirectly by one or more of
Promon's affiliates, in the form of shares of Class A common
stock.
If AT&T Latin America completes its pending acquisition of Keytech LD before the
merger, those percentages will be reduced slightly and the former shareholders
of Keytech LD will own approximately 1% of the common stock of AT&T Latin
America on a fully-diluted basis.
The above ownership percentages are based on the fully-diluted
capitalization of AT&T Latin America as of the merger. That capitalization
includes two elements:
o shares of common stock of AT&T Latin America that are issued
and outstanding when the merger is completed; and
o shares of common stock that AT&T Latin America will be
obligated to issue after completion of the merger upon the
exercise of outstanding options and warrants to acquire shares
of AT&T Latin America or the conversion of shares of
convertible preferred stock.
On a non-diluted basis, as of the completion of the merger, the
percentage economic interest in AT&T Latin America owned by former FirstCom
shareholders will be significantly lower, and the percentage economic interests
of AT&T Corp. and Promon's affiliate will be significantly higher, than on a
fully-diluted basis. It is not possible to calculate those percentages without
making assumptions about the number of FirstCom options and warrants that are
exercised between the date of the signing of the merger agreement, November 1,
1999, and the date of the completion of the merger. Between November 1 and March
3, 2000, 6,030,902 FirstCom options and warrants were exercised. Assuming that
no additional options or warrants of FirstCom are exercised prior to completion
of the merger, former FirstCom shareholders would own approximately 28%, AT&T
Corp. would own approximately 65% and Promon's affiliate would own
approximately 7% of the outstanding capital stock of AT&T Latin America (other
than non-convertible, non-participating preferred stock)
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when the merger is completed. Based on the foregoing assumptions, if AT&T Latin
America completes its pending acquisition of Keytech LD before the merger,
former FirstCom shareholders would own approximately 28%, AT&T Corp. would own
approximately 64%, Promon's affiliate would own approximately 7% and former
shareholders of Keytech LD would own approximately 1% of the outstanding
capital stock of AT&T Latin America when the merger is completed. See "The
Merger - General."
Each share of Class A common stock is entitled to one vote per share,
and each share of Class B common stock is entitled to ten votes per share, on
all matters submitted to a vote of the stockholders of AT&T Latin America. Upon
completion of the merger, the Class A shares will be listed and will trade on
the Nasdaq National Market under the symbol "ATTL" and FirstCom's common shares
will no longer be listed or traded.
As of March 3, 2000, 30,407,458 FirstCom common shares were
outstanding, 1,345,507 Series A convertible preferred shares were outstanding
and options and warrants to purchase 9,595,833 FirstCom common shares were
outstanding.
FirstCom's shareholders will have no dissenters' rights of appraisal or
other rights to demand fair value for their shares by reason of the merger. See
"The Merger - Rights of Dissenting Shareholders."
FIRSTCOM COMMON SHARE MARKET PRICE AND OTHER INFORMATION. FirstCom
common shares are listed on the Nasdaq Small Cap Market. For the five trading
days before the announcement of the merger agreement, the average closing price
of the FirstCom common shares was $10.675. On October 29, 1999, the trading day
immediately before announcement of the merger agreement, the closing price of a
FirstCom common share was $11.063. On March 13, 2000, the closing price of a
FirstCom common share was $35.25.
DETERMINATION OF FIRSTCOM'S BOARD OF DIRECTORS. The FirstCom board of
directors has determined that the merger is advisable and in the best interests
of FirstCom and its shareholders and it has unanimously approved the merger and
the merger agreement. The FirstCom board of directors unanimously recommends
that FirstCom shareholders vote "FOR" approval and adoption of the merger
agreement and the merger.
OPINION OF FIRSTCOM'S FINANCIAL ADVISOR. In connection with the merger,
FirstCom's board of directors received an opinion from CIBC World Markets Corp.,
FirstCom's financial advisor, as to the fairness, from a financial point of
view, to the holders of FirstCom common shares of the 34% fully-diluted equity
ownership to be received by FirstCom's shareholders in AT&T Latin America upon
completion of the merger. The full text of the written opinion of CIBC World
Markets, dated November 1, 1999, is attached to this proxy statement/prospectus
as Annex B. You are encouraged to read this opinion carefully in its entirety
for a description of the assumptions made, matters considered and limitations on
the review undertaken. THE OPINION OF CIBC WORLD MARKETS IS DIRECTED TO THE
FIRSTCOM BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO ANY MATTER RELATING TO THE PROPOSED MERGER.
REQUIRED VOTE OF FIRSTCOM SHAREHOLDERS. The affirmative vote of the
holders of a majority of the outstanding FirstCom common shares and Series A
convertible preferred shares,
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voting together as a single class, as well as the affirmative vote of the
holders of seventy-five percent of the outstanding FirstCom Series A convertible
preferred shares, voting as a separate class, is required to approve the merger.
Each FirstCom common share and Series A convertible preferred share is entitled
to one vote on the merger proposal.
VOTING AGREEMENTS. Patricio E. Northland, the chairman, president and
chief executive officer of FirstCom and three other substantial holders of
FirstCom common stock have agreed to vote all the FirstCom shares they own in
favor of the merger. In addition, the holders of FirstCom's Series A convertible
preferred shares have agreed to vote all their shares in favor of the merger. As
of March 3, 2000, these shareholders together owned approximately 22% of the
then outstanding shares of capital stock of FirstCom entitled to vote on the
merger proposal (excluding any shares that these holders might acquire by
exercising FirstCom options and warrants). These voting agreements will
terminate if the merger agreement terminates.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. AT&T Latin America and
FirstCom have structured the merger as a "reorganization" for federal income tax
purposes so that FirstCom's shareholders will not recognize any taxable gain or
loss as a result of the merger. As a condition to the completion of the merger,
each of AT&T Latin America and FirstCom will receive an opinion from its legal
counsel to the effect that the merger will qualify as a "reorganization."
However, you should consult your own tax advisor. For further information, see
"The Merger - Certain U.S. Federal Income Tax Consequences" on page __.
ACCOUNTING TREATMENT. AT&T Latin America intends to account for the
merger under the purchase method of accounting for financial reporting purposes.
A determination of the fair value of FirstCom's assets and liabilities will be
made in order to allocate the purchase price to the assets acquired and
liabilities assumed in accordance with U.S. generally accepted accounting
principles ("GAAP"). Pursuant to GAAP, any excess of the purchase price over the
fair value of the assets and liabilities of FirstCom will be recorded as
goodwill and amortized over a 20-year period.
CONDITIONS TO COMPLETION OF THE MERGER. AT&T Corp., AT&T Latin America
and FirstCom will not be obligated to complete the merger unless various
conditions have been satisfied or waived, some of which are summarized below.
None of the parties are required to complete the merger unless:
o FirstCom's shareholders approve the merger;
o FirstCom obtains the consent of holders of at least a majority
in principal amount of the outstanding 14% Senior Secured
Notes due 2007 of FirstCom to certain covenant waivers or, if
requested by AT&T Corp., completes a tender offer for the
Notes and holders of at least a majority in principal amount
of the outstanding Notes consent to certain amendments to the
covenants of FirstCom relating to the Notes; and
o certain regulatory approvals and filings are obtained or
completed.
FirstCom does not have to complete the merger unless:
o the stockholders of AT&T Latin America have made a total of
$70 million in cash equity contributions to AT&T Latin
America. Of this amount, $50 million has
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already been contributed, leaving an additional $20 million
required to be contributed to fulfill this condition. See "The
Merger - General" below;
o AT&T Corp. (or one or more of its affiliates) provides AT&T
Latin America with a revolving credit facility in the amount
of $100 million;
o AT&T Corp. and AT&T Latin America enter into the regional
vehicle agreement and the service mark license agreement. For
a description of the terms of these two agreements, see "Other
Material Agreements and Arrangements" below; and
o the shares of Class A common stock of AT&T Latin America are
accepted for listing on a national securities exchange.
AT&T Corp. and AT&T Latin America do not have to complete the merger
unless:
o FirstCom completes a reorganization of its Colombian
subsidiary and receives related local regulatory approvals in
Colombia; and
o the executive employment agreement entered into on October 31,
1999 between Patricio E. Northland and AT&T Latin America
remains in effect.
TERMINATION OF THE MERGER AGREEMENT. Either of FirstCom or AT&T Corp.
may terminate the merger agreement if:
o the merger is not completed by May 31, 2000, or any condition
to the obligations of FirstCom or of AT&T Corp., as the case
may be, is not satisfied or waived by that date; or
o any law or regulation is enacted, or any governmental entity
issues a final and non-appealable order, making the merger
illegal or prohibiting the merger.
FirstCom may terminate the merger agreement if:
o FirstCom enters into or agrees to enter into an alternative
acquisition agreement with respect to an "Acquisition
Proposal" (See "The Merger Agreement - Principal Covenants -
No Solicitation of Transactions by FirstCom" below for the
definition of Acquisition Proposal); or
o Netstream has suffered a material adverse effect, as defined
in the Netstream acquisition agreement.
AT&T Corp. may terminate the merger agreement if:
o the shareholders of FirstCom do not approve the merger at the
special meeting called to vote on the merger;
o any other person or group acquires ownership of 20% or more of
FirstCom's common shares;
o FirstCom suffers a material adverse effect, as defined in the
merger agreement;
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<PAGE> 28
o FirstCom enters into an agreement with respect to an
Acquisition Proposal; or
o FirstCom's board of directors:
- withdraws, modifies or fails to maintain its
recommendation to FirstCom's shareholders to approve
the merger; or
- recommends an Acquisition Proposal or receives from a
nationally recognized financial advisor to FirstCom a
fairness opinion with respect to an Acquisition
Proposal indicating that proposal to be a Superior
Proposal (see "The Merger Agreement Principal
Covenants - No Solicitation of Transactions by
FirstCom" below for the definition of Superior
Proposal); or
- authorizes the execution of an agreement with respect
to an Acquisition Proposal with someone other than
AT&T Corp.
In addition, FirstCom and AT&T Corp. may agree to terminate the merger
agreement at any time without completing the merger, even after the shareholders
of FirstCom have approved the merger.
COMPENSATION PAYABLE IF MERGER IS NOT COMPLETED. FirstCom must pay AT&T
Corp. a termination fee of $10 million, plus out-of-pocket expenses up to $1
million incurred by AT&T Corp. and its affiliates in connection with the merger
and the related transactions, if the merger agreement is terminated because:
o FirstCom enters into an agreement with respect to an
Acquisition Proposal;
o FirstCom's board of directors:
- withdraws, modifies or fails to maintain its
recommendation to FirstCom's shareholders to approve
the merger;
- recommends an Acquisition Proposal or receives from a
nationally recognized financial advisor to FirstCom a
fairness opinion with respect to an Acquisition
Proposal indicating that proposal to be a Superior
Proposal;
- authorizes the execution of an agreement with respect
to an Acquisition Proposal with someone other than
AT&T Corp; or
o any other person or group acquires ownership of 20% or more of
FirstCom's common shares.
This termination fee could discourage other companies from trying or
proposing to combine with or acquire FirstCom.
INTERESTS OF MEMBERS OF FIRSTCOM'S BOARD OF DIRECTORS AND MANAGEMENT IN
THE MERGER. Some of the directors and members of FirstCom's senior management
who are also shareholders of FirstCom have interests in the merger that differ
from, or are in addition to, your interests. Those interests include becoming an
officer or a director of AT&T Latin America and
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<PAGE> 29
being entitled to the continuation of certain indemnification provisions. You
should be aware of these interests because they may conflict with your
interests.
As a condition to the merger, AT&T Latin America has agreed to appoint
Patricio E. Northland, the chairman of the board, president and chief executive
officer of FirstCom, to AT&T Latin America's board of directors and to employ
Mr. Northland as president and chief executive officer of AT&T Latin America
upon completion of the merger. Employment arrangements with Mr. Northland
include significant incentives in the form of awards of restricted shares of
FirstCom common stock and options to acquire shares of FirstCom common stock,
which, upon completion of the merger, will convert automatically into options to
acquire shares of Class A common stock of AT&T Latin America, as well as other
benefits. The FirstCom board of directors was aware of these interests and
concluded that these interests did not detract from the fairness of the merger
to the FirstCom shareholders.
On March 3, 2000, FirstCom's directors and executive officers and their
affiliates beneficially owned 9,287,333 FirstCom common shares, including shares
which they can acquire upon exercise of vested and unvested options and
warrants. Those shares represented approximately 24% of the total FirstCom
common shares on that date on a fully-diluted basis. See "The Merger--General"
and "--Interests of Certain Persons in the Merger."
COMPARISON OF RIGHTS OF FIRSTCOM SHAREHOLDERS AND AT&T LATIN AMERICA
SHAREHOLDERS. Upon completion of the merger, FirstCom shareholders will become
shareholders of AT&T Latin America. FirstCom is a Texas corporation and AT&T
Latin America is a Delaware corporation. As a result, Delaware corporate law
rather than Texas corporate law will govern the rights of the FirstCom
shareholders when they become shareholders of AT&T Latin America. Also, AT&T
Latin America's certificate of incorporation and bylaws govern the rights of
AT&T Latin America's shareholders, not FirstCom's organizational documents. See
"Comparison of Certain Rights of FirstCom Shareholders and AT&T Latin America
Stockholders."
REGULATORY MATTERS. After signing the merger agreement, AT&T Latin
America and FirstCom filed the notification and report forms required in
connection with the merger under the Hart-Scott-Rodino Antitrust Improvement Act
of 1976 with the Antitrust Division of the Department of Justice and the Federal
Trade Commission. The Federal Trade Commission has advised the companies that
early termination of the applicable waiting period was granted on December 27,
1999. The Department of Justice and the Federal Trade Commission will continue
to have the authority to challenge the merger on antitrust grounds before or
after the merger is completed even though this waiting period has ended.
FirstCom currently holds an authorization to provide international
facilities-based services pursuant to Section 214 of the U.S. Federal
Communications Act of 1934, as amended. Because of that authorization, FCC
regulations require approval by the FCC prior to the transfer of control of
FirstCom. AT&T Corp. and FirstCom filed their application for this FCC approval
on March 2, 2000. AT&T Corp. and FirstCom intend to request streamlined
processing of the application for transfer of control.
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<PAGE> 30
SELECTED FINANCIAL INFORMATION
GENERAL
Set forth below is certain selected historical and pro forma financial
information relating to AT&T Latin America, Netstream and FirstCom.
You should also refer to the financial information about AT&T Latin
America, Netstream and FirstCom included in this proxy statement/prospectus in
"Unaudited Pro Forma Combined Financial Information," the historical financial
statements of AT&T Latin America and Netstream included in this proxy
statement/prospectus and the historical financial statements of FirstCom
incorporated by reference in this proxy statement/prospectus.
The information for AT&T Latin America (other than the selected
operating statistics) has been derived from AT&T Latin America's audited
consolidated financial statements as of December 31, 1999 and for the period
from inception (October 13, 1999) through December 31, 1999.
The information for Netstream (other than the selected operating
statistics) has been derived from:
o Netstream's audited financial statements as of and for the
eleven months ended December 31, 1998; and
o Netstream's audited financial statements as of and for the
nine months ended September 30, 1999.
The information for FirstCom (other than the selected operating
statistics) has been derived from FirstCom's audited annual consolidated
financial statements as of and for the years ended December 31, 1998 and 1999.
Selected financial information of FirstCom as of and for the years ended
December 31, 1995, 1996 and 1997 is provided in the Annual Report on Form 10-K
of FirstCom, which is incorporated by reference in this proxy
statement/prospectus.
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<PAGE> 31
SELECTED HISTORICAL FINANCIAL INFORMATION OF AT&T LATIN AMERICA, NETSTREAM AND
FIRSTCOM
AT&T LATIN AMERICA
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(OCTOBER 13, 1999) THROUGH
DECEMBER 31, 1999
---------------------------
(In thousands of U.S. dollars except
share and per share data)
<S> <C>
Statement of operations data
Net revenue ............................. $ 802
Net loss ................................ (4,124)
Net loss per share ...................... (103.10)
Weighted average shares outstanding ..... 40,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------
(In thousands of U.S. dollars)
Balance sheet data
<S> <C>
Property, plant & equipment, net ........ $ 68,269
Total assets ............................ 384,428
Long term debt (including capital
leases) ............................... 383
Total liabilities ....................... 10,634
Shareholders' equity .................... 373,794
</TABLE>
<TABLE>
<CAPTION>
Selected Operating Statistics
(as of December 31, 1999)
<S> <C>
Network route kilometers ..................... 197
Number of buildings connected ................ 451
Number of users .............................. 866
Number of employees .......................... 135
</TABLE>
20
<PAGE> 32
NETSTREAM
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- ------------------
(In thousands of U.S. dollars except
quota and per quota data)
<S> <C> <C>
Statement of operations data
Net revenue ................................ $ -- $ 395
Net loss ................................... (3,442) (12,001)
Net loss per quota (A) ..................... (2.72) (5.13)
Weighted average quotas
outstanding (A) .......................... 1,264,127 2,339,183
Balance sheet data
Property, plant & equipment, net ........... $ 12,212 $ 47,484
Total assets ............................... 12,980 49,793
Long term debt (including capital leases) .. 457 375
Total liabilities .......................... 14,475 33,814
Quotaholders' equity interest (A) .......... (1,495) 15,979
</TABLE>
(A) As a Brazilian limited liability company (SOCIEDADE DE RESPONSABILIDADE
LIMITADA), Netstream's capital is represented by quotas rather than
shares of capital stock.
FIRSTCOM
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
(In thousands of U.S. dollars, except
share and per share data)
<S> <C> <C>
Statement of operations data
Net revenue .................................... $ 18,142 $ 38,356
Net loss ....................................... (25,322) (41,472)
Net loss per share ............................. (1.33) (1.94)
Weighted average shares outstanding ............ 19,084,300 21,354,012
Balance sheet data
Property, plant & equipment, net ............... $ 45,901 $ 92,469
Total assets ................................... 154,844 172,110
Long term debt (including capital leases) and
redeemable preferred stock ................... 133,913 149,109
Total liabilities .............................. 148,670 166,078
Shareholders' equity (deficit) ................. 6,174 (8,700)
</TABLE>
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<PAGE> 33
Selected Operating Statistics
(as of December 31, 1999)
Network route kilometers ............................ 1,998
Number of buildings connected ....................... 1,091
Number of ports ..................................... 3,767
Number of employees ................................. 664
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<PAGE> 34
SELECTED AT&T LATIN AMERICA UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T Latin America and FirstCom also present below selected unaudited
pro forma combined financial information of AT&T Latin America to assist you in
evaluating the merger. This information shows what the results of operations and
financial position of AT&T Latin America might have been assuming that the
Netstream acquisition and the merger occurred on January 1, 1999 for statement
of operations purposes and on December 31, 1999 for balance sheet purposes.
This information is derived from the unaudited pro forma combined
financial information, and reflects the adjustments described in the notes
contained in this proxy statement/prospectus in the section entitled "Unaudited
Pro Forma Combined Financial Information." You should refer to that section for
more information.
The unaudited pro forma combined financial information does not purport
to present the results of operations of AT&T Latin America had the assumed
transactions occurred on the dates, or at the beginning of the periods, for
which such transactions are being given pro forma effect. Nor is the pro forma
combined financial information necessarily indicative of the results of
operations which may be achieved in the future. Assuming completion of the
merger, the actual financial position and results of operations of AT&T Latin
America will differ, perhaps significantly, from the pro forma amounts reflected
herein because of a variety of factors, including access to additional
information, changes in value not currently identified and changes in operating
results between the dates of the pro forma financial information and the date on
which the Netstream acquisition and the merger took place.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(In thousands of U.S. dollars
except share and per share
data and selected operating statistics)
<S> <C>
Statement of operations data
Net revenue .................................... $ 40,349
Net loss attributable to common stockholders.... (107,138)
Net loss per share ............................. (0.98)
Weighted average shares outstanding ............ 109,381,557
Balance sheet data
Property, plant & equipment, net ............... $ 160,738
Goodwill and other intangible assets ........... 746,246
Total assets ................................... 1,020,522
Long term debt (including capital leases) and
redeemable preferred stock ................... 203,975
Total liabilities............................... 39,840
Shareholders' equity ........................... 778,270
</TABLE>
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<PAGE> 35
Selected Operating Statistics
(as of December 31, 1999)
Network route kilometers ............................ 2,195
Number of buildings connected ....................... 1,542
Number of users ..................................... 4,633
Number of employees ................................. 799
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<PAGE> 36
COMPARATIVE SHARE DATA
The following table sets forth certain earnings, dividends and book
value per share for AT&T Latin America and FirstCom on a historical basis and
pro forma basis.
The information is only a summary and you should read it in conjunction
with the "Selected Financial Information" and the respective audited
consolidated financial statements (and related notes) of AT&T Latin America and
FirstCom incorporated by reference or appearing elsewhere in this proxy
statement/prospectus.
The FirstCom pro forma equivalent per share amounts are calculated by
multiplying the assumed exchange ratio of one share of AT&T Latin America common
stock for each share of FirstCom common stock by the pro forma per share values
of AT&T Latin America for the relevant period.
This information is not necessarily indicative of the results of future
operations of the combined company or the actual results that would have
occurred had the merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Per share of AT&T Latin America common stock:
Book value:
Historical ........................................... $ 9,344.85
Pro forma ............................................ 7.14
Cash dividends declared:
Historical ........................................... --
Net loss attributable to common stockholders:
Historical ........................................... (103.10)
Pro forma ............................................ (0.98)
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Per share of FirstCom common stock:
Book value:
Historical .............................................. $ (0.27)
Equivalent pro forma .................................... 7.14
Cash dividends declared:
Historical .............................................. --
Net loss:
Historical .............................................. (1.94)
Equivalent pro forma .................................... (0.98)
</TABLE>
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<PAGE> 37
MARKET PRICE OF FIRSTCOM COMMON SHARES
The following table shows the range of the high and low closing prices
of FirstCom common shares, as reported by Nasdaq for the periods presented.
FirstCom has never paid any cash dividends on its common shares.
<TABLE>
<CAPTION>
FirstCom Common Shares
-------------------------------
High Low
---- ---
(In U.S. dollars per share)
<S> <C> <C>
2000
First Quarter (through March 13).......................... 37 15/16 29 3/8
1999
Fourth Quarter............................................ 42 9 3/8
Fourth Quarter (through October 29) (1)................... 12 7/16 9 3/8
Third Quarter............................................. 11 1/8 7 11/16
Second Quarter............................................ 9 1/8 2 3/4
First Quarter............................................. 3 5/32 2 5/32
1998
Fourth Quarter............................................ 2 5/8 3/4
Third Quarter............................................. 2 7/8 1
Second Quarter............................................ 2 5/8 1 21/32
First Quarter............................................. 2 11/16 1 21/32
1997
Fourth Quarter............................................ 4 1 9/16
Third Quarter............................................. 3 7/16 2 1/16
Second Quarter............................................ 3 1/4 1 7/16
First Quarter............................................. 3 1/2 1 7/8
</TABLE>
- ---------------
(1) October 29, 1999 was the last trading day before the signing of the
merger agreement.
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<PAGE> 38
RISK FACTORS
IN DECIDING WHETHER TO VOTE IN FAVOR OF THE MERGER, YOU SHOULD CONSIDER
THE FOLLOWING FACTORS THAT COULD AFFECT THE VALUE OF AN INVESTMENT IN AT&T LATIN
AMERICA. YOU ALSO SHOULD CONSIDER THE OTHER INFORMATION INCLUDED IN THIS
DOCUMENT. THESE FACTORS HAVE BEEN GROUPED UNDER TWO SEPARATE SECTIONS BELOW. THE
FIRST IS "RISKS RELATING TO THE MERGER," WHICH DISCUSSES SOME OF THE RISKS IN
COMBINING THE COMPANIES, RISKS UNDER THE MERGER AGREEMENT, POTENTIAL CONFLICTS
OF INTEREST AND RISKS RELATING TO BEING A SHAREHOLDER OF AT&T LATIN AMERICA. THE
SECOND SECTION IS "INDUSTRY AND BUSINESS RISKS," WHICH DISCUSSES SOME OF THE
RISKS OF THE COMMUNICATIONS INDUSTRY AND AT&T LATIN AMERICA'S BUSINESS. SEE ALSO
"FORWARD-LOOKING STATEMENTS."
RISKS RELATING TO THE MERGER
SHARES OF AT&T LATIN AMERICA'S COMMON STOCK HAVE NO PRIOR TRADING MARKET AND YOU
MAY NOT BE ABLE TO VALUE READILY THE SHARES OF AT&T LATIN AMERICA COMMON STOCK
YOU WILL RECEIVE IN THE MERGER.
Although there is an established trading market for FirstCom's shares,
shares of AT&T Latin America's Class A common stock are not currently publicly
traded and will not trade publicly until after completion of the merger.
Consequently, FirstCom shareholders may not be able to determine readily the
value of AT&T Latin America's Class A shares. AT&T Latin America cannot assure
you about:
o the liquidity of the market for AT&T Latin America's shares;
o the ability of stockholders to sell their shares; or
o the price at which stockholders would be able to sell their
shares.
THE STOCK PRICE OF AT&T LATIN AMERICA MAY BE VOLATILE.
The trading price of AT&T Latin America's shares of Class A common
stock may fluctuate widely in response to various circumstances, including
variations in AT&T Latin America's quarterly operating results, changes in
earnings estimates by analysts, any failure of AT&T Latin America to meet
analysts' quarterly earnings estimates, conditions in the communications
industry and in Latin America, the outlook for the communications industry as a
whole and general market or economic conditions. In addition, the stock market
has experienced wide price and volume fluctuations in recent years. These
fluctuations have had a substantial effect on the market prices for the shares
of many publicly traded companies, which are often unrelated to the operating
performance of the specific companies.
SUBSTANTIAL SALES OF SHARES OF AT&T LATIN AMERICA'S CLASS A COMMON STOCK,
INCLUDING IN AN EQUITY OFFERING OR AS A RESULT OF EXERCISES OF OPTIONS AND
WARRANTS, COULD ADVERSELY AFFECT THEIR MARKET PRICE.
Management cannot predict the effect, if any, that future sales of
shares of AT&T Latin America's Class A common stock or the availability of these
shares for future sale will have on the market price of these shares, including
sales in an equity offering by AT&T Latin America which, depending on prevailing
market conditions, could occur shortly after completion of the
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<PAGE> 39
merger, and sales in connection with exercises of options and warrants. Sales of
substantial amounts of Class A shares could adversely affect market prices for
those shares.
AT&T LATIN AMERICA MAY NOT BE ABLE TO INTEGRATE SUCCESSFULLY WITH FIRSTCOM AND
REALIZE THE POTENTIAL BENEFITS OF THE MERGER.
Integration of the operations of AT&T Latin America and FirstCom will
present significant challenges. Integration of the management of these companies
will involve changes affecting the employees and operations of both companies.
Differences in management approach and corporate culture may strain employee
relations. The success of the merger will also depend on AT&T Latin America's
ability to integrate business strategies. Since an element of AT&T Latin
America's growth strategy involves the possibility of strategic acquisitions,
future acquisitions could further complicate the integration process. If AT&T
Latin America is unable to integrate successfully with FirstCom, it may not
achieve the potential benefits of the merger.
THERE ARE BENEFITS OF THE MERGER TO INSIDERS WHO RECOMMEND THAT YOU VOTE IN
FAVOR OF THE MERGER AND THE INTERESTS OF THOSE INSIDERS MAY DIFFER FROM YOUR
INTERESTS.
As discussed below under "The Merger - Interests of Certain Persons in
the Merger," some of the executive officers and directors of FirstCom have
interests in the merger that are different from, or in addition to, your
interests as shareholders. Patricio E. Northland, FirstCom's chairman of the
board, president and chief executive officer, has entered into an employment
agreement with AT&T Latin America, which will become effective upon the
completion of the merger. This employment agreement provides to Mr. Northland
significant compensation and benefits. Further, members of FirstCom's board of
directors hold a significant number of common shares as well as options to
acquire common shares, which will convert into options to purchase shares of
AT&T Latin America upon completion of the merger. Shareholders should be aware
of these potential conflicts of interest and the benefits available to these
executive officers and directors when considering the FirstCom board of
directors' determination to approve the merger.
AT&T CORP. WILL CONTINUE TO CONTROL THE VOTING POWER OF AT&T LATIN AMERICA AFTER
COMPLETION OF THE MERGER AND IT MAY HAVE INTERESTS THAT DIFFER FROM YOURS.
Upon completion of the merger, AT&T Corp. will own indirectly
approximately 73 million Class B shares of common stock of AT&T Latin America.
Each Class B share is entitled to ten votes. Accordingly, AT&T Corp. will hold
approximately 95% of the voting power in AT&T Latin America assuming that no
FirstCom shareholders exercise options or warrants or convert shares of Series A
convertible preferred stock after March 3, 2000 and prior to the merger and that
AT&T Latin America has completed its pending acquisition of Keytech LD. As a
result of this stock ownership and voting power, AT&T Corp. will be able to
elect a majority of the board of directors of AT&T Latin America and control the
outcome of substantially all matters submitted to a vote of the holders of AT&T
Latin America's common stock, including the election of directors, certain
amendments to AT&T Latin America's certificate of incorporation and bylaws and
approval of significant corporate mergers and other material transactions. AT&T
Corp.'s voting power could have the effect of delaying, deterring or
28
<PAGE> 40
preventing a change in control of AT&T Latin America that might be otherwise
beneficial to stockholders.
AT&T Corp.'s interests may differ from yours. While the regional
vehicle agreement between AT&T Corp. and AT&T Latin America restricts AT&T Corp.
and some of its subsidiaries from providing in the Region some of the same
services AT&T Latin America provides, these restrictions only apply to some of
AT&T Latin America's services and to some of AT&T Corp.'s subsidiaries, and they
are subject to exceptions. Additionally, AT&T Corp. and companies in which it
owns an equity interest are likely to have commercial arrangements with AT&T
Latin America in which AT&T Corp.'s interest may conflict with that of AT&T
Latin America. You should read carefully the discussions under "Other Material
Arrangements and Agreements - Regional Vehicle Agreement with AT&T Corp." for a
description of the scope of these restrictions.
One of AT&T Latin America's strategies is to collaborate with Concert,
the joint venture between AT&T Corp. and British Telecommunications plc
("British Telecom"). There have been preliminary discussions among AT&T Corp.,
British Telecom and Concert with respect to the desirability of various
arrangements that would, among other things, enhance such collaboration.
Possible arrangements range from enhanced commercial cooperation to AT&T Corp's
contributing to Concert all or a portion of its ownership interest in AT&T Latin
America. AT&T Corp. has made no determination with respect to these matters.
AT&T Corp. would have the right to terminate its brand license to AT&T Latin
America if it ceased to own a majority of the voting power in AT&T Latin
America. However, AT&T Corp. has advised FirstCom that it would be prepared to
continue the brand license in the context of any such arrangements.
It is not possible to predict reliably what steps will be taken to
enhance such collaboration or whether any contributions relating to AT&T Latin
America would be made or, if made, on what terms or what the impact on AT&T
Latin America would be. Actions in this regard would likely be subject to
governmental and other approvals.
SOME PROVISIONS OF AT&T LATIN AMERICA'S ORGANIZATIONAL DOCUMENTS COULD DELAY,
DEFER OR PREVENT A CHANGE OF CONTROL.
Some provisions of AT&T Latin America's certificate of incorporation
and bylaws could delay, defer or prevent a change in control of AT&T Latin
America that might be otherwise beneficial to a stockholder. These provisions
include:
o unequal voting rights per share between the shares of Class A
common stock and shares of Class B common stock, which are
held by AT&T Corp.;
o a prohibition on stockholder action by written consent;
o advance notice requirements for stockholder proposals for
special meetings; and
o the authority of the board of directors to issue shares of
preferred stock without stockholder approval with such terms
as the board of directors may determine.
AT&T Latin America is also subject to Section 203 of the Delaware General
Corporation Law, which could have similar effects as those outlined above.
Section 203 generally places restrictions on certain business combinations by a
corporation with its stockholders that own fifteen percent or more of its
equity. See "Comparison of Certain Rights of FirstCom Shareholders and AT&T
Latin America Stockholders" below.
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<PAGE> 41
FIRSTCOM'S OBLIGATION TO PAY A TERMINATION FEE AND EXPENSES IN CERTAIN
CIRCUMSTANCES, AS WELL AS VOTING AGREEMENTS SIGNED BY FIRSTCOM SHAREHOLDERS
HOLDING 22% OF FIRSTCOM'S OUTSTANDING COMMON AND PREFERRED SHARES AS OF MARCH 3,
2000, MAY DETER COMPETING PROPOSALS.
FirstCom will be required to pay AT&T Corp. a termination fee of $10
million, plus out-of-pocket expenses incurred by AT&T Corp. and its affiliates
relating to the merger in an amount up to $1 million, if AT&T Corp. terminates
the merger agreement under certain circumstances described in this paragraph.
The termination fee and expenses are payable if the FirstCom board of directors
withdraws, modifies or fails to maintain its recommendation of the merger, or if
the board of directors recommends, or FirstCom enters into, an alternative
acquisition transaction with respect to an Acquisition Proposal. The termination
fee and expenses are also payable if any other person or group acquires
ownership of 20% or more of FirstCom's common shares. In addition, FirstCom may
terminate the merger agreement if it receives and accepts an Acquisition
Proposal which is superior to the proposed merger, but FirstCom must then pay
the termination fee and expenses. These payment obligations could discourage
other companies from trying or proposing to combine with or acquire FirstCom.
FirstCom shareholders holding approximately 22% of FirstCom's
outstanding common shares as of March 3, 2000 and all of its outstanding Series
A convertible preferred shares have agreed to vote in favor of the merger. These
agreements terminate if the merger agreement terminates. The existence of these
agreements makes it more difficult for a third party to acquire FirstCom and,
therefore, may deter third parties from making competing acquisition proposals
for FirstCom.
AT&T LATIN AMERICA DOES NOT INTEND TO PAY DIVIDENDS ON COMMON STOCK IN THE
FORESEEABLE FUTURE.
AT&T Latin America currently intends to retain any earnings to support
its growth strategy and does not anticipate paying dividends on its common stock
in the foreseeable future. Further, its ability to pay dividends will also
likely be restricted in connection with its credit arrangements. The ability of
AT&T Latin America to pay dividends depends, in part, on the receipt of
dividends or other payments from its operating subsidiaries. For a discussion of
the ability of those subsidiaries to make payments to AT&T Latin America, see
"Industry and Business Risks - AT&T Latin America has no operations itself and
will depend on its operating subsidiaries for cash."
YOU WILL HAVE NO DISSENTERS' RIGHTS BY REASON OF THE MERGER.
FirstCom shareholders will have no dissenters' rights of appraisal or
other rights to demand fair value for their shares by reason of the merger. See
"The Merger - Rights of Dissenting Shareholders."
INDUSTRY AND BUSINESS RISKS
FIRSTCOM AND NETSTREAM HAVE HAD OPERATING LOSSES SINCE THEIR INCEPTION AND AT&T
LATIN AMERICA EXPECTS LOSSES TO CONTINUE FOR THE NEXT SEVERAL YEARS.
FirstCom and Netstream have had significant operating losses and
negative cash flow from their respective operations since their inception. In
1999, on a pro forma basis giving effect to the merger, AT&T Latin America and
its subsidiaries had a loss from operations of $81.8 million and a net loss
attributable to common stockholders of $107.1 million. AT&T Latin America
expects to continue to incur significant operating losses and have negative cash
flow from operations for the next several years as it expands its existing
networks and develops new networks and services. AT&T Latin America cannot
assure you that its networks or any of its other services will provide a revenue
base adequate to achieve or sustain profitability or to generate positive cash
flow.
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<PAGE> 42
EACH OF AT&T LATIN AMERICA, FIRSTCOM AND NETSTREAM HAS A LIMITED OPERATING
HISTORY UPON WHICH TO EVALUATE ITS PERFORMANCE.
AT&T Latin America was formed in October 1999. Until the completion of
the Netstream acquisition in December 1999, AT&T Latin America had no material
assets, liabilities or operations. Netstream itself was formed in July 1998 and
began commercial operations on a limited scale in November 1998. Although
FirstCom began operations in 1994 in Chile, it acquired its Peruvian operations
in May 1996 and acquired its Colombian operations in February 1999. Accordingly,
prospective investors have limited historical financial and operating
information about AT&T Latin America, FirstCom and Netstream to use in
evaluating its performance. In addition, Keytech LD, which AT&T Latin America
has agreed to acquire, is a development stage broadband communications company
in Argentina with a very limited operating history.
AT&T LATIN AMERICA ANTICIPATES SIGNIFICANT FUTURE CAPITAL REQUIREMENTS AND THE
NEED FOR CAPITAL RAISING ACTIVITIES.
AT&T Latin America estimates that it will use approximately $375
million in 2000 and the first half of 2001 to:
o develop and expand communications networks and services in
Argentina, Brazil, Chile, Colombia and Peru; and
o fund working capital needs, operating losses and debt service
obligations.
The company expects that more than half of that amount will be used for
network expansion and to fund working capital needs and operating losses
relating to Brazil and, following the merger, to Chile, Colombia and Peru. Upon
completion of its pending acquisition of Keytech LD, the company expects to use
the balance for construction of new networks in Argentina and for working
capital needs and operating losses resulting from its operations in Argentina.
AT&T Latin America expects that its funding needs will continue at a
comparable level from mid-2001 through the end of 2002. Moreover, the company
may require additional funding if its operating losses are greater than it
anticipates or to take advantage of opportunities, including expansion,
acquisitions of businesses or investments in companies that are complementary to
its operations.
AT&T Latin America received $50 million of cash equity contributions
from its stockholders in early December 1999 and will receive an additional $20
million in cash equity contributions in connection with the merger. Upon
completion of the merger, AT&T Corp. will provide AT&T Latin America with a $100
million revolving credit facility. See "Other Material Arrangements and
Agreements - Credit Facility" for the proposed terms of that facility. AT&T
Latin America will need to raise additional capital by accessing the debt and
equity capital markets. Depending on prevailing market conditions, the company
plans to engage in capital raising activities shortly after completion of
the merger.
AT&T Latin America cannot assure you that it will be able to raise
sufficient capital on acceptable terms, if at all, or that it will produce
sufficient internally generated cash flow to fund
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its operations in the future. The amount of, and the terms and conditions of the
instruments relating to FirstCom's, and after the merger, AT&T Latin America's,
outstanding indebtedness may restrict AT&T Latin America's ability to raise
additional capital. Failure to generate internally or to raise externally
sufficient funds may require AT&T Latin America to delay or reduce the scope of
its planned future expansion.
If the company's business and capital expenditure plans change or prove
to be inaccurate, if the company consummates additional acquisitions, or if the
company's operating income does not significantly increase, it may be required
to seek more capital than currently anticipated.
Failure to generate sufficient funds internally or externally may
require AT&T Latin America to delay or reduce the scope of some or all of its
planned future development and expansion. Any financing activities that include
equity issuances will dilute the percentage interests of existing shareholders
in AT&T Latin America. Depending on market conditions and other factors,
including the financing needs of the company and the financial terms of any
acquisitions, such issuances could also be economically dilutive to the existing
shareholders of AT&T Latin America.
AT&T LATIN AMERICA MAY HAVE SIGNIFICANT INDEBTEDNESS.
Upon completion of the merger, AT&T Latin America will have significant
indebtedness and substantial debt service obligations. As of December 31, 1999,
each of AT&T Latin America (on a pro forma basis giving effect to the
acquisition of Netstream) and FirstCom had operating results that were
inadequate to cover fixed charges by a substantial amount due to their high
level of capital expenditures, and related financing costs, compared to
revenues. Assuming completion of the acquisition of Keytech LD and the company's
planned expansion in Argentina, AT&T Latin America does not expect to have
sufficient cash flow to cover fixed charges through at least the end of 2002.
AT&T Latin America's ability to make scheduled debt payments and meet
dividend obligations on its preferred stock will depend upon its ability to
expand its operations and to successfully develop its customer base in its
target markets, the ability of its subsidiaries to remit cash to it in a timely
manner and its future operating performance. AT&T Latin America cannot assure
you that it will be able to develop and maintain a level of cash flow from
operations sufficient to permit it to pay the principal of, and interest on, its
indebtedness. If AT&T Latin America is unable to generate sufficient cash flow
from operations to service its indebtedness or to maintain dividends on its
preferred stock, it may have to modify its growth plans, restructure or
refinance its indebtedness or seek additional capital. AT&T Latin America cannot
assure you that it will be able to restructure or refinance its indebtedness and
preferred stock or seek additional capital on satisfactory terms, if at all, in
light of its high level, or that these measures would yield sufficient proceeds
to service its indebtedness.
This high level of indebtedness imposes substantial risks to holders of
its securities, including the following:
o AT&T Latin America's ability to obtain additional financing
for working capital, capital expenditures, acquisitions or
general corporate purposes may be impaired;
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o a substantial portion of cash available to AT&T Latin America
is needed to service its indebtedness and will not be
available for capital expenditures and other purposes;
o the failure to generate sufficient cash flow or obtain
sufficient cash flow from its subsidiaries could result in a
default with respect to its indebtedness;
o agreements governing the indebtedness of some of AT&T Latin
America's subsidiaries after the merger may restrict these
subsidiaries' ability to pay dividends to AT&T Latin America
and therefore could limit AT&T Latin America's ability to
service its debt;
o AT&T Latin America's high debt level may make it vulnerable to
adverse changes in its business and general economic
conditions; and
o AT&T Latin America's ability to satisfy its debt obligations
will depend in part upon risks, uncertainties and
contingencies affecting its business and operations, many of
which are beyond its control, such as general economic
conditions, the entry of new competitors in its markets and
the introduction of new technology.
AT&T LATIN AMERICA INTENDS TO PURSUE ACQUISITIONS OF COMPLEMENTARY SERVICES,
TECHNOLOGIES OR BUSINESSES, WHICH COULD RESULT IN SHAREHOLDER DILUTION AND
INVOLVES OTHER RISKS.
To implement its growth strategy, AT&T Latin America intends to pursue
acquisitions of services, technologies or businesses that are complementary to
its existing operations and to explore opportunities to provide communications
services in additional markets within the Region. Its ability to grow its
existing services and to expand into additional markets will depend in part on
its ability to identify suitable acquisition candidates and arrive at prices and
terms that are attractive to it. It may also depend on consents from third
parties, including regulatory authorities. Except for its agreement to acquire
Keytech LD, a development stage broadband communications company in Argentina,
AT&T Latin America has no commitments or agreements with respect to any
acquisitions. AT&T Latin America cannot assure you that it will successfully
complete the acquisition of Keytech LD or that it will be able to complete other
acquisitions on acceptable terms, or at all.
Acquisitions could result in dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities and increased amortization
expenses related to goodwill and other intangible assets. 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.
AT&T LATIN AMERICA'S GROWTH STRATEGY COULD STRAIN ITS RESOURCES.
Rapid growth could strain the management, operating and financial
resources of AT&T Latin America and its operating subsidiaries. AT&T Latin
America's ability to manage growth and expansion effectively will require
continued implementation of, and improvements to, its operating and financial
systems and will require it to expand, train and manage its employee base. AT&T
Latin America cannot assure you that its systems, procedures and controls or
financial resources will be adequate, or that its management will keep pace with
this growth.
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AT&T LATIN AMERICA MAY HAVE DELAYS OR UNANTICIPATED EXPENSES ASSOCIATED WITH THE
CONSTRUCTION OF ITS NETWORKS.
AT&T Latin America's business will require substantial construction of
new additions to existing network systems, as well as new network systems. This
construction will require qualified subcontractors, whose availability varies
significantly from country to country. AT&T Latin America's construction
projects may be subject to overruns and delays beyond its control or the control
of 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 also be delayed if the operating companies or their subcontractors have
difficulty in obtaining easements from third parties. Failure to complete
construction on a timely basis could adversely affect AT&T Latin America's
subscriber contracts, franchises and licenses or put it at a competitive
disadvantage.
AT&T LATIN AMERICA'S SUCCESS DEPENDS ON MARKET ACCEPTANCE OF, AND SUBSCRIBER
DEMAND FOR, ITS SERVICES.
AT&T Latin America's success will depend heavily on the extent to which
prospective subscribers use its services. For AT&T Latin America to succeed,
demand for its services must increase significantly in existing markets and
there must be strong demand for services that AT&T Latin America introduces in
the future. Subscriber demand, however, is uncertain and AT&T Latin America's
success in creating demand will be subject to business, economic, regulatory and
competitive factors that are beyond its control.
DAMAGE TO AT&T LATIN AMERICA'S NETWORKS OR SYSTEM FAILURE COULD RESULT IN A LOSS
OF CUSTOMERS.
AT&T Latin America's success in marketing its services to business
customers and other high volume users will require that it provides a high level
of reliability, capacity and security via its network infrastructure. AT&T Latin
America's networks will be subject to possible 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.
THE SCOPE OF AT&T LATIN AMERICA'S BUSINESS ACTIVITIES IS LIMITED BY ITS
CERTIFICATE OF INCORPORATION AND BY ITS AGREEMENTS WITH AT&T CORP.
AT&T Latin America may only engage in the business of providing
communications services and activities incidental or related to communications
services in the Region. The types of communications services AT&T Latin America
may provide are also governed by its regional vehicle agreement with AT&T Corp.,
and, to the extent AT&T Latin America provides these services under brands of
AT&T Corp., by the service mark license agreement with AT&T Corp. Additional
restrictions on the types of services AT&T Latin America may offer will also
apply if AT&T Latin America exceeds $150 million in annual revenues from
services delivered over cross-border networks which it owns or in which it has
an equity interest. In the situations in which these additional restrictions
apply, AT&T Corp. could, among other things, require AT&T Latin America to
divest any cross-border transmission facilities it owns, as well as cease
providing select communications services. The various restrictions described in
this paragraph
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may limit AT&T Latin America's growth. You should read "Other Material
Agreements and Arrangements - Regional Vehicle Agreement" and " - Service Mark
License Agreement" and "Description of AT&T Latin America Capital Stock -
Territorial Restrictions in AT&T Latin America's Certificate of Incorporation"
for more information about these restrictions.
AT&T Latin America's certificate of incorporation may only be changed
with the affirmative vote of shares held by AT&T Corp. AT&T Latin America's
agreements with AT&T Corp. may only be amended with the prior consent of AT&T
Corp. For a description of some possible differences in the interests of AT&T
Corp. and your interests, see "Risks Relating to the Merger."
FIRSTCOM AND NETSTREAM HAVE ENTERED INTO RECENTLY DEREGULATED MARKETS.
AT&T Latin America will offer services in many markets that have
historically been served by a government or privately-owned carrier of
communication services having dominant market share. Accordingly, AT&T Latin
America may face delays and problems inherent in establishing a new business in
an evolving industry, including, among other things, problems related to hiring
experienced and qualified personnel. Other risks associated with this strategy
include the need to:
o secure necessary licenses and adhere to applicable regulatory
requirements;
o obtain zoning variances or other governmental or local
regulatory approvals; and
o obtain rights-of-way agreements to install or develop its
fiber optic networks.
THE LATIN AMERICAN COMMUNICATIONS INDUSTRY IS BECOMING INCREASINGLY COMPETITIVE.
The Latin American communications industry is becoming increasingly
competitive due in part to recent deregulation and a related increase in the
number and size of new competitors in the market. AT&T Latin America will
compete with several other service providers in each of its markets, including
global alliances among some of the world's largest communications carriers,
incumbent communication providers with large customer bases, wireless telephone
companies and satellite-based communications carriers. Other existing and
potential competitors include cable television companies, railway companies,
utilities and other entities with rights-of-way and large end users which have
private networks. Competition has been intensifying and AT&T Latin America
believes it is likely to continue to intensify as the number of new market
entrants increases.
Competition for customers in the communications industry is based, in
part, on price. The prices charged by AT&T Latin America will depend on prices
charged by competitors and other factors. AT&T Latin America has no control over
the prices set by its competitors and some of its competitors may be able to use
their financial resources to cause severe price competition. Significant price
competition could result in AT&T Latin America's having lower revenues and
operating results. A number of AT&T Latin America's existing and potential
competitors have greater financial and other resources than it has and could
devote significantly greater additional resources to the provision of
communications services to the target customer base than AT&T Latin America.
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AT&T LATIN AMERICA NEEDS TO KEEP PACE WITH RAPID INDUSTRY AND TECHNOLOGICAL
CHANGE.
AT&T Latin America's performance will depend, in part, upon how well it
anticipates and adapts to rapid regulatory and technological changes occurring
in the communications industry and whether it is able to offer, on a timely
basis, services that meet evolving industry standards. AT&T Latin America cannot
assure you that it will be able to adapt to these technological changes or offer
the necessary services on a timely basis or establish or maintain a competitive
position.
The communications industry is changing rapidly due to, among other
factors, deregulation, privatization, technological improvements, expansion of
communications infrastructure and the globalization of the world's economies and
free trade. AT&T Latin America is unable to predict which of the many possible
future service offerings will be important to enable it to establish and
maintain its competitive position or what expenditures will be required to
develop and provide these services.
CHANGES IN ANTICIPATED GOVERNMENT DEREGULATION COULD ADVERSELY AFFECT AT&T LATIN
AMERICA'S OPERATIONS AND GROWTH.
AT&T Latin America's strategy is based, in large part, upon
continuation of deregulation of the communications markets in the Region. AT&T
Latin America cannot assure you that any countries in the Region will proceed
with 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 legislation that is directed toward deregulation from
incumbent communication providers, regulators, trade unions and other sources.
In addition, national and local laws and regulations differ significantly among
the countries in which AT&T Latin America will operate. How these laws and
regulations are interpreted and enforced as well as changes in laws or
regulations and judicial intervention could limit AT&T Latin America's ability
to provide certain communications services.
AT&T LATIN AMERICA REQUIRES RIGHTS-OF-WAY AND VARIOUS THIRD PARTY AGREEMENTS IN
ORDER TO CONSTRUCT AND MAINTAIN ITS NETWORKS.
AT&T Latin America will need easements, rights-of-way, franchises and
licenses from various private parties, actual and potential competitors and
local governments to construct and maintain its fiber optic networks. AT&T Latin
America does not yet have all of the approvals required to build networks in
several markets it considers attractive and cannot assure you that it 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 it or enter a market before it can. Some of the agreements for approvals
obtained by AT&T Latin America are short-term or are revocable by third parties.
Termination or non-renewal of any of these agreements may require AT&T Latin
America to remove its fiber optic cable or abandon its network in place.
AT&T LATIN AMERICA DEPENDS ON SERVICES OF LOCAL COMMUNICATIONS PROVIDERS.
AT&T Latin America depends on incumbent local exchange companies to
provide various communications services to it and to its customers. FirstCom and
Netstream have from time to time had delays in receiving these communications
services. AT&T Latin America
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cannot assure you that it will be able to obtain these services on the scale and
within the time required by it at an affordable cost, or at all.
DEPARTURE OF KEY PERSONNEL COULD HARM AT&T LATIN AMERICA'S BUSINESS.
AT&T Latin America will be managed by a small number of key executive
officers and operating personnel, including Patricio E. Northland, FirstCom's
president and chief executive officer. Further, AT&T Latin America believes that
its success will depend, in large part, on its ability to attract and retain
skilled and qualified personnel with experience in the communications industry.
These employees are in great demand and are often subject to competing offers of
employment.
AT&T LATIN AMERICA DEPENDS ON ITS OPERATING SUBSIDIARIES FOR CASH. ITS
SUBSIDIARIES MAY BE LIMITED IN THEIR ABILITY TO MAKE FUNDS AVAILABLE TO AT&T
LATIN AMERICA FOR THE PAYMENT OF DEBT AND OTHER OBLIGATIONS.
AT&T Latin America will not hold any significant assets that will
generate cash other than its direct and indirect interests in its subsidiaries
which conduct all of its operations. AT&T Latin America's cash flow and ability
to meet its obligations will depend upon the cash flow of its operating
subsidiaries and the payment of funds by these operating subsidiaries to AT&T
Latin America. In addition, its operating subsidiaries' ability to make any
payments to AT&T Latin America will depend on their earnings, business and tax
considerations and legal restrictions, including any local law restrictions
relating to foreign payments and repatriation of capital. Also, covenants in the
agreements governing the indebtedness of some of AT&T Latin America's
subsidiaries after the merger will restrict their ability to make loans,
distributions or other payments to AT&T Latin America.
BECAUSE AT&T LATIN AMERICA'S OPERATIONS ARE CONDUCTED OUTSIDE THE UNITED STATES,
IT IS SUBJECT TO SPECIAL ECONOMIC AND POLITICAL RISKS, INCLUDING INFLATION,
FOREIGN EXCHANGE FLUCTUATIONS, FOREIGN REGULATORY APPROVALS AND FOREIGN TAXES.
All of AT&T Latin America's operations are in Latin America.
Accordingly, AT&T Latin America will be subject to significant economic,
political and social instability and other risks not typical of investments in
businesses conducted in the United States. During the past several years, many
countries in the Region have had high inflation, uneven economic growth rates
and political uncertainty.
AT&T Latin America operates and intends to operate in countries with
economies in various stages of development or structural reform and it will be
subject to fluctuations in the local economies in which it operates. To the
extent these fluctuations affect the ability of subscribers to pay for AT&T
Latin America's services, the growth of its services in these markets could be
limited.
Many of AT&T Latin America's targeted markets are in countries in which
the rate of inflation is significantly higher than that in the United States and
which have experienced significant volatility in currency exchange rates. AT&T
Latin America cannot assure you that the effect of inflation on its operations
in these countries can be offset, in whole or in part, by corresponding price
increases by AT&T Latin America, even over the long-term. Nor can it
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assure you that currency exchange rates will not change in a way adverse to it
or that currency controls will not be imposed.
AT&T Latin America plans to structure its operations based on certain
assumptions about various tax laws, U.S. and international tax treaty
developments, international currency exchange and capital repatriation laws and
other relevant laws of a variety of non-U.S. jurisdictions. While management
believes these assumptions will be correct, we cannot assure you that taxing or
other authorities would reach the same conclusion. AT&T Latin America could
suffer adverse tax and other financial consequences if these assumptions are
incorrect or the relevant laws were changed or modified.
DISTRIBUTION AND OTHER PAYMENTS TO AT&T LATIN AMERICA FROM ITS SUBSIDIARIES AND
AFFILIATES MAY BE SUBJECT TO FOREIGN TAXES, AND DISTRIBUTIONS BY AT&T LATIN
AMERICA TO NON-U.S. SHAREHOLDERS MAY BE SUBJECT TO U.S. WITHHOLDING TAXES.
Distributions of earnings and other payments, including interest, AT&T
Latin America receives from its subsidiaries and affiliates may be subject to
withholding taxes imposed by the jurisdictions in which these entities are
formed or operating. These taxes would reduce the amount of after-tax cash AT&T
Latin America would receive from these entities. In general, a United States
corporation may claim a foreign tax credit against its federal income tax
expense for these 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. AT&T Latin America's ability to claim foreign tax credits and to
utilize net foreign losses is, however, subject to numerous limitations, and it
may incur incremental tax costs as a result of these limitations or because it
is not in a tax-paying position in the United States. AT&T Latin America 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 those
subsidiaries. In addition, distributions by AT&T Latin America to shareholders
resident outside the United States may be subject to U.S. withholding taxes.
LABOR REGULATIONS AND STRONG LABOR UNIONS IN LATIN AMERICAN MARKETS MAY INCREASE
AT&T LATIN AMERICA'S EXPENSES.
In general, labor regulations in Latin America are more favorable to
employees than in the United States. Most Latin American countries also require
higher rates of mandatory social security and similar contributions by employers
than the United States. In addition, labor unions in most Latin American
countries are considered to be strong and influential. While none of AT&T Latin
America's operations are currently unionized, it may experience strikes or other
significant types of conflicts with labor unions or its personnel.
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE FIRSTCOM SPECIAL MEETING
At the FirstCom special meeting, FirstCom shareholders will be asked to
consider and vote upon a proposal to approve and adopt the merger agreement and
approve the merger.
THE FIRSTCOM BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
ADVISABLE AND IN THE BEST INTERESTS OF FIRSTCOM AND ITS SHAREHOLDERS.
ACCORDINGLY, THE FIRSTCOM BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AND APPROVED AND ADOPTED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
THE FIRSTCOM SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AND APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding
FirstCom common shares and Series A convertible preferred shares, voting
together as a single class, as well as the affirmative vote of seventy-five
percent of the outstanding Series A convertible preferred shares, voting as a
separate class, are required to approve the merger agreement and the merger.
Each FirstCom common share and Series A convertible preferred share is entitled
to one vote on the merger proposal.
Only holders of record of FirstCom common shares and Series A
convertible preferred shares at the close of business on _______, 2000 are
entitled to receive notice of and vote at the FirstCom special meeting. As of
March 3, 2000, there were 30,407,458 FirstCom common shares and 1,345,507
FirstCom Series A convertible preferred shares outstanding and entitled to vote.
Holders of a majority of the outstanding FirstCom common shares and a majority
of the Series A convertible preferred shares on the record date, present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the FirstCom special meeting.
Patricio E. Northland, the chairman, president and chief executive
officer of FirstCom and three other substantial holders of FirstCom common stock
have agreed to vote all the FirstCom shares they own in favor of the merger. In
addition, the holders of FirstCom's Series A convertible preferred shares have
agreed to vote all their shares in favor of the merger. As of March 3, 2000,
these shareholders together owned approximately 22% of the then outstanding
shares of capital stock of FirstCom entitled to vote on the merger proposal
(excluding any shares that these holders might acquire by exercising FirstCom
options and warrants). These voting agreements will terminate if the merger
agreement terminates.
A list of FirstCom shareholders entitled to vote at the FirstCom
special meeting will be available for examination at FirstCom's executive
offices located at 220 Alhambra Circle, Coral Gables, Florida beginning on
_________, 2000 during normal business hours and at the FirstCom special
meeting.
Further stockholder approval is not required by any of the other
parties to the merger agreement.
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HOW SHARES WILL BE VOTED AT THE SPECIAL MEETINGS
Shares represented by a proxy will be voted at the FirstCom special
meeting as specified in the proxy.
If a FirstCom shareholder fails to return his or her proxy, the
shareholder's shares will not be counted for the purpose of determining whether
a quorum is present at the FirstCom special meeting and will not be voted on the
merger proposal unless the shareholder votes his shares in person in favor of
the merger at the FirstCom special meeting. If a FirstCom shareholder returns a
properly executed proxy but fails to mark his or her vote, the shares will be
counted for the purpose of determining whether a quorum is present at the
FirstCom special meeting and these shareholders will have their shares voted
"FOR" approval of the merger proposal.
Abstentions will be considered present for the purpose of establishing
a quorum and will have the same effect as a vote "AGAINST" approval of the
merger and the merger agreement.
Under Nasdaq rules, your broker cannot vote your FirstCom shares on the
merger proposal without specific instructions from you. Unless you follow the
directions your broker provides to you regarding how to instruct your broker to
vote your shares on the merger proposal, your shares will not be voted. Broker
non-votes will be counted for purposes of determining whether a quorum exists
and will have the same effect as a vote "AGAINST" the merger and the merger
agreement.
HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you
from voting in person or otherwise revoking your proxy.
A FirstCom shareholder of record may revoke a proxy at any time before
the FirstCom special meeting by delivering a duly executed revocation or a
subsequent proxy dated after the initial proxy to FirstCom Corporation, 220
Alhambra Circle - Suite 910, Coral Gables, Florida 33134, attention: Chief
Financial Officer. A FirstCom shareholder may also revoke his or her proxy by
attending and voting at the FirstCom special meeting. Attendance at the special
meeting by a shareholder who has signed a proxy but does not provide a notice of
revocation or a request to vote in person is not sufficient to revoke that
proxy.
SOLICITATION OF PROXIES
FirstCom will pay the cost of printing and mailing this document and
the cost of soliciting your proxies. Corporate Investor Communications, Inc.,
FirstCom's proxy solicitation agent, will assist in the solicitation of proxies
for a fee up to $______ plus reimbursement of reasonable out-of-pocket expenses.
FirstCom will indemnify the proxy solicitation agent against specific
liabilities and expenses, including liabilities and expenses under the federal
securities laws. In addition to solicitation by mail, our directors, officers
and employees may solicit proxies from holders of common shares by telephone, in
person or through other means. FirstCom will not compensate these people for
this solicitation, but it will reimburse them for reasonable out-of-pocket
expenses they have in connection with this solicitation. FirstCom will also
arrange for brokerage firms, fiduciaries and other custodians to send
solicitation materials to
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the beneficial owners of shares held of record by those persons. FirstCom will
reimburse these brokerage firms, fiduciaries and other custodians for their
reasonable out-of-pocket expenses.
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THE MERGER
GENERAL
On November 1, 1999, FirstCom entered into a merger agreement with AT&T
Corp., AT&T Latin America Corp. (formerly Kiri Inc.), an indirect subsidiary of
AT&T Corp., and Frantis, Inc., a direct wholly-owned subsidiary of AT&T Latin
America. The merger agreement provides for the merger of FirstCom with and into
Frantis. In the merger, the holders of FirstCom common shares will receive one
share of Class A common stock of AT&T Latin America in exchange for each common
share of FirstCom. Holders of FirstCom Series A convertible preferred shares
will receive one share of Series A convertible preferred stock of AT&T Latin
America in exchange for each Series A convertible preferred share of FirstCom.
On August 20, 1999, Jamtis, Inc., an indirect wholly-owned subsidiary
of AT&T Corp., entered into agreements to acquire (through wholly-owned
Brazilian companies) quotas representing 100% of the outstanding equity
interests in Netstream Telecom Ltda., a Brazilian limited liability company
(SOCIEDADE DE RESPONSABILIDADE LIMITADA). On December 8, 1999, Jamtis completed
its acquisition of Netstream. On December 10, 1999, Jamtis merged with a
subsidiary of AT&T Latin America and Netstream became an indirect wholly-owned
subsidiary of AT&T Latin America.
As a result of its contribution of the entire equity interest in
Netstream and $10 million in cash, AT&T Corp. owns all of the outstanding shares
of Class B common stock of AT&T Latin America. Immediately after the Netstream
acquisition, an affiliate of Promon Ltda. contributed $40 million in cash to
AT&T Latin America in exchange for shares of Class A common stock of AT&T Latin
America representing a 10% interest in AT&T Latin America.
One of the conditions to the merger between AT&T Latin America and
FirstCom is that the shareholders of AT&T Latin America shall have contributed a
total of $70 million cash to AT&T Latin America as equity capital prior to the
merger, of which $50 million was contributed in December 1999 by affiliates of
AT&T Corp. and Promon. Accordingly, AT&T Corp. will contribute an additional $20
million in cash to AT&T Latin America before the closing of the merger, in
exchange for additional shares of common stock. AT&T Latin America expects that
Promon's affiliate will participate pro rata in this additional $20 million cash
contribution in proportion to its percentage economic interest in AT&T Latin
America. If Promon's affiliate participates, it also will receive additional
shares of AT&T Latin America common stock and AT&T Corp.'s contribution (and
number of shares received) will be commensurately smaller.
On February 23, 2000, AT&T Latin America agreed to acquire 100% of the
capital stock of Keytech LD, a development stage broadband communications
company in Argentina, in exchange for 1,178,689 shares of AT&T Latin America
Class A common stock, plus $5 million in cash. The parties will place 550,000 of
those shares in escrow. The shares will be released to the selling stockholders
of Keytech LD over a period of six years to the extent they are not used to
satisfy indemnity obligations of the selling stockholders under the stock
purchase agreement. Keytech LD has licenses that authorize or will authorize it
by November 8, 2000 to provide domestic and international long distance
services, local telephony services, value-added services and a range of data
services. Keytech LD also has rights to use 1910-1930 MHz wireless spectrum for
fixed wireless links in nine of Argentina's largest cities. AT&T Latin America
will
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pay up to an additional $1.5 million to the selling stockholders one year after
the closing of the acquisition if certain business milestones are accomplished.
When the merger is completed, the common stock of AT&T Latin America
will be owned on a fully-diluted basis as follows:
o approximately 34% will be owned by former shareholders of
FirstCom, including current directors, officers and employees
of FirstCom and its subsidiaries, in the form of shares of
Class A common stock;
o approximately 59% will be owned indirectly by AT&T Corp, in
the form of shares of Class B common stock; and
o approximately 7% will be owned indirectly by one or more of
Promon's affiliates, in the form of shares of Class A common
stock.
If AT&T Latin America completes its pending acquisition of Keytech LD before the
merger, those percentages will be reduced slightly and the former shareholders
of Keytech LD will own approximately 1% of the common stock of AT&T Latin
America on a fully-diluted basis.
The above ownership percentages are based on the fully-diluted
capitalization of AT&T Latin America when the merger is completed. That
capitalization includes two elements:
o shares of common stock of AT&T Latin America that are issued
and outstanding when the merger is completed; and
o shares of common stock that AT&T Latin America will be
obligated to issue as of the merger upon the exercise of
outstanding options and warrants to acquire shares of AT&T
Latin America or the conversion of shares of convertible
preferred stock.
On November 1, 1999, a total of 25,689,642 shares of capital stock of
FirstCom were outstanding, including 24,376,556 common shares and 1,313,086
Series A convertible preferred shares. Also as of November 1, 1999, there were
outstanding options and warrants to acquire 16,337,271 FirstCom common shares.
When the merger is completed, all outstanding FirstCom options and warrants will
be converted automatically into options and warrants to acquire shares of AT&T
Latin America's Class A common stock. The merger agreement permits AT&T Latin
America to grant up to 625,000 options and FirstCom to grant up to 300,000
additional options between November 1, 1999 and the completion of the merger.
Under the merger agreement, these options may be granted only in the ordinary
course of business to new and existing employees of Netstream and FirstCom.
On a non-diluted basis, as of the completion of the merger, the
percentage economic interest in AT&T Latin America owned by former FirstCom
shareholders will be lower, and the percentage economic interests of AT&T Corp.
and Promon's affiliate will be higher than these percentages calculated on a
fully-diluted basis. It is not possible to predict those percentages without
making assumptions about the number of FirstCom options and warrants that are
exercised between November 1, 1999 and date of the completion of the merger.
Between November 1, 1999, the date of the signing of the merger agreement, and
March 3, 2000, 6,594,820 FirstCom options and warrants were exercised. Assuming
that no additional options
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or warrants of FirstCom are exercised prior to completion of the merger, former
FirstCom shareholders would own approximately 28%, AT&T Corp. would own
approximately 65% and Promon's affiliate would own approximately 7% of the
outstanding capital stock of AT&T Latin America (other than non-convertible,
non-participating preferred stock) when the merger is completed. Based on
the foregoing assumptions, if AT&T Latin America completes its pending
acquisition of Keytech LD prior to the merger, former FirstCom shareholders
would own approximately 28%, AT&T Corp. would own approximately 64%,
Promon's affiliate would own approximately 7% and former shareholders of
Keytech LD would own approximately 1% of the outstanding capital stock of AT&T
Latin America when the merger is completed.
Each Class A common share of AT&T Latin America is entitled to one vote
per share, and each Class B common share of AT&T Latin America is entitled to
ten votes per share, on all matters submitted to a vote of the stockholders of
AT&T Latin America. Upon completion of the merger, the shares of Class A common
stock will trade on the Nasdaq National Market under the symbol "ATTL" and
FirstCom's common shares will no longer be traded. AT&T Latin America's Class B
shares will not be publicly listed or traded.
The discussion in this document of the merger and the description of
the principal terms and conditions of the merger agreement and the merger is
only a summary. You should refer to the merger agreement for the details of the
merger and the terms and conditions of the merger agreement. You will find a
copy of the merger agreement as amended attached to this document as Annex A.
See "The Merger Agreement."
BACKGROUND OF THE MERGER
The proposed merger resulted from arm's length negotiations between
representatives of FirstCom and AT&T Corp. and their respective legal,
accounting and financial advisors. The following is a summary of the background
of those negotiations.
During January 1999, members of senior management of FirstCom and
executives of AT&T Corp. began discussing the possibility of a business
combination of FirstCom and AT&T Corp. At a special meeting of FirstCom's board
of directors held in January 1999, the FirstCom board of directors was advised
of the discussions and authorized the discussions to continue.
On January 21, 1999, FirstCom and AT&T Corp. entered into a
confidentiality agreement. FirstCom and AT&T Corp., and their respective
representatives, then began to exchange and review confidential information to
evaluate a possible business combination. From January through April 1999, AT&T
Corp. and its financial, technical and legal advisors conducted preliminary due
diligence with respect to FirstCom and in mid-April 1999, both parties decided
to move forward with more formal negotiations. The due diligence activities
conducted by AT&T Corp. and its advisors included interviews with FirstCom's
senior management in Coral Gables, as well as in-country site visits to
FirstCom's operations in each of Santiago, Lima/Callao and Bogota. During this
initial period, no further understandings were reached between FirstCom and AT&T
Corp. with respect to a specific transaction. This was due, in part, to a
confidentiality agreement that prohibited AT&T Corp. from disclosing to FirstCom
the then-pending transaction with Netstream.
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On April 19, 1999, the FirstCom board of directors approved retaining
CIBC World Markets as its financial advisor with respect to a possible
transaction. CIBC World Markets suggested that FirstCom seek to determine the
level of interest among possible strategic partners in a potential business
combination with, or investment in, FirstCom. After discussions with FirstCom's
management and CIBC World Markets, the FirstCom board of directors requested
that the senior management of FirstCom and CIBC World Markets contact other
third parties to determine their possible interest in a strategic transaction
with FirstCom. The FirstCom board of directors also discussed with senior
management and CIBC World Markets the timing and process for contacting
potential strategic partners and soliciting their interest and the financial
information about FirstCom that would be disclosed, subject to the execution of
appropriate confidentiality agreements, to parties that expressed an interest in
FirstCom.
The FirstCom board of directors considered that a protracted process of
considering strategic alternatives for FirstCom would likely generate
speculation regarding the possible acquisition of FirstCom, disrupt FirstCom's
operations and subject FirstCom to the risk of losing key personnel and
customers. In light of these concerns, the FirstCom board of directors believed
that it was in the best interests of FirstCom and its shareholders to establish
a reasonable but limited period to make contact with other parties and to allow
those parties to complete their due diligence inquiries into the business and
affairs of FirstCom and to indicate their interest, or lack thereof, in pursuing
further discussions. The FirstCom board of directors therefore instructed CIBC
World Markets to approach a select number of potential partners or acquirors
about their interest in pursuing a transaction with FirstCom, primarily focusing
on large international communications companies which had investments in Latin
America. From April 19, 1999 through the end of June 1999, CIBC World Markets
contacted several leading international communications companies to determine
whether they would be interested in a strategic acquisition or other significant
transaction with FirstCom.
On April 22, 1999, FirstCom and AT&T Corp. and their respective
representatives met to discuss the terms and conditions upon which a business
combination transaction might be structured. From April 23, 1999 through August
1, 1999, both parties and their representatives held numerous meetings and
conversations to discuss the possible terms and conditions of a business
combination. FirstCom and its advisors also participated in meetings with AT&T
Corp. in May, June and July 1999 with respect to due diligence on FirstCom's
operations and business plans and the proposed operations of a combined company
following a transaction. In June 1999, AT&T Corp. informed FirstCom that it was
pursuing a transaction with a Brazilian communications carrier, which would be
part of any transaction between FirstCom and AT&T Corp. However, because AT&T
Corp. was not able to disclose the identity of this Brazilian company, FirstCom
and AT&T Corp. did not discuss specific terms of a possible transaction. In
early July 1999, after obtaining waivers from Promon and FirstCom relating to
the exchange of confidential information, AT&T Corp. informed FirstCom of its
negotiations to acquire Netstream, and FirstCom and its advisors commenced a due
diligence review of Netstream.
On July 14 and 15, 1999, representatives of FirstCom, AT&T Corp.,
Netstream, Promon and Salomon Smith Barney, financial advisor to AT&T Corp.,
conducted due diligence activities in Sao Paulo on the operations of Netstream.
On August 2, 1999, FirstCom terminated negotiations with AT&T Corp.
because the parties had not agreed upon mutually acceptable terms and conditions
for a transaction and the
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FirstCom board of directors had concluded that the complexity of anticipated
negotiations with AT&T Corp. made it unlikely that a mutually acceptable
agreement could be reached with AT&T Corp. until AT&T Corp. had finalized the
terms of its transaction with Netstream.
Following termination of the negotiations with AT&T Corp., FirstCom
continued serious negotiations with a potential strategic investor with whom
senior management had had a number of conversations about a transaction since
May, 1999. The strategic investor indicated in early August that it was
interested in a transaction with FirstCom, but it advised FirstCom's senior
management that it would require four to six weeks to complete its due diligence
review, obtain approval of one of its substantial strategic partners in another
region, determine the availability of financing and provide a firm transaction
proposal, if any. At a meeting on August 11, 1999, the FirstCom board of
directors determined, after consultation with management, that its business
judgment was that it was not in the best interests of FirstCom to continue the
process or to pursue further the solicitation of indications of interest from
financial or strategic investors. In making that determination, the FirstCom
board of directors considered the contingent nature of the strategic buyer's
indication of interest, the potentially detrimental effect on FirstCom as a
result of the continued diversion of management's attention from the business of
FirstCom, and the anticipated length of time required to complete due diligence
inquiries, confirm the availability of required financing and resolve other
expressed contingencies.
AT&T Corp. announced on August 24, 1999 that it had agreed to acquire
Netstream.
On September 7, 1999, senior management of FirstCom contacted
executives of AT&T Corp. and discussed the possibility of trying to structure a
mutually acceptable transaction. On September 27, 1999, some of the financial
terms of a proposed transaction were agreed in principle, subject to negotiation
of the detailed terms and structure of the proposed merger transaction, the
terms under which AT&T Latin America would be able to use the AT&T Corp. brand
name and logo, the scope of AT&T Latin America's permitted services, preparation
of definitive agreements, completion of due diligence and approval of the board
of directors of FirstCom.
On October 1, 1999, FirstCom and AT&T Corp. entered into an agreement
providing for exclusive negotiations until October 18, 1999, which date was
subsequently extended until the merger agreement was executed. From October 1 to
October 31, 1999, FirstCom and AT&T Corp., and their respective legal and
financial advisors, negotiated and finalized the terms of the merger agreement
and the other transaction agreements.
On October 6 and 7, 1999, representatives of FirstCom and CIBC World
Markets, along with representatives of AT&T Corp. and Salomon Smith Barney,
conducted due diligence activities on the operations of Netstream. This due
diligence included visits to the network operating centers in Sao Paulo and Rio
de Janeiro, a review of Netstream's business plan with Netstream's senior
management, a review of Netstream's network architecture and visits with certain
of Netstream's customers.
A special telephonic meeting of FirstCom's board of directors was held
on October 29, 1999, at which time FirstCom's legal and financial advisors
reviewed for the board of directors the terms of the transaction and updated
FirstCom's board of directors on the issues related to finalizing the
transaction documentation.
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A special telephonic meeting of FirstCom's board of directors was held
on October 31, 1999, at which meeting the FirstCom board of directors reviewed
and discussed the final terms of the merger with FirstCom's senior management
and legal and financial advisors. Also at this meeting, CIBC World Markets
delivered to the FirstCom board of directors an oral opinion, which opinion was
confirmed by delivery of a written opinion dated November 1, 1999, to the effect
that, as of the date of the opinion and based on and subject to the matters
described in the opinion, the 34% fully-diluted equity ownership to be received
by FirstCom's shareholders in AT&T Latin America upon the completion of the
merger was fair, from a financial point of view, to the holders of FirstCom
common shares. After full discussion, FirstCom's board of directors approved the
merger agreement and the related transaction documents upon the terms described
in this proxy statement/prospectus and recommended the approval of the merger by
FirstCom's shareholders.
The merger agreement was executed by the parties and the proposed
merger was publicly announced before the opening of public market trading on the
morning of November 1, 1999. The FirstCom board of directors' approval of the
merger agreement and the related agreements was based on the factors described
immediately below in the section entitled "Reasons for the Merger;
Recommendation of FirstCom's Board of Directors."
REASONS FOR THE MERGER; RECOMMENDATION OF FIRSTCOM'S BOARD OF DIRECTORS
In arriving at its decision to approve the merger and the merger
agreement, and to recommend that FirstCom shareholders approve the merger,
FirstCom's board of directors considered a number of factors. The affirmative
factors considered included the following:
o the merger complements FirstCom's operations in Colombia,
Chile and Peru by adding Netstream's Brazilian operations, and
facilitates FirstCom's immediate entry into Brazil, Latin
America's largest market for communications services. In this
regard, the FirstCom board of directors also noted the benefit
of having an affiliate of Promon as a substantial shareholder
of the combined company, given Promon's standing in Brazil;
o the merger offers the opportunity of an alliance between
FirstCom's business and shareholders with those of AT&T Corp.
FirstCom's board of directors considered that AT&T Corp.'s
technical expertise, its world-famous brand and its strong
credibility and reputation in the Region would enhance the
value of FirstCom's assets and operations more effectively
than FirstCom could as an independent company. In this regard,
the board of directors took note of the general increase in
competition in the Region and the fact that several markets in
which FirstCom has operations have attracted one or more large
international communications companies that are competing
with, or are positioning themselves to compete with,
FirstCom's business. The board also considered the potential
benefit of the combined company's having a relationship with
AT&T Corp. in current and future dealings with local
governments and incumbent communications companies in the
Region;
o the combination of the FirstCom and Netstream operations into
a single group of companies offers an opportunity to create a
pan-Latin American
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broadband communications business that would benefit from
administrative, operating and brand synergies;
o the combined company would have potentially enhanced access to
the global transmission assets and capabilities of the Concert
global venture between AT&T Corp. and British Telecom and to
the AT&T Global Network Services business. The combined
company would also have potentially enhanced access within the
Region to the global multinational customers served by those
entities;
o the merger enhances FirstCom's ability to execute upon its
business plan, considering such factors as FirstCom's capital
requirements, the difficulty in obtaining financing in the
current markets for companies with operations in Latin America
and the possible competitive pressures and network build-out
delays that FirstCom might encounter in the absence of
financing on commercially acceptable terms, or at all.
FirstCom's board of directors noted that AT&T Corp. would be
providing the combined company, AT&T Latin America, with a
$100 million credit facility on reasonable terms. The board
also considered that the significant size and market reach of
AT&T Latin America, combined with the likely positive reaction
of financial markets to the sponsorship of AT&T Corp., would
allow AT&T Latin America more favorable access to the public
capital markets than FirstCom alone;
o the board of directors perceived strong growth potential for
AT&T Latin America's business after the merger and considered
that FirstCom's shareholders would be able to participate in
that growth. The board of directors also believed AT&T Latin
America would benefit from the involvement of FirstCom's
senior management team, as well as the continued involvement
of the in-country management of Netstream and of FirstCom's
subsidiaries; and
o FirstCom's management and its advisors had solicited proposals
from, and engaged in discussions with, significant
participants in the international communications industry
about possible strategic transactions involving FirstCom. In
the opinion of the board of directors, taking into account
various positive and negative factors, those discussions did
not result in proposals for transactions that were likely to
be as favorable over the long term to FirstCom's business and
shareholders as the merger.
In the course of its deliberations, FirstCom's board of directors also
reviewed with FirstCom's management and advisors a number of additional factors
relevant to the merger, including:
o information developed from an in-depth analysis by FirstCom's
management and advisors of the business, operations, assets,
liabilities, competitive position, management and employees of
Netstream, as well as the results of a review of the Netstream
acquisition agreements between affiliates of AT&T Corp. and
Promon, the terms of Promon's affiliate's investment in AT&T
Latin America and other documents and materials relating to
Netstream, Promon and AT&T Latin America;
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o the financial presentation of CIBC World Markets to FirstCom's
board of directors, including its opinion as to the fairness,
from a financial point of view, to the holders of FirstCom
common shares of the 34% fully-diluted equity ownership in
AT&T Latin America to be received by FirstCom's shareholders
in the merger, as more fully described below in "Opinion of
FirstCom's Financial Advisor";
o the proposed governance of AT&T Latin America, including the
proposed election of at least three disinterested individuals
to the board of directors, which individuals would not be
employees, officers or directors of any affiliate of AT&T
Corp. (other than AT&T Latin America) or employees or officers
of AT&T Latin America;
o AT&T Corp.'s stated intention to operate AT&T Latin America as
a stand-alone public company and to not increase its
shareholding percentage in AT&T Latin America above 80% for at
least 12 months without the approval of the disinterested
members of the board of directors of AT&T Latin America;
o AT&T Corp.'s stated intention to maintain voting control of
AT&T Latin America, given the possibility of future issuances
of shares in a public offering or to finance acquisitions, and
AT&T Corp.'s corporate requirements and policies for the
licensing of the AT&T brand and logo to AT&T Latin America;
and
o the belief that the terms of the merger agreement, including
the parties' representations, warranties and covenants, as
well as the conditions to the parties' respective obligations,
are reasonable.
FirstCom's board of directors also identified and considered some
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
o the potentially lengthy period of time that may be required to
complete the merger, particularly in light of the fact that
the merger agreement does not permit FirstCom to solicit
transactions that could impede or prevent consummation of the
merger;
o the restrictions on FirstCom imposed by the merger agreement
and the potential business opportunities that might be
foregone due to these restrictions or the pendency of the
merger generally;
o business and territorial restrictions imposed on AT&T Latin
America by the regional vehicle agreement between AT&T Corp.
and AT&T Latin America and in AT&T Latin America's certificate
of incorporation;
o AT&T Corp.'s ownership of a class of shares of AT&T Latin
America having superior voting rights to the class of shares
owned by other shareholders of AT&T Latin America, including
former FirstCom shareholders;
o the rights accorded to Promon's affiliate until the completion
of a future public offering of common stock by AT&T Latin
America, under the terms of a shareholders' agreement between
AT&T Corp. and Promon's affiliate, which rights would not be
available to all shareholders of AT&T Latin America, including
former FirstCom shareholders;
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o the terms of executive compensation and related agreements
between AT&T Latin America, FirstCom and Patricio E.
Northland, president and chief executive officer of FirstCom,
who will be nominated as president and chief executive officer
of AT&T Latin America under the terms of the merger agreement;
o the possibility that FirstCom would be required to pay AT&T
Corp. a $10 million termination fee, plus expenses up to $1
million, if, among other things, FirstCom agreed to a
transaction with a party other than AT&T Corp. In considering
this issue, the board of directors concluded that the amount
of the termination fee would likely not dissuade other parties
from making unsolicited offers to enter into a strategic
transaction with FirstCom; and
o the other risks and considerations described under "Risk
Factors."
The above discussion describes the material factors considered by
FirstCom's board of directors in its consideration of the merger agreement and
the merger. After considering these factors, and taking into account the
recommendation of management, the FirstCom board of directors concluded that the
positive factors described above outweighed the negative factors described
above. Because of the variety of factors considered, the FirstCom board of
directors did not find it practicable to, and did not make specific assessments
of, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. The determination was made after
consideration of all of the factors together. In addition, individual members of
the FirstCom board of directors may have given different weights to different
factors.
THE FIRSTCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT FIRSTCOM
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
OPINION OF FIRSTCOM'S FINANCIAL ADVISOR
CIBC World Markets acted as FirstCom's financial advisor in connection
with the merger. On October 31, 1999, at a meeting of the FirstCom board of
directors held to evaluate the proposed merger, CIBC World Markets rendered an
oral opinion, confirmed by delivery of a written opinion dated November 1, 1999,
the date the parties executed the merger agreement, to the effect that, as of
the date of the opinion and based on and subject to the matters described in the
opinion, the 34% fully-diluted equity ownership in AT&T Latin America to be
received by FirstCom's shareholders in the merger was fair, from a financial
point of view, to the holders of FirstCom common shares.
The full text of the written opinion of CIBC World Markets dated
November 1, 1999, which describes the assumptions made, matters considered and
limitations on the review undertaken, is attached to this proxy
statement/prospectus as Annex B and is incorporated into this proxy
statement/prospectus by reference. THE OPINION OF CIBC WORLD MARKETS IS DIRECTED
TO THE FIRSTCOM BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS TO THE
HOLDERS OF FIRSTCOM'S COMMON SHARES, FROM A FINANCIAL POINT OF VIEW, OF THE 34%
FULLY-DILUTED EQUITY OWNERSHIP TO BE RECEIVED BY FIRSTCOM'S SHAREHOLDERS IN AT&T
LATIN AMERICA UPON COMPLETION OF THE MERGER. THE OPINION OF CIBC WORLD MARKETS
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO ANY MATTER
RELATING TO THE PROPOSED MERGER. THE
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FOLLOWING DISCUSSION OF THE OPINION OF CIBC WORLD MARKETS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
As part of its role as financial advisor, and in arriving at its
opinion, CIBC World Markets:
o reviewed the merger agreement and related documents;
o reviewed audited financial statements of FirstCom for the
fiscal years ended December 31, 1997 and December 31, 1998;
o reviewed unaudited financial statements of FirstCom for the
six-month period ended June 30, 1999;
o reviewed financial projections prepared by the managements of
FirstCom and AT&T Corp., including estimates as to potential
operating synergies and cost savings;
o reviewed the historical market prices and trading volume for
FirstCom common stock;
o held discussions with the senior management of FirstCom,
Netstream and AT&T Corp. with respect to the businesses and
prospects for future growth of FirstCom, Netstream and AT&T
Latin America;
o performed a discounted cash flow analysis of FirstCom,
Netstream and AT&T Latin America using assumptions of future
performance provided to and discussed with it by the
managements of FirstCom and AT&T Corp.;
o reviewed and analyzed publicly available financial data for
companies it deemed comparable to FirstCom, Netstream and AT&T
Latin America;
o reviewed and analyzed publicly available information for
transactions that it deemed comparable to the merger;
o reviewed public information concerning FirstCom;
o at the request of FirstCom, approached and held discussions
with selected participants in the international communications
industry about a possible strategic transaction with FirstCom;
and
o performed other analyses and reviewed other information as it
deemed appropriate.
In rendering its opinion, CIBC World Markets relied on and assumed,
without independent verification or investigation, the accuracy and completeness
of all of the financial and other information which FirstCom, Netstream, AT&T
Corp. and their employees, representatives and affiliates provided to or
discussed with it.
With respect to projections of future financial condition and operating
results of FirstCom, Netstream and AT&T Latin America provided to or discussed
with CIBC World Markets, including estimates as to potential operating synergies
and cost savings anticipated by
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the managements of FirstCom and AT&T Corp. and the timing, amount and
achievability of those synergies and cost savings, CIBC World Markets assumed,
at the direction of FirstCom's management, without independent verification or
investigation, that the projections were reasonably prepared on bases reflecting
the best available information, estimates and judgments of the managements of
FirstCom and AT&T Corp.
CIBC World Markets assumed, at the direction of FirstCom's management,
that the merger would qualify as a tax-free reorganization for federal income
tax purposes. CIBC World Markets also assumed, at the direction of FirstCom's
management, that the merger and the acquisition of Netstream would be effected
in all material respects in accordance with their applicable terms and, to the
extent relevant to its analysis, CIBC World Markets evaluated AT&T Latin America
pro forma for the merger and the acquisition of Netstream.
CIBC World Markets did not make or obtain any independent evaluations
or appraisals of the assets or liabilities of FirstCom, Netstream, AT&T Latin
America or entities affiliated with any of them. CIBC World Markets evaluated
the FirstCom percentage equity ownership in AT&T Latin America on an aggregate
and fully-diluted basis and did not express any opinion as to the proportionate
equity ownership in AT&T Latin America of the holders of FirstCom common shares
and FirstCom Series A convertible preferred shares. CIBC World Markets did not
express any opinion as to the underlying valuation, future performance or
long-term viability of FirstCom, Netstream or AT&T Latin America, or the price
at which the FirstCom common shares or AT&T Latin America common stock would
trade after announcement of the signing of the merger agreement or the closing
of the merger.
The opinion of CIBC World Markets was necessarily based on the
information available to it and general economic, financial and stock market
conditions and circumstances existing, and as could be evaluated by CIBC World
Markets, on the date of its opinion. Although subsequent developments may affect
the opinion of CIBC World Markets, it does not have any obligation to update,
revise or reaffirm its opinion. No other instructions or limitations were
imposed by the FirstCom board of directors upon CIBC World Markets with respect
to the investigations made or the procedures followed by it in rendering its
opinion.
INTRODUCTION TO FINANCIAL ANALYSES. CIBC World Markets performed a
"Selected Companies Analysis," "Selected Transactions Analysis" and "Discounted
Cash Flow Analysis" in order to derive an implied aggregate equity reference
range for FirstCom. CIBC World Markets also performed a "Selected Companies
Analysis" and "Discounted Cash Flow Analysis" in order to derive an implied
aggregate equity reference range for Netstream. CIBC World Markets then
performed a "Relative Contribution Analysis" utilizing these implied aggregate
equity reference ranges, together with other factors described below, in order
to derive a pro forma equity ownership range of FirstCom in AT&T Latin America
implied by the relative contributions of FirstCom and AT&T Corp. to AT&T Latin
America. CIBC World Markets then compared this implied pro forma equity
reference range against the 34% fully-diluted percentage equity ownership in
AT&T Latin America to be received by FirstCom's shareholders in the merger.
These analyses are more fully described below.
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FIRSTCOM ANALYSIS
SELECTED COMPANIES ANALYSIS. CIBC World Markets compared financial and
stock market information for FirstCom and the following five selected publicly
held companies in the facilities-based competitive local exchange carrier,
commonly referred to as CLEC, industry:
o e.spire Communications, Inc.
o Electric Lightwave, Inc.
o GST Telecommunications, Inc.
o ICG Communications, Inc.
o Intermedia Communications Inc.
CIBC World Markets reviewed enterprise values, calculated as
fully-diluted equity market value, plus debt, less cash, as multiples of, among
other things, estimated calendar years 1999, 2000 and 2001 revenues, gross
property, plant and equipment, commonly referred to as Gross PP&E, and net
property, plant and equipment, commonly referred to as Net PP&E. CIBC World
Markets then applied selected multiples of estimated calendar years 1999, 2000
and 2001 revenues, Gross PP&E and Net PP&E of the selected companies to
corresponding financial statistics of FirstCom to derive an implied equity
reference range for FirstCom. All multiples were based on closing stock prices
on October 28, 1999. Estimated financial data for the selected companies were
based on publicly available research analysts' estimates and estimated financial
data for FirstCom were based on internal estimates of FirstCom's management.
SELECTED TRANSACTIONS ANALYSIS. CIBC World Markets reviewed the
purchase prices and implied transaction multiples in the following four selected
public transactions in the facilities-based CLEC industry:
ACQUIROR TARGET
-------- ------
AT&T Corp. MetroNet Communications Corp.
AT&T Corp. Teleport Communications Group, Inc.
WorldCom, Inc. Brooks Fiber Properties, Inc.
WorldCom, Inc. MFS Communications Company, Inc.
CIBC World Markets reviewed enterprise values in the selected
transactions as multiples of, among other things, Gross PP&E and Net PP&E. CIBC
World Markets then applied selected multiples of Gross PP&E and Net PP&E of the
selected transactions to corresponding financial statistics of FirstCom to
derive an implied equity reference range for FirstCom. All multiples were based
on publicly available information at the time of announcement of the relevant
transaction.
DISCOUNTED CASH FLOW ANALYSIS. CIBC World Markets performed a
discounted cash flow analysis of FirstCom to estimate the present value of the
unlevered, after-tax free cash flows that FirstCom could generate during fiscal
years 2000 through 2003. This analysis was based on internal estimates of the
management of FirstCom under two scenarios, one which assumed
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adequate capital funding for FirstCom's current business plans and one which
reflected FirstCom's current capital constraints. The range of estimated
terminal values for both scenarios was calculated by applying terminal value
multiples ranging from 8.0 times to 10.0 times to FirstCom's projected fiscal
year 2003 earnings before interest, taxes, depreciation and amortization,
commonly referred to as EBITDA. The present value of the cash flows and terminal
values were calculated using discount rates ranging from 25.0% to 35.0%.
AGGREGATE AVERAGE REFERENCE RANGE. Based on the "Selected Companies
Analysis," "Selected Transactions Analysis" and "Discounted Cash Flow Analysis"
described above, CIBC World Markets derived an aggregate average equity
reference range for FirstCom of approximately $336 million to $490 million.
NETSTREAM ANALYSIS
SELECTED COMPANIES ANALYSIS. CIBC World Markets compared financial
information for Netstream and the following seven selected publicly held
companies in the facilities-based CLEC industry:
o Adelphia Business Solutions, Inc.
o AT&T Canada Inc.
o COLT Telecom Group PLC
o Global TeleSystems Group, Inc.
o McLeodUSA Incorporated
o NEXTLINK Communications, Inc.
o Time Warner Telecom Inc.
CIBC World Markets reviewed enterprise values, calculated as
fully-diluted equity market value, plus debt, less cash, as multiples of, among
other things, estimated calendar years 2000 and 2001 revenues, Gross PP&E and
Net PP&E. CIBC World Markets then applied selected multiples of estimated
calendar year 2000 and 2001 revenues, Gross PP&E and Net PP&E of the selected
companies to corresponding financial statistics of Netstream to derive an
implied equity reference range for Netstream. All multiples were based on
closing stock prices on October 28, 1999. Estimated financial data for the
selected companies were based on publicly available research analysts' estimates
and estimated financial data for Netstream were based on internal estimates of
the management of AT&T Corp. as adjusted by FirstCom management.
DISCOUNTED CASH FLOW ANALYSIS. CIBC World Markets performed a
discounted cash flow analysis of Netstream to estimate the present value of the
unlevered, after-tax free cash flows that Netstream could generate during fiscal
years 2000 through 2003. This analysis was based on internal estimates of the
management of AT&T Corp. as adjusted by FirstCom management. The range of
estimated terminal values for Netstream was calculated by applying terminal
value multiples ranging from 9.0 times to 11.0 times to Netstream's projected
fiscal year 2003
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EBITDA. The present value of the cash flows and terminal values were calculated
using discount rates ranging from 14.0% to 18.0%.
AGGREGATE AVERAGE REFERENCE RANGE. Based on the "Selected Companies
Analysis" and "Discounted Cash Flow Analysis" described above, CIBC World
Markets derived an aggregate average equity reference range for Netstream of
approximately $606 million to $801 million.
RELATIVE CONTRIBUTION ANALYSIS. CIBC World Markets analyzed the
contributions of FirstCom and AT&T Corp. to AT&T Latin America in order to
derive an implied pro forma equity ownership range for FirstCom in AT&T Latin
America. CIBC World Markets utilized, as an estimate of FirstCom's contribution
to AT&T Latin America, the implied average equity reference range derived for
FirstCom described above under the caption "FirstCom - Aggregate Average
Reference Range." CIBC World Markets then derived an estimate of AT&T Corp.'s
contribution to AT&T Latin America by adding the implied average equity
reference range derived for Netstream described above under the caption
"Netstream - Aggregate Average Reference Range," cash contributions to AT&T
Latin America by affiliates of AT&T Corp. and Promon and the estimated value of
the potential synergies anticipated by the management of AT&T Corp. to be
realized from Netstream's operations in Brazil. This analysis indicated a pro
forma equity ownership range for FirstCom in AT&T Latin America of approximately
24.9% to 38.3%, as compared to the fully-diluted equity ownership in AT&T Latin
America to be received by FirstCom's shareholders in the merger of approximately
34%.
OTHER FACTORS. In rendering its opinion, CIBC World Markets also
reviewed and considered other factors, including:
o historical and projected financial data for FirstCom and
projected financial data for Netstream;
o selected analysts' reports on FirstCom, including earnings per
share estimates of those analysts;
o historical trading volumes, market prices and earnings per
share data for FirstCom common stock and the relationship
between movements in FirstCom common stock, movements in the
common stock of facilities-based CLEC composite, movements in
the common stock of international facilities-based CLEC
composite, movements in the common stock of facilities-based
long distance and international long distance carrier
composite and movements in the common stock of Latin American
wireline providers composite;
o a comparison of financial information for AT&T Latin America
and selected companies and the net present value of the cash
flows that AT&T Latin America could generate during fiscal
years 2000 through 2003 based on internal estimates of the
managements of FirstCom and AT&T Corp.; and
o the net present value of the potential synergies anticipated
by the management of AT&T Corp. that could be realized by AT&T
Latin America through its affiliation with AT&T Corp.
(including AT&T's Global Network Services business) and the
Concert global venture, as well as from Netstream's operations
in Brazil.
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The above summary is not a complete description of the opinion of CIBC
World Markets to the FirstCom board of directors or the financial analyses
performed and factors considered by CIBC World Markets in connection with its
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Accordingly, a fairness opinion is not readily susceptible to
summary description. CIBC World Markets believes that its analyses and the
summary above must be considered as a whole and that selecting portions of its
analyses and factors it considered, without considering all analyses and factors
it considered, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In performing its analyses, CIBC World Markets considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of FirstCom. No company, business or transaction used in the
analyses as a comparison is identical to FirstCom, Netstream, AT&T Latin America
or the merger, and an evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, businesses or transactions analyzed.
The estimates contained in the analyses of CIBC World Markets and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not necessarily purport to
be appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, the analyses and estimates of CIBC World
Markets are inherently subject to substantial uncertainty.
The type and amount of consideration payable in the merger were
determined through negotiation between FirstCom and AT&T Corp. Although CIBC
World Markets provided financial advice to FirstCom during the course of
negotiations, the decision to enter into the merger was solely that of the
FirstCom board of directors. The opinion and financial analyses of CIBC World
Markets were only one of many factors considered by the FirstCom board of
directors in its evaluation of the merger and should not be viewed as
determinative of the views of FirstCom's board of directors or senior management
with respect to the merger, the consideration payable in the merger or the
FirstCom percentage equity ownership in AT&T Latin America.
FirstCom selected CIBC World Markets based on its reputation, expertise
and familiarity with FirstCom. CIBC World Markets is an internationally
recognized investment banking firm and, as a customary part of its investment
banking business, is regularly engaged in valuations of businesses and
securities in connection with acquisitions and mergers, underwritings, secondary
distributions of securities, private placements and valuations for other
purposes. CIBC World Markets in the past has provided financial services to
FirstCom and AT&T Corp. unrelated to the merger, for which services CIBC World
Markets has received compensation. CIBC World Markets also is currently
providing a $10 million credit facility to a subsidiary of FirstCom. In the
ordinary course of business, CIBC World Markets and its affiliates may actively
trade the
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securities of FirstCom and AT&T Corp. for their own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
these securities.
FirstCom has agreed to pay CIBC World Markets for its services upon
completion of the FirstCom merger an aggregate financial advisory fee equal to a
percentage of the total consideration, including liabilities assumed, payable in
connection with the merger. It is currently estimated that the aggregate
financial advisory fee payable to CIBC World Markets will be approximately $8.0
million. In addition, FirstCom has agreed to reimburse CIBC World Markets for
its reasonable out-of-pocket expenses, including reasonable fees and expenses of
counsel, and to indemnify CIBC World Markets and related parties against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
VOTING AGREEMENTS
Patricio E. Northland, the chairman, president and chief executive
officer of FirstCom and three other substantial holders of FirstCom common stock
have agreed to vote all the FirstCom shares they own in favor of the merger. In
addition, the holders of FirstCom's Series A convertible preferred shares have
agreed to vote all their shares in favor of the merger. As of March 3, 2000,
these shareholders together owned approximately 22% of the then outstanding
shares of capital stock of FirstCom entitled to vote on the merger proposal
(excluding any shares that these holders might acquire by exercising FirstCom
options and warrants). These voting agreements will terminate if the merger
agreement terminates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Shortly before the execution of the merger agreement, Patricio E.
Northland, FirstCom's chairman of the board, president and chief executive
officer purchased from FirstCom 800,000 restricted common shares of FirstCom and
received options to purchase 2.2 million common shares of FirstCom. The purchase
price per share for the restricted common shares, and the exercise price per
share of the options, was $10.70. These options vest, subject to Mr. Northland's
continued employment, one-ninth on March 1, 2001, three-ninths on each of March
1, 2002 and 2003, and one-ninth on each of March 1, 2004 and 2005. The
restricted shares are subject to repurchase rights by FirstCom at $10.70 per
share; the number of these shares subject to that repurchase right is
progressively reduced at the same rate as the rate at which Mr. Northland's 2.2
million options vest. Upon consummation of the merger, these options and shares
will be exchanged for options and shares of AT&T Latin America. FirstCom also
forgave an existing loan to Mr. Northland in the amount of approximately
$425,000 plus accrued and unpaid interest. In connection with his purchase of
the 800,000 restricted common shares, Mr. Northland has incurred with a
financial institution a demand loan of $8.56 million secured by such shares.
AT&T Corp. intends that, upon completion of the merger, it will cause AT&T Latin
America to assume or refinance the secured loan. The terms of the demand loan
permit Mr. Northland to repay the demand loan at any time.
Mr. Northland also has executed a five-year employment agreement
(automatically renewable thereafter in one year increments) with AT&T Latin
America that will become
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effective upon the completion of the merger. Under this agreement, Mr. Northland
will be entitled to receive:
o an annual base salary of $510,000;
o an annual performance bonus that may range from 0% to 200% of
base salary (with a target bonus of 100% of base salary), that
will be determined based upon the satisfaction of performance
criteria to be established by the compensation committee of
the board of directors of AT&T Latin America; and
o a retention bonus of $500,000 payable on each six-month period
after the closing date up to the third anniversary of Mr.
Northland's initial employment with AT&T Latin America.
The employment agreement also provides that Mr. Northland will be
entitled to participate in a deferred compensation plan to be adopted by AT&T
Latin America and in employee benefit plans and programs that are no less
favorable than the plans and programs FirstCom currently provides.
If Mr. Northland's employment is terminated by AT&T Latin America other
than for "cause," or if Mr. Northland terminates his employment for "good
reason," he will be entitled to severance of two times his annual base salary
and annual bonus as well as a pro rata annual bonus for the year in which his
employment terminated. In addition, all options and restricted shares will vest.
"Cause" includes Mr. Northland's:
o engaging in fraudulent or dishonest conduct that the board of
directors reasonably determines has or would have a material
adverse effect on AT&T Latin America, its affiliates or their
respective businesses;
o conviction of, or guilty plea to, a felony or comparable
crime;
o willful refusal to perform his material employment-related
duties or responsibilities or intentionally or knowingly
engaging in any activity that is in material conflict with or
is materially adverse to the business interests of AT&T Latin
America, its affiliates or their respective businesses; and
o breach of any material provision of the employment agreement.
"Good reason" includes, without Mr. Northland's written consent:
o a diminution of his duties, responsibilities, salary or bonus;
o the relocation of his principal place of business from the
metropolitan Miami, Florida area;
o notice by AT&T Latin America to terminate the automatic
renewal of the agreement;
o his failure to be elected to the board of directors; and
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o a material breach of the agreement not cured by AT&T Latin
America within 30 days of his written notice to AT&T Latin
America of the breach.
Pursuant to the employment agreement, AT&T Latin America will indemnify
Mr. Northland for certain proceedings brought against him by reason of the fact
that he is or was a director, officer or employee of AT&T Latin America or
served as such (at the request of AT&T Latin America) with respect to another
company. In addition, Mr. Northland agreed not to compete against AT&T Latin
America during his employment and thereafter for two years.
Upon a change of control of FirstCom (other than as a result of the
merger) or, after the merger, a change of control of AT&T Latin America, the
retention bonus will be immediately payable and the options and restricted
shares will immediately vest in full. If the benefits to which Mr. Northland is
entitled are subject to an excise tax (pursuant to section 4999 of the Internal
Revenue Code), and the benefits subject to the excise tax exceed 110% of the
amount of benefits that could be paid that would not give rise to the excise
tax, then he will be entitled to a "gross-up" payment in an amount sufficient to
make him whole after the imposition of the excise tax.
AT&T LATIN AMERICA COMMON STOCK TO BE RECEIVED BY FIRSTCOM'S DIRECTORS
AND EXECUTIVE OFFICERS. If the merger had occurred on March 3, 2000, executive
officers and directors of FirstCom at that time would have received:
o for their shares of FirstCom, 3,130,000 shares of AT&T Latin
America Class A common stock having an aggregate market value
of approximately $108 million based on the closing price of
shares of FirstCom as of March 3, 2000; and
o for their FirstCom options, options to purchase up to
6,157,333 shares of AT&T Latin America Class A common stock at
a weighted average exercise price of $6.01 per share which
options have an aggregate market value of approximately $175
million based on the closing price of shares of FirstCom as of
March 3, 2000.
The value ascribed above to shares of AT&T Latin America may not be
accurate. Although shares of FirstCom are being exchanged for shares of AT&T
Latin America Class A common stock on a 1:1 basis in the merger, that does not
necessarily mean that shares of AT&T Latin America are valued correctly, or will
trade after the merger, based on the trading price of shares of FirstCom.
INSURANCE. Under the merger agreement, AT&T Corp. agreed to cause AT&T
Latin America or Frantis to maintain for a period of six years after the merger
officers' and directors' liability insurance covering the parties covered by
FirstCom's existing officers' and directors' liability insurance policies. See
"The Merger Agreement - Principal Covenants - Insurance" for more information.
NASDAQ NATIONAL MARKET LISTING OF AT&T LATIN AMERICA SHARES OF CLASS A COMMON
STOCK
AT&T Latin America will file for the listing of its shares of Class A
common stock on the Nasdaq National Market under the symbol "ATTL". It is a
condition to consummation of the merger that the Class A shares be approved for
listing on a national securities exchange, subject to official notice
of issuance.
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Following the merger, FirstCom's common shares will be de-listed from
the Nasdaq Small Cap Market, where currently listed, and will be de-registered
for purposes of the Securities Exchange Act.
ACCOUNTING TREATMENT
AT&T Latin America intends to account for the merger under the purchase
method of accounting for financial reporting purposes. A determination of the
fair value of FirstCom's assets and liabilities will be made in order to
allocate the purchase price to the assets acquired and liabilities assumed in
accordance with U.S. generally accepted accounting principles ("GAAP"). Pursuant
to GAAP, any excess of the purchase price over the fair value of the assets and
liabilities of FirstCom will be recorded as goodwill and amortized over a
20-year period.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal U.S. federal income
tax consequences of the merger to holders of FirstCom common shares who hold the
stock as a capital asset (generally, property held for investment). The
discussion does not address the individual tax position of any holder of
FirstCom common shares nor does it address the tax consequences that may be
relevant to holders of FirstCom common shares with special tax status, including
insurance companies, financial institutions, dealers in securities, holders that
are not citizens or residents of the United States, tax-exempt entities and
holders that acquired FirstCom common shares upon the exercise of employee stock
options or otherwise as compensation. Moreover, the discussion does not address
any consequences arising under the laws of any state, locality or foreign
jurisdiction. Finally, the tax consequences to holders of FirstCom's Series A
convertible preferred shares, stock options, deferred shares or warrants are not
discussed. The following discussion is based on the Internal Revenue Code, the
regulations promulgated thereunder, and administrative rulings and court
decisions as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any change could affect the accuracy of
the following discussion. No ruling has been or will be sought from the Internal
Revenue Service concerning the tax consequences of the merger. HOLDERS OF
FIRSTCOM COMMON SHARES ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING
THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Baker & McKenzie, counsel to FirstCom, has delivered to FirstCom, and
Debevoise & Plimpton, counsel to AT&T Corp. and AT&T Latin America, has
delivered to AT&T Corp. and AT&T Latin America, an opinion dated on or about the
date of this proxy statement/prospectus, to the effect that:
o the merger will constitute a reorganization within the meaning
of Section 368(a) of the Code; and
o AT&T Latin America, Frantis and FirstCom will each be a party
to that reorganization within the meaning of Section 368(b) of
the Code.
The opinions assume that the merger will take place as described in the merger
agreement and that certain factual matters represented by AT&T Latin America and
FirstCom, which will be reconfirmed prior to the merger, are true and correct.
It is a condition to the obligations of AT&T Latin America and FirstCom to
consummate the merger that each shall receive an
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opinion, dated immediately prior to the merger, confirming the previously
received opinion described herein. Based upon these opinions, the following will
be the material U.S. federal income tax consequences of the merger:
o no gain or loss will be recognized by the stockholders of
FirstCom upon receipt of shares of AT&T Latin America Class A
common stock in exchange for their FirstCom common shares,
except that a holder of FirstCom common shares who receives
cash in lieu of a fractional share of AT&T Latin America Class
A common stock will recognize gain or loss equal to the
difference between the amount of this cash and the tax basis
allocated to the stockholder's fractional share of AT&T Latin
America Class A common stock. In the case of a stockholder of
FirstCom that is not a corporation, long-term capital gain
recognized from a fractional share will be taxed at a maximum
U.S. federal income tax rate of 20% if the holding period for
this fractional share is more than one year;
o the aggregate tax basis of the AT&T Latin America Class A
common stock received in the merger (including fractional
shares of AT&T Latin America Class A common stock for which
cash is received) will be the same as the basis of the
FirstCom common shares for which it is exchanged; and
o the holding period of the AT&T Latin America Class A common
stock will include the holding period of the FirstCom common
shares for which it is exchanged.
REGULATORY MATTERS
U.S. ANTITRUST LAWS. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR Act"), and the rules promulgated thereunder by the
Federal Trade Commission ("FTC"), some acquisition transactions may not be
consummated unless notice has been given, required information has been
furnished to the Antitrust Division of the Department of Justice ("DOJ") and the
FTC and specified waiting period requirements have been satisfied.
After signing the merger agreement, AT&T Latin America and FirstCom
filed Pre-Merger Notification and Report Forms with the FTC and the Antitrust
Division of the DOJ under the HSR Act. The FTC has advised them that early
termination of the applicable waiting period was granted on December 27, 1999.
At any time before or after the effective time of the merger, either
the FTC or the DOJ could take action under the antitrust laws that it deems
necessary or desirable in the public interest, including seeking to enjoin the
merger or seeking divestiture of substantial assets of AT&T Latin America or
FirstCom or their respective subsidiaries. Private parties and state attorneys
general may also bring an action under the antitrust laws under certain
circumstances.
Based upon an examination of information available to AT&T Latin
America and FirstCom relating to the businesses in which the companies and their
respective subsidiaries are engaged, AT&T Latin America and FirstCom believe
that the consummation of the merger will not violate the antitrust laws.
However, there can be no assurance that a challenge to the merger on antitrust
grounds will not be made or, if such a challenge is made, of the result.
Completion
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of the merger is subject to no action having been instituted by the FTC or the
DOJ that is not withdrawn or terminated prior to the effective time of the
merger.
FEDERAL COMMUNICATIONS COMMISSION. FirstCom currently holds an
authorization to provide international facilities-based services pursuant to
Section 214 of the U.S. Federal Communications Act of 1934, as amended. Because
of that authorization, FCC regulations require approval by the FCC prior to the
transfer of control of FirstCom. AT&T Corp. and FirstCom filed their application
for this FCC approval on March 2, 2000. AT&T Corp. and FirstCom intend to
request streamlined processing of the application for transfer of control and a
waiver of the foreign application notification waiting period.
FOREIGN REGULATORY MATTERS. Before the merger is completed, in
connection with its ownership of licenses and concessions, FirstCom must give
prior notice to governmental authorities in Chile, Colombia and Peru of the
change of control resulting from the merger. In Chile, FirstCom must publish
notice of the change of control and give notice of the change of control to the
Superintendencia de Valores y Seguros (Superintendency of Securities and
Insurance). In Colombia, FirstCom must give prior notice to the Superintendencia
de Industria y Comercio (Superintendency of Industry and Trade). In Peru,
FirstCom must give notice to the Ministerio de Transportes y Comunicaciones
(Ministry of Transportation and Communications).
Although AT&T Corp. completed the acquisition of Netstream in early
December 1999, that transaction remains subject to AT&T Corp.'s receipt of a
notice of non-objection from the CONSELHO DA DEFESA ECONOMICA ("CADE"), the
Brazilian antitrust authority. In Brazil, unlike the practice in the United
States, acquisition transactions are commonly submitted for review to CADE after
they have been completed. Although AT&T Latin America cannot provide any
assurances, it believes that such notice will be obtained without any material
conditions. AT&T Corp. obtained the approval of AGENCIA NACIONAL DE
TELECOMMUNICACOES ("ANATEL"), the Brazilian telecommunications regulatory
authority, prior to the completion of the Netstream acquisition.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of AT&T Latin America common stock received by FirstCom's
shareholders in the merger will be freely transferable, except those received by
"affiliates," as that term is defined under the Securities Act of 1933, of
FirstCom at the time of the special meeting. FirstCom common shares received by
affiliates may be resold by them only in transactions permitted by the resale
provisions of Rule 144 or Rule 145 under the Securities Act of 1933, or as
otherwise permitted under the Securities Act of 1933. Persons who may be
considered to be FirstCom affiliates generally include individuals or entities
that FirstCom controls, are controlled by FirstCom, or are under common control
with FirstCom, and may include some of FirstCom's officers and directors as well
as FirstCom's principal shareholders. For example, Patricio E. Northland,
FirstCom's chairman of the board, president and chief executive officer, is
considered an "affiliate" for this purpose.
FIRSTCOM'S 14% SENIOR NOTES
Under the merger agreement, the consent of holders of at least a
majority in principal amount of the outstanding 14% Senior Secured Notes due
2007 of FirstCom to certain covenant
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waivers is a condition to the merger. Alternatively, if requested by AT&T Corp.,
FirstCom is required to complete a tender offer for its outstanding 14% Senior
Secured Notes due 2007 and, as part of that tender offer, to obtain the consent
of holders at least a majority in principal amount of the outstanding Notes to
certain amendments to the covenants of FirstCom relating to the Notes. AT&T
Latin America believes it is likely that AT&T Corp. will make such a request. If
so, the successful completion of the tender offer and consent solicitation will
become a condition to closing of the merger. Under the merger agreement, AT&T
Corp., directly or through AT&T Latin America, is obligated to finance the
completion of any tender offer. AT&T Latin America currently expects to finance
any tender offer through the issuance to AT&T Corp. of non-voting,
non-convertible and non-participating preferred stock of AT&T Latin America. The
preferred stock would be redeemable at the option of either the holder or AT&T
Latin America at any time after the fourth anniversary of its issuance.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the Texas Business Corporation Act, which governs the rights of
FirstCom's shareholders prior to completion of the merger, FirstCom shareholders
have no dissenters' rights of appraisal or other rights to demand fair value for
their shares by reason of the merger. See "Comparison of Certain Rights of
FirstCom Shareholders and AT&T Latin America Stockholders - Dissenters' Rights."
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THE MERGER AGREEMENT
THIS IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT,
AS AMENDED, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED IN THIS DOCUMENT. YOU SHOULD REFER TO THE
FULL TEXT OF THE MERGER AGREEMENT FOR DETAILS OF THE MERGER AND THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT.
TIMING OF THE MERGER
The merger will become effective when Frantis files a certificate of
merger with the Secretary of State of the State of Delaware and FirstCom files
articles of merger with the Secretary of State of the State of Texas. The
parties will file the certificate of merger and articles of merger after the
satisfaction or waiver of all conditions in the merger agreement. The parties
expect to complete the merger in May 2000, but cannot assure you when, or if,
all of the conditions to closing of the merger will be satisfied or waived. See
"The Merger Agreement --Conditions to Completion of the Merger" below.
MERGER CONSIDERATION
The shareholders of FirstCom will receive one share of Class A common
stock of AT&T Latin America in exchange for each common share of FirstCom and
one share of Series A convertible preferred stock of AT&T Latin America in
exchange for each Series A convertible preferred share of FirstCom. Holders of
fractional interests of FirstCom shares will receive cash, without interest, in
an amount and according to the procedures described in "Exchange Procedures"
below.
TREATMENT OF FIRSTCOM OPTIONS AND WARRANTS
After the merger, each outstanding option and warrant to purchase a
share of FirstCom common stock will convert into an option or warrant to
purchase a share of Class A common stock of AT&T Latin America. The options and
warrants to purchase shares of Class A common stock of AT&T Latin America will
be at an exercise or purchase price per share equal to the exercise or purchase
price per share in effect under the FirstCom option or warrant. Each of these
converted options and warrants of AT&T Latin America otherwise will have
substantially the same terms and conditions as the corresponding former options
and warrants to purchase FirstCom common shares.
EXCHANGE PROCEDURES
After the merger, the exchange agent will mail a letter of transmittal
to each person who held FirstCom common shares at the time of the merger. The
holder should use this letter of transmittal in exchanging FirstCom stock
certificates. After surrendering to the exchange agent a FirstCom stock
certificate together with a letter of transmittal, the holder of a FirstCom
stock certificate will be entitled to receive a stock certificate representing
AT&T Latin America Class A common stock. The exchange agent will cancel the
surrendered certificates. AT&T Latin America will not issue any fractional
shares of AT&T Latin America Class A common stock in the merger. Holders of
fractional interests in FirstCom will receive cash, without interest, instead of
certificates representing fractional shares of AT&T Latin America. The amount of
cash will be equal to a pro rata portion of the net proceeds received by the
exchange
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agent from the public sale of the aggregate number of shares of AT&T Latin
America Class A common stock received by the exchange agent in excess of the
aggregate number of those shares distributed in the merger in exchange for whole
FirstCom common shares. AT&T Latin America will not pay any dividends or other
distributions declared after the merger to any holder of an unexchanged FirstCom
certificate entitling the holder to a share of AT&T Latin America Class A common
stock until the holder surrenders the certificate to the exchange agent.
FIRSTCOM SHAREHOLDERS SHOULD NOT SEND IN THEIR FIRSTCOM STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL.
After the merger, there will be no transfers on FirstCom's transfer
books of FirstCom common shares that were outstanding immediately before the
merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations by FirstCom to AT&T
Corp., AT&T Latin America and Frantis, as well as by AT&T Corp. to FirstCom.
These representations and warranties will not survive the completion of the
merger. A summary of these representations and warranties follows.
REPRESENTATIONS AND WARRANTIES BY FIRSTCOM. The merger agreement
contains representations and warranties by FirstCom to AT&T Corp., AT&T Latin
America and Frantis, with standard exceptions, as to:
o corporate existence, organization, standing and authority;
o power and authority to enter into and perform, and
enforceability of, the merger agreement and the ancillary
agreements;
o compliance with laws;
o capitalization;
o ownership of subsidiaries;
o absence of violations, conflicts, defaults or breaches under
applicable laws, FirstCom's or its subsidiaries'
organizational documents or certain agreements to which they
are party or their assets are subject;
o necessary governmental and other consents and approvals;
o accuracy of reports filed with the SEC and financial
statements;
o pending or threatened litigation;
o absence of certain changes or events since June 30, 1999;
o compliance with tax obligations and certain tax matters;
o employee benefit plans matters;
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o employment and labor matters;
o brokers' and finders' fees;
o possession of all necessary governmental licenses and permits;
o environmental matters;
o material contracts;
o ownership of assets;
o ownership of and rights to use certain intellectual property;
o insurance policies;
o transactions with affiliates;
o delivery of a fairness opinion by FirstCom's advisors;
o inapplicability of certain state takeover statutes;
o absence of extortion or improper payments; and
o absence of investments in Venezuela.
REPRESENTATIONS AND WARRANTIES BY AT&T CORP. The merger agreement
contains representations and warranties by AT&T Corp. to FirstCom, with standard
exceptions, as to:
o corporate existence, organization, standing and authority of
AT&T Corp., AT&T Latin America and Frantis;
o power and authority of AT&T Corp., AT&T Latin America and
Frantis to enter into and perform the merger agreement and
ancillary agreements;
o compliance with laws by AT&T Corp., AT&T Latin America and
Frantis;
o capitalization of AT&T Latin America;
o absence of violations, conflicts, defaults or breaches under
AT&T Corp.'s, AT&T Latin America's or Frantis' organizational
documents, certain agreements to which AT&T Latin America,
Frantis or certain affiliates are party or their assets are
subject or laws applicable to them;
o necessary governmental and other consents and approvals;
o pending or threatened litigation;
o effectiveness of the Netstream acquisition agreements;
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o accuracy of information supplied by AT&T Corp. for inclusion
in this proxy statement; and
o brokers' and finders' fees.
PRINCIPAL COVENANTS
AT&T Corp., AT&T Latin America, Frantis and FirstCom have agreed to
certain covenants in the merger agreement. The following summarizes the more
significant of those covenants.
NO SOLICITATION OF TRANSACTIONS BY FIRSTCOM. FirstCom has agreed that
it and its subsidiaries will not, and will not authorize or permit any of their
respective officers, directors, employees, financial advisors, agents or other
representatives to:
o solicit, initiate or encourage any inquiries or proposals that
are, or may reasonably be expected to lead to, Acquisition
Proposals (as defined below); and
o participate in any discussions or negotiations regarding
Acquisition Proposals.
Prior to the approval of the merger by the FirstCom shareholders, if
the FirstCom board of directors determines in good faith, having received the
advice of outside counsel concerning its fiduciary duties to FirstCom's
shareholders, that failure to take one of the actions described in the two
immediately preceding bullet points would breach its fiduciary duties to its
shareholders, then FirstCom may, in response to an Acquisition Proposal that was
unsolicited and is a Superior Proposal (as defined below):
o furnish non-public information about FirstCom to the person
who made that Acquisition Proposal under the terms of a
customary confidentiality agreement; and
o participate in negotiations regarding that Acquisition
Proposal.
Neither the FirstCom board of directors nor any committee of that
board may withdraw or modify, or propose to modify or withdraw, the board of
directors' approval of the merger, or approve or recommend, or propose to
approve or recommend, an Acquisition Proposal, or cause FirstCom to enter into
an agreement concerning an Acquisition Proposal unless:
o a Superior Proposal exists;
o FirstCom's board of directors has determined in good faith,
based on the advice of outside counsel, that by not doing so
it would breach its fiduciary duties to FirstCom's
shareholders; and
o FirstCom delivers a notice to AT&T Corp. terminating the
merger agreement.
If FirstCom receives an Acquisition Proposal, FirstCom has agreed to
notify promptly AT&T Corp. of the relevant terms of that Acquisition Proposal
and to provide to AT&T Corp. a copy of any written Acquisition Proposal.
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ACQUISITION PROPOSAL is defined in the merger agreement as any of the
following (excluding the merger and related transactions):
o a proposal or offer from any person relating to any direct or
indirect acquisition or purchase of 10% or more of the assets
of FirstCom or any of its subsidiaries or 10% or more of any
class of outstanding equity securities of FirstCom or any of
its subsidiaries;
o a tender offer or exchange offer that if consummated would
result in any person beneficially owning 10% or more of any
class of equity securities of FirstCom or any of its
subsidiaries; or
o any merger, consolidation, business combination, sale of
substantially all the assets, joint venture, management or
operating agreement, recapitalization, liquidation,
dissolution or similar transaction involving FirstCom or any
of its subsidiaries.
SUPERIOR PROPOSAL means any bona fide proposal:
o made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, 50% or
more of the voting power of the common stock of, or all or
substantially all the assets of, FirstCom and its
subsidiaries;
o on terms which FirstCom's board of directors determines in
good faith, after receiving the advice of a financial advisor
of nationally recognized standing (which advice shall be
disclosed in reasonable detail to AT&T Corp.), to be more
favorable to FirstCom's shareholders than the merger; and
o for which financing, to the extent necessary with respect to
such proposal, is then committed or which, in the good faith
judgment of FirstCom's board of directors, is reasonably
capable of being obtained by the third party making the
proposal.
BOARD'S COVENANT TO RECOMMEND THE MERGER. FirstCom's board of directors
has agreed to recommend the merger to its shareholders.
Unless, the FirstCom board of directors has determined in good faith,
after consultation with and upon the advice of outside counsel, that failure to
do so would constitute a breach of its fiduciary duties to FirstCom's
shareholders under applicable law, the FirstCom board of directors has agreed
that it will not:
o withdraw or modify, or propose to withdraw or modify, in a
manner adverse to AT&T Corp., its approval or recommendation
of the merger unless there is a Superior Proposal outstanding;
o approve or recommend, or propose to approve or recommend, an
Acquisition Proposal that is not a Superior Proposal; or
o cause FirstCom to enter into any letter of intent, agreement
in principle, acquisition agreement or other agreement with
respect to an Acquisition Proposal that is not a Superior
Proposal.
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CONDUCT OF BUSINESS PENDING THE MERGER. FirstCom has agreed, among
other things, that during the period from the signing of the merger agreement
and the completion of the merger, with certain exceptions, FirstCom and its
subsidiaries will:
o conduct their operations in the ordinary course in accordance
with the current business plan; and
o use reasonable best efforts to preserve intact and keep
available their business organizations, services of personnel
and relationships with third parties.
The merger agreement also does not permit FirstCom or its subsidiaries
to:
o amend their charter or bylaws;
o issue, sell, pledge or dispose of any shares of capital stock,
except for issuances in connection with outstanding options
and warrants, conversion of existing preferred shares or
issuance of new preferred shares so long as the sum of the
redemption price of the new preferred shares and additional
permitted debt is not more than $20 million;
o split, combine or reclassify its existing capital stock or
declare any stock dividends;
o grant or amend any options, warrants or convertible securities
or cause any unexerciseable option to be exerciseable, except
for the issuance of up to 300,000 shares of common stock of
FirstCom in the ordinary course of business to employees of
FirstCom and its subsidiaries;
o declare any dividends on any capital stock except on capital
stock owned by FirstCom or a subsidiary of FirstCom;
o redeem or purchase any shares of their or their subsidiaries'
capital stock;
o sell, lease or otherwise dispose of any assets except for
sales in the ordinary course whose proceeds do not exceed
$50,000 in any transaction and $100,000 in the aggregate;
o settle any pending or threatened litigation if the settlement
involves a payment in excess of $250,000 in any one case or
$500,000 in the aggregate;
o make capital expenditures in excess of amounts specified in
the current FirstCom business plan or otherwise acquire assets
in excess of $150,000 outside of the ordinary course;
o incur indebtedness except in the ordinary course for working
capital under existing facilities or indebtedness not
exceeding, when added to the redemption price of new preferred
shares, $20 million;
o assume or guarantee liabilities of other parties, except for
majority-owned subsidiaries of FirstCom or obligations in the
ordinary course not exceeding $50,000 individually and
$150,000 in the aggregate;
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o make any material tax election or settle any material income
tax liability;
o enter into or amend existing employment arrangements involving
aggregate payments in excess of $250,000 in the aggregate or
increase benefits or compensation other than in the ordinary
course;
o enter into any material contracts or amend existing material
contracts other than in ordinary course;
o materially change insurance coverage;
o change any accounting principles or practices except as
required by law or GAAP;
o materially change existing marketing programs or commit to any
new marketing programs except in the ordinary course;
o materially change billing practices or sales terms or cause a
material delay or acceleration of the payment of accounts,
notes receivable or notes payable;
o waive, relinquish or terminate any rights or claims under
material contracts or allow any rights to use material
intellectual property to lapse, except in the ordinary course;
o take certain insolvency or bankruptcy-related actions;
o enter into any arrangement with a person in Venezuela that has
operations similar to parties to the merger agreement; or
o agree to take any of the foregoing actions.
AT&T CORP.'S OWNERSHIP OF AT&T LATIN AMERICA. During the 12 months
following the merger, AT&T Corp. and its affiliates may not increase AT&T
Corp.'s direct or indirect ownership of the capital stock of AT&T Latin America
above 80% of AT&T Latin America's outstanding capital stock without the consent
of AT&T Latin America's disinterested directors.
CONDUCT OF THE BUSINESS OF AT&T LATIN AMERICA AND NETSTREAM. AT&T Latin
America has agreed to use its reasonable efforts to preserve intact and keep
available its business organization, officers and employees, and relationships
with third parties. AT&T Latin America has also agreed that until the merger, it
will not, subject to certain exceptions:
o amend its charter or bylaws;
o issue, sell, pledge or dispose of any shares of capital stock,
except for certain issuances related to the Netstream
acquisition, the contribution of capital by AT&T Corp. or the
issuance of unvested options to acquire up to 625,000 shares
of Class A common stock to officers and employees of Netstream
in the ordinary course of business;
o split, combine or reclassify its existing capital stock or
declare any stock dividends except as required by the merger;
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o redeem or purchase any shares of its or its subsidiaries'
capital stock;
o declare any dividends on any capital stock except on capital
stock of a wholly-owned subsidiary;
o sell, lease or otherwise dispose of any assets except for
sales in the ordinary course whose proceeds do not exceed
$50,000 in any transaction and $100,000 in the aggregate;
o settle any pending or threatened litigation if the settlement
involves a payment in excess of $50,000 in any one case or
$100,000 in the aggregate;
o incur indebtedness except in the ordinary course for working
capital or capital expenditures;
o waive, relinquish or terminate any rights or claims under
material contracts or allow any rights to use material
intellectual property to lapse, except in the ordinary course;
o take certain insolvency or bankruptcy related actions;
o materially amend the Netstream acquisition agreements; or
o agree to take any of the foregoing actions.
FirstCom has consented to the acquisition of Keytech LD by AT&T Latin America
and the related transactions and the parties have amended the merger agreement
accordingly.
SENIOR NOTES. Under the merger agreement, the consent of holders of at
least a majority in principal amount of the outstanding 14% Senior Secured Notes
due 2007 of FirstCom to certain covenant waivers is a condition to the merger.
Alternatively, if requested by AT&T Corp., FirstCom is required to complete a
tender offer for the outstanding Notes and, as part of that tender offer, to
obtain the consent of holders of at least a majority in principal amount of the
outstanding Notes to certain amendments to the covenants of FirstCom relating to
the Notes. AT&T Latin America believes it is likely that AT&T Corp. will make
such a request. If so, the successful completion of the tender and consent
solicitation will be a condition to the closing of the merger. AT&T Corp.,
directly or through AT&T Latin America, is obligated to finance the completion
of any tender offer.
INSURANCE. For a period of six years following the completion of the
merger, AT&T Corp. will cause AT&T Latin America to maintain directors' and
officers' liability insurance that covers parties whom are currently covered in
their capacities as officers and directors by FirstCom's existing directors' and
officers' liability insurance policies. AT&T Latin America must maintain this
insurance on terms that are as advantageous to such officers and directors as
FirstCom's current policies and provide for aggregate coverage of 300% of the
amount covered by FirstCom's current policies.
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CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO COMPLETION OF THE MERGER OF ALL PARTIES TO THE MERGER
AGREEMENT. The parties to the merger agreement are not be obligated to complete
the merger unless the following unsatisfied conditions are satisfied or waived:
o FirstCom's shareholders have approved the merger;
o Holders of at least a majority in principal amount of the
outstanding Notes agree to certain covenant waivers, or, if
requested by AT&T Corp., FirstCom completes a tender offer for
the outstanding Notes, and holders of at least a majority in
principal amount of the Notes consent to certain amendments to
the covenants of FirstCom relating to the Notes;
o there are no governmental orders, judgments or injunctions
restraining or otherwise prohibiting the merger or the other
transactions described in the merger agreement;
o certain other regulatory approvals and filings have been
obtained or completed; and
o the registration statement concerning this proxy
statement/prospectus is effective and not subject to any stop
order or related proceedings.
ADDITIONAL CONDITIONS TO AT&T AND AT&T LATIN AMERICA'S COMPLETION OF
THE MERGER. AT&T Corp., AT&T Latin America and Frantis also are not obligated to
complete the merger unless the following conditions, among others, have been
satisfied or waived:
o the executive employment agreement entered into on October 31,
1999 between AT&T Latin America and Patricio E. Northland
remains in effect;
o the representations and warranties of FirstCom contained in
the merger agreement (without taking into account any of their
materiality qualifications or thresholds) are true and correct
except where the failure to be true and correct would not have
a material adverse effect (as defined in the merger
agreement);
o FirstCom has materially complied with all of its obligations
under the merger agreement and the ancillary agreements;
o AT&T Corp., AT&T Latin America and Frantis have received an
opinion of Debevoise & Plimpton, their counsel, to the effect
that the merger will be treated as a reorganization for
purposes of Section 368(a) of the Internal Revenue Code;
o FirstCom has completed a reorganization of its Colombian
subsidiary and has received related local regulatory approvals
in Colombia and AT&T Corp. has received an opinion from Baker
& McKenzie relating to the validity and effectiveness of this
reorganization; and
o the Federal Communications Commission has given any approval
necessary for the change of control of FirstCom.
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ADDITIONAL CONDITIONS TO FIRSTCOM'S COMPLETION OF THE MERGER. FirstCom
is also not obligated to complete the merger unless the following conditions,
among others, have been satisfied or waived:
o AT&T Corp. and AT&T Latin America have entered into the
regional vehicle agreement and the service mark license
agreement;
o the representations and warranties of AT&T Corp. contained in
the merger agreement (without taking into account any of their
materiality qualifications or thresholds) are true and correct
except where the failure to be true and correct would not have
a material adverse effect (as defined in the merger
agreement);
o AT&T Corp., AT&T Latin America and Frantis have materially
complied with all of their obligations under the merger
agreement and the ancillary agreements;
o the shares of Class A common stock of AT&T Latin America have
been accepted for listing on a national securities exchange;
o the stockholders of AT&T Latin America have made cash equity
contributions to AT&T Latin America in an aggregate amount of
at least $70 million (of this amount, $50 million has already
been contributed, leaving an additional $20 million required
to be contributed);
o AT&T Corp. (or one or more of its affiliates) has provided
AT&T Latin America with a revolving credit facility in the
amount of $100 million;
o AT&T Corp. has caused to be elected to the board of directors
of AT&T Latin America Patricio E. Northland, plus two, or if
Promon's affiliate has not nominated a director, three,
disinterested directors agreed to by FirstCom;
o FirstCom has received an opinion of Baker & McKenzie, its
counsel, to the effect that the merger will be treated as a
reorganization for purposes of Section 368(a) of the Internal
Revenue Code;
o AT&T Latin America's board of directors has adopted a board
policy relating to corporate opportunities in the form that is
attached to the merger agreement; and
o the shareholders of AT&T Latin America have adopted the forms
of certificate of incorporation and bylaws that are attached
to the merger agreement, and if any preferred shares are
outstanding, the form of certificate of designation attached
to the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
Either FirstCom or AT&T Corp. may terminate the merger agreement if:
o the merger has not been completed by May 31, 2000 or any
conditions to the obligations of FirstCom or AT&T Corp. have
not been satisfied or waived by that date; or
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o any law or regulation is enacted, or any governmental entity
issues a final and non-appealable order, making the merger
illegal or prohibiting the merger.
FirstCom may terminate the merger agreement if:
o FirstCom enters into or agrees to enter into an alternative
acquisition agreement with respect to an Acquisition Proposal;
or
o Netstream has suffered a material adverse effect (as defined
in the Netstream acquisition agreement).
AT&T Corp. may terminate the merger agreement if:
o the shareholders of FirstCom fail to approve the merger at the
meeting called to vote on the merger;
o any person or group acquires ownership of 20% or more of
FirstCom's common shares;
o FirstCom suffers a material adverse effect (as defined in the
merger agreement);
o FirstCom enters into an agreement with respect to an
Acquisition Proposal; or
o FirstCom's board of directors:
- withdraws, modifies or fails to maintain its
recommendation to FirstCom's shareholders to approve
the merger;
- recommends an Acquisition Proposal or receives from a
nationally recognized financial advisor to FirstCom a
fairness opinion with respect to an Acquisition
Proposal indicating that it is a Superior Proposal;
or
- authorizes the execution of an agreement with respect
to an Acquisition Proposal with someone other than
AT&T Corp.
In addition, AT&T Corp. and FirstCom may agree to terminate the merger
agreement at any time without completing the merger, even after the shareholders
of FirstCom have approved the merger.
TERMINATION FEES
FirstCom must pay AT&T Corp. a termination fee of $10 million, plus out
of-pocket expenses up to $1 million incurred by AT&T Corp. and its affiliates in
connection with the merger and the related transactions, if the merger is not
completed if:
o FirstCom enters into or agrees to enter into an alternative
acquisition agreement with respect to an Acquisition Proposal;
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o FirstCom's board of directors:
- withdraws, modifies or fails to maintain its
recommendation to the shareholders to approve the
merger;
- recommends an Acquisition Proposal or receives from a
nationally recognized financial advisor to FirstCom a
fairness opinion with respect to an Acquisition
Proposal indicating that it is a Superior Proposal;
or
- authorizes the execution of an agreement with respect
to an Acquisition Proposal with a person other than
AT&T Corp; or
o any other person acquires ownership of 20% or more of
FirstCom's common shares.
OTHER FEES AND EXPENSES
AT&T Corp. and FirstCom are paying their respective costs and expenses
associated with the merger and the related transactions other than in connection
with the termination fees described above. AT&T Corp. will also either pay the
costs and expenses of AT&T Latin America and Frantis or reimburse them for their
costs. The expected amount of FirstCom's merger-related fees and expenses,
consisting primarily of fees and expenses of investment bankers, SEC filing
fees, attorneys' fees, accountants' fees and financial printing and other
related charges is approximately $10 million.
ASSIGNMENT, AMENDMENT AND WAIVER
FirstCom may not assign the merger agreement without the prior written
consent of the other parties to the merger agreement. AT&T Corp. may assign its
rights under the merger agreement to an affiliate so long as AT&T Corp. retains
all of its obligations. FirstCom and AT&T Corp. may amend the merger agreement
in writing prior to the merger. However, if the merger agreement is amended
after approval of the merger by FirstCom's shareholders, no amendment may be
made that adversely affects the rights of FirstCom's shareholders without the
approval of a majority of FirstCom's shareholders. Any provision of the merger
agreement may be waived if the party waiving the provision agrees in writing.
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OTHER MATERIAL AGREEMENTS AND ARRANGEMENTS
REGIONAL VEHICLE AGREEMENT WITH AT&T CORP.
AT&T Latin America and AT&T Corp. will enter into a "regional vehicle
agreement", which is an important part of the terms of the merger. This section
summarizes the material provisions of the regional vehicle agreement, but it
does not describe all of the terms of the regional vehicle agreement. You should
read the regional vehicle agreement in its entirety. The regional vehicle
agreement as amended is an exhibit to the merger agreement included in this
proxy statement/prospectus as Annex A.
Some of the rights and obligations of AT&T Latin America and AT&T Corp.
under the regional vehicle agreement relate to specified services and
facilities. Some of these services are referred to in this proxy
statement/prospectus using the terms that are used for them in the regional
vehicle agreement, in which case the terms are in italics (capital letters in
the electronically filed version). To help you review the regional vehicle
agreement, a glossary of these terms follows at the end of this section.
AT&T Corp. may terminate the regional vehicle agreement at any time
after the termination of the service mark license agreement. See "- Service Mark
License Agreement with AT&T Corp." below.
AT&T LATIN AMERICA SERVICES. The regional vehicle agreement defines the
scope of services AT&T Latin America and its subsidiaries may provide in the
Region. AT&T Latin America will provide two types of services: Exclusive
Services and Non-Exclusive Services. There are certain restrictions on the
provision of Exclusive Services in the Region by AT&T Corp. and some but not all
of its subsidiaries. See "- Non-Competition Obligations of AT&T Corp." below.
The Exclusive Services and Non-Exclusive Services are as follows:
<TABLE>
<CAPTION>
EXCLUSIVE SERVICES NON-EXCLUSIVE SERVICES
------------------ ----------------------
<S> <C>
o Local voice delivered through fixed-line o AT&T card serviceS
connectivity o AT&T Direct(R)services
o Domestic long distance o E-commerce
o International long distance o Web hosting
o Point-to-point dedicated line o Fixed wireless for connectivity
o Asynchronous transfer mode ("ATM") o Voice over Internet Protocol
o Frame relay o MANAGED NETWORK SERVICES
o Internet access o Video conferencing services
o 1-800/toll free
o Packet X.25 (data)
o Virtual network services (data)
o Switched digital (data)
</TABLE>
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RESTRICTIONS ON AT&T LATIN AMERICA'S BUSINESS ACTIVITIES. The regional
vehicle agreement expressly prohibits AT&T Latin America and its subsidiaries
from providing the following services:
o Mobile wireless/PCS;
o Cable and cable telephony;
o Solution services (including OUTSOURCING PROFESSIONAL SERVICES
but not MANAGED NETWORK SERVICES);
o SYSTEMS INTEGRATION;
o INTERNATIONAL CARRIER SERVICES; and
o Messaging services in Chile if providing them would cause AT&T
Corp. to be in breach of existing non-competition obligations
related to Easymail Chile S.A.
AT&T Latin America also may not provide MANAGED NETWORK SERVICES to
multinational companies designated by AT&T Corp. These multinational companies
are referred to as QMNCs. AT&T Corp. may only designate as QMNCs companies that
meet qualifications established by AT&T Corp. and British Telecom under the
terms of the agreements governing their Concert global venture. The
qualifications relate, among other things, to a company's size and industry.
POSSIBLE FUTURE RESTRICTIONS ON BUSINESS ACTIVITIES. AT&T Latin America
may provide up to $150 million of services over cross-border networks which it
owns or in which it has an equity interest before additional restrictions apply.
If AT&T Latin America exceeds this $150 million level, AT&T Latin
America and its subsidiaries may not:
o offer, sell or distribute GLOBAL BUSINESS COMMUNICATIONS
SERVICES or services competitive with Concert GLOBAL BUSINESS
COMMUNICATIONS SERVICES, except through Concert;
o offer, sell or distribute any COMMUNICATIONS SERVICES to
QMNCs, except through Concert; or
o own, operate, lease or manage GLOBAL NETWORK FACILITIES.
NON-COMPETITION OBLIGATIONS OF AT&T CORP. AT&T Corp. and some AT&T
Corp. subsidiaries may not provide Exclusive Services in the Region unless AT&T
Latin America supplies the services or an exception described below applies
under the regional vehicle agreement. The AT&T Corp. entities that are not
subject to these non-competition restrictions include:
o Liberty Media Corporation and any person in which it has an
equity interest ("Liberty Media Companies");
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o MediaOne Group Inc., Meteor Acquisition Inc. and any person in
which they have an equity interest ("MediaOne Companies");
o AT&T Global Network Services Group LLC, AT&T Global Network
Services LLC and any person in which they have an equity
interest ("AT&T Global Network Companies"); or
o any company formed in connection with the Concert global
venture between AT&T Corp. and British Telecom ("Concert
Companies").
The non-competition obligations do not apply to services provided by AT&T Corp.
or its subsidiaries using assets owned or controlled now or in the future by
AT&T Global Network Companies or to services provided by AT&T Corp. or its
subsidiaries in connection with the provision of OUTSOURCING SERVICES. The
obligations also do not apply to companies acquired by AT&T Corp. or its
subsidiaries so long as AT&T Corp. complies with its obligations relating to
future acquisitions under the regional vehicle agreement. These obligations are
discussed below.
FUTURE ACQUISITIONS BY AT&T CORP. Subject to certain exceptions
described below, special provisions apply if AT&T Corp. or its specified
subsidiaries acquire more than 50% of the voting control of a company:
o that earned revenues in the Region (including through its
consolidated subsidiaries) in the immediately preceding fiscal
year; and
o with respect to which more than 50% of those revenues in the
Region were earned providing the Exclusive Services.
Under the special provisions, AT&T Corp. (or the relevant entity) must
either cause that company and its subsidiaries to cease providing the Exclusive
Services in the Region or to offer to sell to AT&T Latin America for cash at
fair market value the portion of the business that primarily relates to the
provision of the Exclusive Services in the Region. This proxy
statement/prospectus refers to that portion of the business as the "Offered
Assets."
The special provisions provide for specified periods for complying with
these obligations:
o eighteen months, if the acquired company and its subsidiaries
derived more than 33% of their consolidated gross revenues
from the Region in its preceding fiscal year; or
o thirty months, if the acquired company and its subsidiaries
derived 33% or less of their consolidated gross revenues from
the Region in its preceding fiscal year.
These obligations with respect to acquisitions do not apply:
o to Liberty Media Companies, MediaOne Companies or AT&T Global
Network Companies; or
o if selling the Offered Assets would:
- violate a law;
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- violate a contractual obligation of the acquired
company or its subsidiaries that was in place prior
to the acquisition;
- violate a contractual obligation that is binding on
any material assets of the acquired company or its
subsidiaries;
- result in a tax on AT&T Corp. or entities under its
control that is material in relation to the price
paid for that portion of the business; or
- in the good faith determination of the board of
directors of an AT&T Corp. entity that is a
controlling shareholder of the company that owns the
Offered Assets, after having received advice of
outside counsel, violate the fiduciary duties of the
minority shareholders of that company.
If AT&T Corp. offers the Offered Assets to AT&T Latin America and AT&T Latin
America does not accept the offer and purchase the Offered Assets within the
time and in accordance with the appraisal procedures set forth in the regional
vehicle agreement, the acquired company and its subsidiaries may compete with
AT&T Latin America.
AT&T LATIN AMERICA'S SUPPLY OF SERVICES TO AT&T CORP. AT&T Latin
America will be a preferred supplier of AT&T Latin America's Exclusive Services
in the Region to AT&T Corp. and its wholly-owned subsidiaries except to the
extent they are required to purchase services from Concert. Preferred supplier
means that AT&T Corp. and its wholly-owned subsidiaries will purchase the
relevant services from AT&T Latin America instead of other parties that are not
their preferred suppliers. AT&T Latin America has, however, to be able to
provide the services on terms and conditions and standards at least as favorable
regarding price, quality and service as the particular AT&T Corp. entity would
be able to obtain in an arm's length transaction with an unaffiliated party.
AT&T LATIN AMERICA'S SUPPLY OF SERVICES TO AT&T GLOBAL NETWORK
COMPANIES. AT&T Latin America will be a preferred supplier of its services to
AT&T Global Network Companies. Preferred supplier means that the AT&T Global
Network Companies will purchase services from AT&T Latin America in preference
to other parties that are not preferred suppliers of the AT&T Global Network
Companies. AT&T Latin America has, however, to be able to provide the services
to the AT&T Global Network Companies on terms and conditions and standards at
least as favorable regarding price, quality and service as the AT&T Global
Network Companies would be able to obtain in an arm's length transaction with an
unaffiliated party.
AT&T LATIN AMERICA'S SUPPLY OF SERVICES TO CONCERT. AT&T Latin America
will be a preferred supplier of its services in the Region to Concert in
accordance with the AT&T Corp. and British Telecom agreements governing the
Concert joint venture. Preferred supplier means that Concert will purchase
services from AT&T Latin America in preference to other parties that are not
preferred suppliers of Concert. AT&T Latin America has, however, to be able to
provide the services to Concert on terms and conditions and standards at least
as favorable regarding price, quality and service as Concert would be able to
obtain in an arm's length transaction with an unaffiliated party.
DISTRIBUTION OF CONCERT SERVICES. AT&T Corp. will request that Concert
appoint AT&T Latin America as a distributor of Concert services in the Region.
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PURCHASE OF CONCERT SERVICES. AT&T Latin America will purchase its
requirements for INTERNATIONAL TRAFFIC TERMINATION SERVICES from Concert so long
as Concert's terms for the services are commercially reasonable. AT&T Latin
America will also purchase its requirements for GLOBAL COMMUNICATIONS SERVICES
from Concert on commercially reasonable terms under either a master agreement
between AT&T Corp. and Concert governing purchase of these services by AT&T and
its subsidiaries or an agreement between AT&T Latin America and Concert.
DISTRIBUTION ARRANGEMENTS BETWEEN AT&T LATIN AMERICA AND THE AT&T
GLOBAL NETWORK. Promptly after the merger is completed, AT&T Corp. will cause
the appropriate AT&T Global Network Company to discuss possible distribution
arrangements of AT&T Global Network Services by AT&T Latin America in the
Region. AT&T Latin America will be an exclusive distributor of AT&T Global
Network Services in at least one country in the Region, subject to certain
qualifications. The qualifications are:
o AT&T Latin America must be able to meet the AT&T Global
Network Companies' performance and service level requirements;
and
o Any exclusivity granted to AT&T Latin America will not affect
the ability of:
- any person to comply with its obligations under the
Master Services Agreement, dated December 7, 1998, by
and between International Business Machines
Corporation and AT&T Solutions, Inc., the Master
Asset Purchase Agreement, dated December 7, 1998,
between International Business Machines Corporation
and AT&T Corp. and any related agreements; and
- AT&T Corp. and its subsidiaries, including any of the
AT&T Global Network Companies, to distribute AT&T
Global Network Services directly to customers in the
Region, to have their employees market or sell AT&T
Global Network Services to customers in the Region or
to appoint remarketers or global value added
resellers of AT&T Global Network Services.
AT&T Corp. is not obligated to appoint AT&T Latin America as an exclusive
distributor of AT&T Global Network Services in any particular country in the
Region. There is no assurance that any such appointment will result in material
business for AT&T Latin America.
GLOSSARY OF CERTAIN TERMS USED IN THE REGIONAL VEHICLE AGREEMENT. Set
forth below are the definitions of various services, facilities and related
terms used in the regional vehicle agreement. Some of these definitions refer to
other defined terms, which are generally also included in the following list of
definitions.
CARRIER SERVICES the provision of carriage, including
hubbing, routing, transit, reorigination and
least cost routing on GLOBAL NETWORK
FACILITIES primarily between two or more
countries to other INTERNATIONAL CARRIERS.
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<PAGE> 92
COMMUNICATIONS SERVICES any services and applications, including
enhanced services and applications, that
involve the transmission of voice, data,
sound, music, still and moving image or
video and other elements by fixed media
(such as wire, cable or fiber), or radio or
other wave signal, and any similar or
substitute service available or offered from
time to time, and the business of
developing, designing or offering
content-based applications.
global when used with respect to COMMUNICATIONS
SERVICES, means COMMUNICATIONS SERVICES
between or among two or more countries.
GLOBAL BUSINESS GLOBAL COMMUNICATIONS SERVICES provided or
COMMUNICATIONS targeted to businesses and to their
SERVICES employees in their capacity as employees.
GLOBAL current or future (a) global end-to-end
COMMUNICATIONS managed and (b) all other global
SERVICES COMMUNICATIONS SERVICES of a type intended
for use by end user customers and resellers,
but excluding SATELLITE & RADIO SERVICES,
basic switched voice and basic telex.
GLOBAL NETWORK all facilities that support bandwidth,
FACILITIES transmission, signaling, routing, network
service intelligence, network control
intelligence, switching and OPERATIONAL
SYSTEMS SUPPORT (including any related
software support) in connection with the
transmission of voice, data, sound, music,
still and moving image, or video and other
elements by fixed media (such as wire, cable
or fiber), or radio or other wave signal,
exclusively or predominantly between or
among two or more countries (it being
understood that facilities that are
predominantly designed to support such
transmission between or among two or more
countries may also support, as a
non-predominant use, transmission within one
or more of such countries). GLOBAL NETWORK
FACILITIES shall not include any system or
systems that provide COMMUNICATIONS SERVICES
exclusively within a given country.
INTERNATIONAL CARRIER a person which (a) is licensed or
authorized, or is otherwise permitted to
provide, or operates where no license or
authorization is required, cross-border
COMMUNICATIONS SERVICES to the public, or
(b) owns or operates, or is licensed to own
or operate, the underlying facilities used
to provide cross-border COMMUNICATIONS
SERVICES to the public.
INTERNATIONAL CARRIER CARRIER SERVICES and INTERNATIONAL
SERVICES TRAFFIC TERMINATION SERVICES.
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INTERNATIONAL the system of accounting and settlement
SETTLEMENT PROCESS rates for the exchange of international
traffic of a type referred to in Section
64.1001 of the regulations of the FCC and
any subsequent regime for arranging and
managing inbound/outbound traffic
termination terms and conditions with an
INTERNATIONAL CARRIER.
INTERNATIONAL TRAFFIC the arrangement, management and delivery of
TERMINATION SERVICES inbound/outbound traffic termination
of all the communications traffic, including
voice and Internet Protocol traffic, of the
Parent Group, including through the
INTERNATIONAL SETTLEMENT PROCESS and least
cost routing alternatives, but excluding all
GLOBAL BUSINESS COMMUNICATIONS SERVICES.
MANAGED NETWORK the provision of (a) service to a customer
SERVICES consisting solely of the provisioning and
maintenance of the logical and physical
elements of the customer's wide area
communications network, and, to the extent
relating to a customer's wide area
communications network, directly related
planning, design, installation, maintenance
and ongoing life cycle support functions,
and (b) equipment on the customer's premises
at the interface between a wide area
communications network and the remainder of
the customer's networking environment
insofar as the equipment so provided
facilitates (1) the maintenance of the
customer's wide area communication services,
(2) the recording of performance data with
respect to the customer's wide area
communications services, (3) the
provisioning of new wide area communications
services to the customer or changes in the
parameters of the wide area communications
services provided to the customer, or (4)
the integration of multiple wide area
communications services, but excluding in
the case of clause (a) or (b) any such
service or equipment that materially extends
services beyond the interface described
above further into the customer's non-wide
area communications network.
OPERATIONAL SUPPORT the computer systems on which a person
SYSTEMS depends for providing management support of
all of its operations, including service
delivery and provision, network usage and
control, billing of customers, network
planning, fraud identification, resource
planning and facility management.
OUTSOURCING the provision of professional services
PROFESSIONAL SERVICES relating to network architecture validation,
implementation, operations and life cycle
management, including business process
consulting, migration planning and
implementation, but excluding MANAGED
NETWORK SERVICES, and may include the
ownership and acquisition of assets from and
on behalf of customers related to the
provision of OUTSOURCING PROFESSIONAL
SERVICES.
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OUTSOURCING SERVICES UTSOURCING PROFESSIONAL SERVICES and
MANAGED NETWORK SERVICES.
SATELLITE & RADIO COMMUNICATIONS SERVICES (other than very
SERVICES small aperture terminal services) delivered
through satellites using existing and future
satellite constellations and associated
ground networks and equipment through any
satellite business and terrestrial radio
solutions targeted at maritime and
aeronautical applications using existing and
future long, medium and short-range radio
systems.
SYSTEMS INTEGRATION advising clients on how best to use
information technology to achieve their
ends, to reengineer business processes to
make organizations work more effectively,
specifying, designing or building or
specifying, designing and building
integrated business systems for or on behalf
of clients managing the change to such
systems for or on behalf of clients,
supporting, maintaining, enhancing,
operating or further developing such systems
for or on behalf of clients, providing
program or project management and
integration of customer defined individual
customer solutions and providing other
related services required or requested by
clients in connection with any of the
foregoing. SYSTEMS Integration does not
include (a) the underlying capability to
provide COMMUNICATIONS SERVICES or (b)
OUTSOURCING SERVICES.
SERVICE MARK LICENSE AGREEMENT WITH AT&T CORP.
AT&T Corp. has entered into a service mark license agreement with AT&T
Latin America that will become effective when the merger is completed. The form
of the service mark license agreement is an exhibit to the merger agreement
included in this proxy statement/prospectus as Annex A.
SERVICE MARKS. AT&T Corp. will license service marks, including "AT&T"
and the AT&T with a fanciful globe design mark, to AT&T Latin America for its
use in the provision of AT&T Latin America's Exclusive Services and
Non-Exclusive Services in the Region. See "Regional Vehicle Agreement - AT&T
Latin America Services." A list of these service marks is attached to the
service mark license agreement. AT&T Latin America may also use the "AT&T" mark
as part of its trade and corporate names so long as at least half of the
licensed services (namely, those grossing the highest revenue) meet service
specifications provided by AT&T Corp. AT&T Latin America may sublicense the
marks to entities it controls that meet service specifications agreed to by AT&T
Corp. and AT&T Latin America and assume all obligations of AT&T Latin America
under the service mark license agreement other than the obligation to pay a
brand fee. AT&T Latin America may not use any mark other than a mark licensed by
AT&T Corp. for its Exclusive Services without AT&T Corp.'s consent.
BRAND FEE. During the term of the service mark license agreement, AT&T
Latin America will pay a fee to AT&T Corp. every six months equal to the greater
of $2.5 million and a designated percentage of its gross revenues. Initially the
designated percentage of gross revenues will be 4%. This percentage will
decrease to 3.25% in the third year of the initial term
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<PAGE> 95
and to 2.5% in the final two years of the initial term. AT&T Corp. has agreed to
spend this fee to monitor use of the licensed marks by AT&T Latin America in the
Region and to provide a communications director and other staff employed by AT&T
Corp. who will manage and monitor the licensed marks in conjunction with an
officer of AT&T Latin America.
TERM; TERMINATION. The initial term of the license will be for five
years from the date of completion of the merger. The agreement will
automatically renew for an additional five years if AT&T Latin America is not in
material default or breach of the license agreement. AT&T Corp. may terminate
the license prior to the end of its term if AT&T Corp. no longer owns shares
having voting control of AT&T Latin America or if AT&T Latin America misuses the
marks or otherwise materially breaches its obligations under the service mark
license agreement and is not able to correct the breach in a timely fashion.
CREDIT FACILITY
Upon completion of the merger, AT&T Corp. or its subsidiaries will
provide a revolving credit facility of up to $100 million to AT&T Latin America
or one of its subsidiaries on the following terms:
o 11% interest per year, payable quarterly;
o secured by the shares of AT&T Latin America's operating
subsidiaries and, at AT&T Corp.'s option, by their assets;
o mandatory prepayment by the borrower out of any proceeds from
issuances of debt or equity in the capital markets, bank
financings or sales of material assets, with final maturity
two years after the closing of the merger; and
o restrictions on permitted capital expenditures, debt, liens,
leases and disposal of assets by the borrower.
AT&T LATIN AMERICA-PROMON SHAREHOLDERS' AGREEMENT
AT&T Latin America is party to a shareholders' agreement with SL
Participacoes, an affiliate of Promon.
REGISTRATION RIGHTS. Under the shareholders agreement, SL Participacoes
may require AT&T Latin America on one occasion to register the shares of Class A
common stock owned by SL Participacoes and its permitted transferees after an
underwritten primary offering of Class A shares has occurred. SL Participacoes
and its permitted transferees also have unlimited "piggyback" registration
rights, permitting them to include their Class A shares in registration
statements filed by AT&T Latin America except in connection with an initial
underwritten offering of Class A shares or other securities solely for the
account of AT&T Latin America, a business combination transaction, issuances
under employee benefit plans or exchange offer or an offer solely to existing
stockholders or employees. AT&T Latin America is obligated to pay the costs
associated with all such registrations. The exercise of these registration
rights is subject to notice requirements, timing restrictions and volume
limitations which may be imposed by the underwriters of an offering.
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<PAGE> 96
SALE OF SHARES; PARTICIPATION RIGHTS. SL Participacoes and its
permitted transferees may require AT&T Corp. or its designee to purchase their
shares of AT&T Latin America if a change of control of AT&T Latin America as
specified in the shareholders agreement occurs.
SL Participacoes and its permitted transferees also have rights to
participate in purchases of new shares of AT&T Latin America capital stock, or
securities convertible into shares, if AT&T Latin America proposes to sell these
shares or convertible securities for cash.
These participation rights will not apply to new shares or convertible
securities which are:
o sold in a registered public offering or pursuant to SEC Rule
144A or in a global offering pursuant to Regulation S;
o sold to British Telecom or another major international
telecommunications company which AT&T Corp. or AT&T Latin
America plans to partner with in a joint venture or strategic
alliance; or
o sold to employees, officers, directors or consultants of AT&T
Latin America.
SL Participacoes has indicated to AT&T Latin America that it plans to
participate pro rata in the additional $20 million cash contribution required in
connection with the merger in proportion to its percentage economic interest in
AT&T Latin America.
Each of these change of control and participation rights will expire
when a primary underwritten offering of shares of Class A common stock occurs.
During the 60-day period beginning December 30, 2001, SL Participacoes
and its permitted transferees that are affiliates of Promon may require AT&T
Corp. or its designee to purchase the shares of AT&T Latin America purchased by
SL Participacoes in December 1999 at a price per share equal to the original
purchase price paid, adjusted for stock splits, stock dividends,
recapitalizations and similar transactions, plus accrued interest at a specified
London Inter-Bank Offered Rate ("LIBOR").
AT&T LATIN AMERICA SHAREHOLDERS' AGREEMENT WITH FORMER KEYTECH SHAREHOLDERS.
As a condition to closing its pending acquisition of Keytech LD, AT&T
Latin America will enter into a shareholders' agreement with the former
shareholders of Keytech LD.
REGISTRATION RIGHTS. Under the shareholders agreement, the former
Keytech LD shareholders will be able to require AT&T Latin America on one
occasion to register the shares of Class A common stock owned by the former
shareholders of Keytech LD and their permitted transferees after an underwritten
primary offering of Class A shares has occurred. Those shareholders and their
respective permitted transferees will also have unlimited "piggyback"
registration rights, permitting them to include their Class A shares in
registration statements filed by AT&T Latin America except in connection with an
underwritten offering of Class A shares or other securities solely for the
account of AT&T Latin America, a business combination transaction, issuances
under employee benefit plans or exchange offer or an offer solely to existing
stockholders or employees. AT&T Latin America is obligated to pay the costs
associated with all such registrations. The exercise of these registration
rights is subject to notice
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<PAGE> 97
requirements, timing restrictions and volume limitations which may be imposed by
the underwriters of an offering.
SALE OF SHARES. The former shareholders of Keytech LD and their
permitted transferees will also be able to require AT&T Corp. or its designee to
purchase their shares of AT&T Latin America if a change of control of AT&T Latin
America as specified in the shareholders agreement occurs. The change of control
rights will expire when a primary underwritten offering of shares of Class A
common stock occurs.
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<PAGE> 98
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined financial information for
AT&T Latin America gives effect to the merger as if it had been completed on
January 1, 1999 for statement of operations purposes and on December 31, 1999
for balance sheet purposes, subject to the assumptions and adjustments in the
accompanying notes to the unaudited pro forma combined financial information. In
addition to the merger, the unaudited pro forma combined financial information
also reflects the following related transactions:
o one condition to the merger requires that AT&T Latin America
must have received a total of $70 million in cash equity
contributions from its shareholders. Accordingly, as part of
the Netstream acquisition, in December 1999, an affiliate of
AT&T Corp. contributed $10 million and an affiliate of Promon
contributed $40 million of equity capital to AT&T Latin
America, in cash. AT&T Corp. intends to contribute $20 million
of cash to the capital of AT&T Latin America, in addition to
the $50 million contributed in December 1999, or to
participate with an affiliate of Promon in that additional
contribution, on a pro rata basis in accordance with AT&T
Corp.'s and Promon's respective ownership percentages in AT&T
Latin America. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation of AT&T Latin
America - Liquidity and Capital Resources - AT&T Latin
America."; and,
o under the merger agreement AT&T Corp. is entitled to require,
as a condition to closing, that FirstCom complete a tender
offer to purchase and consent solicitation statement related
to the 14% Senior Notes due 2007. AT&T Latin America believes
that AT&T Corp. is likely to require the tender offer and
consent solicitation. If so, the tender would be financed by
AT&T Latin America through the issuance to AT&T Corp. of
non-voting, non-convertible and non-participating preferred
stock of AT&T Latin America. The notes have a face value of
$150,000 and are currently recorded on FirstCom's balance
sheet at $133,197.
The merger will be accounted for using the purchase method of
accounting in accordance with the guidelines required by U.S. generally accepted
accounting principles ("GAAP"). The fair values of the assets and liabilities of
FirstCom to be acquired are assumed to be their historical amounts. Accordingly,
the purchase price and estimated acquisition cost in excess of the net assets
acquired have preliminarily been allocated to goodwill. Goodwill is amortized in
the pro forma combined financial information on a straight-line basis over a
20-year period. The actual allocation to assets of AT&T Latin America and the
amortization period for goodwill of AT&T Latin America may be adjusted
significantly.
A final determination of required purchase accounting adjustments will
be made upon the completion of a study to be undertaken by AT&T Latin America in
conjunction with an independent appraiser to determine the fair value of the net
assets acquired.
The pro forma adjustments do not reflect any operating efficiencies,
cost savings or other synergies that may be achieved with respect to the
combined company.
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<PAGE> 99
The unaudited pro forma combined financial information does not purport
to present the results of operations of AT&T Latin America had the merger
occurred on the date, or at the beginning of the periods, for which the merger
is being given pro forma effect. Nor is the pro forma combined financial
information necessarily indicative of the results of operations that may be
achieved in the future. Assuming completion of the merger, the actual financial
position and results of operations of AT&T Latin America will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, changes in value not
currently identified and changes in operating results between the dates of the
pro forma financial information and the date on which the merger took place.
The unaudited pro forma combined financial information should be read
in conjunction with the accompanying notes, with the historical financial
statements of AT&T Latin America and Netstream and the notes thereto included in
this proxy statement/prospectus and with the historical financial statements of
FirstCom that are incorporated by reference in this proxy statement/prospectus.
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<PAGE> 100
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T LATIN AMERICA CORP.
PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT&T LATIN
AT&T LATIN AMERICA
AMERICA FIRSTCOM PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(A) (C)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 24,223 $ 12,986 $ 20,000 D $ 57,209
Restricted cash -- 645 645
Restricted investments -- 20,440 (9,500) E 10,940
Accounts receivable, net 1,286 11,041 12,327
Short-term investments 27,078 27,078
Prepaid expenses and other current
assets 2,227 2,775 5,002
-------------------------------- -----------
Total current assets 54,814 47,887 113,201
Property, plant and equipment, net 68,269 92,469 160,738
Goodwill and other intangible 746,246
assets, net 261,345 17,704 (17,704) F
484,901 F
Deferred financing costs and other -- 14,050 (13,713) E 337
-------------------------------- ------------
Total assets $ 384,428 $ 172,110 $ 1,020,522
=================================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,339 $ 12,653 $ -- $ 17,992
Vendor financing, current -- 814 814
Short-term debt 1,414 1,414
Accrued interest -- 3,716 (3,675) E 41
Other accrued expenses 5,334 5,334
Deferred income taxes 302 302
Lease obligations, current 317 70 387
Other current liabilities 1,557 1,325 2,882
-------------------------------- -----------
Total current liabilities 8,627 24,214 29,166
Senior notes, net -- 133,197 (133,197) E --
Vendor financing -- 4,050 4,050
Lease obligations, less current
portion 383 142 525
Deferred income taxes 1,624 2,228 3,852
Other liabilities -- 2,247 2,247
-------------------------------- -----------
Total liabilities 10,634 166,078 39,840
-------------------------------- -----------
Minority interest -- 3,012 3,012
</TABLE>
(continued)
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<TABLE>
<CAPTION>
AT&T LATIN
AT&T LATIN AMERICA
AMERICA FIRSTCOM PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(A) (C)
<S> <C> <C> <C> <C>
Commitments and contingencies -- -- --
Redeemable Preferred Stock 11,720 (11,720) G --
Redeemable Preferred B Stock 172,500 E 199,400
26,900 E
Stockholders' equity:
Common stock 27 (27) G 1,094
1,094 H
Additional paid in capital 376,566 68,476 (68,476) G 847,434
497,767 H
(26,900) E
Warrants -- 26,737 (26,737) G --
Accumulated deficit (4,124) (95,057) 95,057 G (62,965)
(58,841) E
Cumulative translation adjustments 1,352 (238) 238 G 1,352
Shareholder loans -- (8,645) (8,645)
--
-------------------------------- -----------
Total stockholders' equity 373,794 (8,700) 778,270
-------------------------------- -----------
Total liabilities and stockholders'
equity $ 384,428 $ 172,110 $ 1,020,522
============ =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AT&T LATIN AMERICA CORP.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AT&T LATIN
AMERICA NETSTREAM
HISTORICAL HISTORICAL ADJUSTMENTS
(A) (B)
<S> <C> <C> <C>
Total revenues: ........................ $ 802 $ 1,191
Operating Expenses:
Cost of revenues ....................... 865 5,176
Selling, general and administrative .... 2,164 7,010
Non-cash compensation and
consulting expenses ....................
Depreciation and amortization .......... 1,707 2,838 18,746 I
Merger Expense ......................... -- --
---------------------------------
Loss from operations ................... (3,934) (13,833)
Other expense (income), net ............ 190 258
---------------------------------
Net loss before income taxes and
minority interest ...................... (4,124) (14,091)
Income Taxes ........................... -- --
---------------------------------
Net Loss Before Minority Interest ...... (4,124) (14,091)
Minority Interest Expense .............. -- --
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
AT&T LATIN
AT&T LATIN AMERICA
AMERICA FIRSTCOM PRO FORMA PRO FORMA
(PRO FORMA) HISTORICAL ADJUSTMENTS COMBINED
(C)
<S> <C> <C> <C> <C>
Total revenues: ........................ $ 1,993 $ 38,356 $ $ 40,349
Operating Expenses:
Cost of revenues ....................... 6,041 22,005 28,046
Selling, general and administrative .... 9,174 25,698 1,000 J 35,872
Non-cash compensation and
consulting expenses .................... -- 353 353
Depreciation and amortization .......... 23,291 10,211 24,245 K 56,851
(896)K
Merger Expense ......................... -- 1,008 1,008
------------------------------- ------------
Loss from operations ................... (36,513) (20,919) (81,781)
Other expense (income), net ............ 448 20,350 (22,544)E (1,746)
------------------------------- ------------
Net loss before income taxes and
minority interest ...................... (36,961) (41,269) (80,035)
Income Taxes ........................... -- 170 170
------------------------------- ------------
Net Loss Before Minority Interest ...... (36,961) (41,439) (80,205)
Minority Interest Expense .............. -- 33 33
------------------------------- ------------
</TABLE>
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<TABLE>
<CAPTION>
AT&T LATIN
AMERICA NETSTREAM
HISTORICAL HISTORICAL ADJUSTMENTS
(A) (B)
<S> <C> <C> <C>
Net Loss................................ $ (4,124) $ (14,091)
=================================
Redeemable preferred stock
dividends...............................
Net loss attributable to common
stockholders............................
Net basic and diluted loss per
common share............................ $ (103.10) $ (1.19)
=================================
Weighed average common shares
outstanding............................. 40,000 11,840,141
=================================
</TABLE>
<TABLE>
<CAPTION>
AT&T LATIN
AT&T LATIN AMERICA
AMERICA FIRSTCOM PRO FORMA PRO FORMA
(PRO FORMA) HISTORICAL ADJUSTMENTS COMBINED
(C)
<S> <C> <C> <C> <C>
Net Loss ............................... $ (36,961) $ (41,472) $ (80,238)
=============================== ===========
Redeemable preferred stock dividends ... 26,900 E 26,900
-----------
Net loss attributable to common
stockholders ........................... $ (107,138)
===========
Net basic and diluted loss per common
share .................................. $ (924.03) $ (1.94) L $ (0.98)
=============================== ===========
Weighted average common shares
outstanding ............................ 40,000 21,354,012 M 109,381,557
=============================== ===========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
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AT&T LATIN AMERICA CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(A) AT&T Latin America's historical financial statements as of December
31, 1999 and for the period from inception (October 13, 1999) through December
31, 1999 have been derived from the company's audited year-end financial
statements.
(B) Netstream's historical financial statement for the period from
January 1 through December 7, 1999 has been derived from the company's books
and records.
(C) FirstCom's historical financial statements as of and for the year
ended December 31, 1999 have been derived from a previously filed Form 10-K
(incorporated by reference).
(D) Cash and cash equivalents:
In connection with the Netstream acquisition, in December 1999 an
affiliate of AT&T Corp. contributed $10,000 and an affiliate of Promon
contributed $40,000 of equity capital to AT&T Latin America. AT&T Corp. intends
to contribute $20,000 of cash to the capital of AT&T Latin America, in addition
to the total $50,000 contributed in December 1999, or to participate ratably
with an affiliate of Promon in that additional contribution, in proportion to
AT&T Corp.'s and Promon's respective ownership percentages in AT&T Latin
America.
(E) Senior notes, net:
Under the merger agreement AT&T Corp. may request that FirstCom
complete a tender offer and consent solicitation related to the 14% Senior
Secured Notes due 2007. The notes have a face value of $150,000 and are
currently recorded on FirstCom's balance sheet at $133,197. AT&T Latin America
believes it is likely that AT&T Corp. will make such a request. Under the merger
agreement, AT&T Corp., directly or through AT&T Latin America, is obligated to
finance the completion of any tender offer. AT&T Latin America currently expects
to finance any tender offer through the issuance, to a subsidiary of AT&T Corp.,
of non-voting, non-convertible and non-participating 15% preferred stock of AT&T
Latin America. The proceeds of the issuance of the preferred stock would be used
to complete the tender offer for the Notes. The value of the preferred stock has
been estimated at $172,500, based on the tender of 100% of the Notes in the
tender offer at a premium. This amount gives effect to the use of the balance of
restricted cash of FirstCom, the payment of accrued interest and elimination of
deferred financing costs relating to the Notes, in each case using the balances
of such items as of December 31, 1999.
If a tender offer for the outstanding notes is completed, the amount of
the preferred stock actually issued may be greater or less than $172,500,
depending on, among other things:
o the principal amount of the notes received in the tender
offer;
o the amount of any tender premium negotiated with the holders
of the notes;
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o the balance of restricted cash held by FirstCom as of the
completion of the tender offer and the amount of interest
accrued at that time with respect to the tendered notes; and
o the amount of the costs and expenses of AT&T Latin America
relating to the tender offer.
Additionally, dividends have been calculated based on the assumption
that they will be accrued throughout the year, totaling approximately $26,900.
This amount has been recorded as a reduction of additional paid-in-capital.
There is an entry to eliminate the current interest and other Senior Notes
related expense recorded of approximately $22,544.
(F) Intangible assets:
The following discussion represents a preliminary estimate of the
calculation of goodwill as required by U.S. GAAP. The actual goodwill recorded
in the financial statements of AT&T Latin America may vary significantly from
the amounts presented in this unaudited pro forma combined financial information
pending the results of the review by the independent appraiser currently under
way.
AT&T Latin America has tentatively considered the carrying value of the
acquired assets to approximate fair value, with all excess of such acquisition
costs being attributable to goodwill. AT&T Latin America is in the process of
fully evaluating the assets acquired and, as a result, the purchase price
allocation among tangible and intangible (and their related useful lives) assets
acquired may change. Goodwill associated with the transaction is currently
anticipated to be amortized over a 20-year life.
The following discussion assumes that the shareholders' equity of
FirstCom consisted of its outstanding shares, options and warrants as of
December 31, 1999, except that the number of shares of Series A convertible
preferred stock of FirstCom is assumed to reflect accrual of paid-in-kind share
dividends through May 31, 2000.
To record preliminary goodwill related to the FirstCom transaction as
follows:
<TABLE>
<S> <C>
Fair value of AT&T Latin America Class A common and preferred shares issued .. $339,470(i)
Fair value of AT&T Latin America options and warrants issued ................. 122,947(ii)
Estimated transaction costs .................................................. 7,800(iii)
--------
Total estimated cost of acquisition ................................. $470,217
Less net assets at historical book value of FirstCom:
Historical FirstCom net assets ...................................... 3,020
Elimination of Historical FirstCom intangible assets, net ........... 17,704
--------
Preliminary goodwill ................................................ $484,901(iv)
========
</TABLE>
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(i) As of December 31, 1999, AT&T Latin America would have issued
26,858,526 shares of its Class A common stock and 1,430,649 shares of its Series
A preferred stock (assuming accrual of share dividends through May 31, 2000) at
a 1:1 ratio for each share of FirstCom common stock and Series A convertible
preferred stock outstanding and assuming a market price of AT&T Latin America
shares of $12.00 per share. The estimated value of the stock issued by AT&T
Latin America was determined by obtaining the average market price of the
FirstCom securities for a period from three days prior to and three days
subsequent to November 1, 1999, the date of the announcement of the merger.
(ii) Also as of December 31, 1999, AT&T Latin America would have issued
options and warrants to acquire approximately 13,948,271 shares of its Class A
common stock. The options and warrants to purchase shares of Class A common
stock will be at an exercise or purchase price per share equal to the exercise
or purchase price per share in effect under the FirstCom options or warrants.
The fair value, using the Black Scholes model, of these options and warrants is
$122,947.
(iii) AT&T Corp. will incur estimated transaction costs of $7,800 relating
to the merger of AT&T Latin America with FirstCom. Accordingly, the $7,800 has
been reflected as an additional equity contribution by AT&T Corp. AT&T Latin
America will not be responsible for these transaction costs, because, as
provided in the merger agreement, any such costs incurred by AT&T Latin America
will be reimbursed by AT&T Corp.
(iv) AT&T Latin America has tentatively considered the carrying value
of the acquired assets to approximate fair value, with all excess of such
acquisition costs being attributable to goodwill. AT&T Latin America is in the
process of fully evaluating the assets acquired and, as a result, the purchase
price allocation among tangible and intangible (and their related useful lives)
assets acquired may change. Goodwill associated with the transaction is
currently anticipated to be amortized over a 20-year life.
(G) Stockholders' equity elimination:
To reflect the elimination of FirstCom historical stockholders' equity
accounts in connection with merger.
(H) Issuance of AT&T Latin America shares:
To reflect the issuance of AT&T Latin America common stock and
preferred stock.
At present, the capital of AT&T Latin America is represented by 40,000
issued and outstanding shares of common stock. Of these shares, 36,000 are Class
B shares owned by an affiliate of AT&T Corp., and 4,000 are Class A shares owned
by an affiliate of Promon. Before the merger, AT&T Latin America will reclassify
its share capital by a stock split, in order to accommodate the issuance to
FirstCom shareholders of one Class A share of AT&T Latin America common stock
for each outstanding share of FirstCom common stock. After completion of this
stock split and after the issuance of additional shares of common stock to AT&T
Corp. and Promon in exchange for a cash equity contribution of $20,000 (assuming
that Promon participates pro rata in that contribution, in proportion to its 10%
interest in AT&T Latin America), AT&T Latin America will have, as of the closing
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of the merger, the maximum number of shares permitted by the merger agreement.
That maximum number consists of:
(i) 80,848,204 common shares, plus
(ii) an additional number of common shares equal to 2.077 times the
number of paid-in-kind share dividends accrued with respect to the Series A
convertible preferred stock of FirstCom from November 1, 1999 up to the closing
date of the merger (which additional number would be 244,178 common shares as of
May 31, 2000, or 2.077 times the accrued 117,563 of share dividends over that
period); plus
(iii) if the pending acquisition of Keytech LD occurs before the
completion of the merger, 1,178,689 common shares that have been issued to the
selling stockholders of Keytech LD.
It is not possible to fix presently the number of outstanding shares of
AT&T Latin America as of the closing of the merger because, as discussed above,
that number will be affected by the number of common shares issued to AT&T Corp.
and Promon to compensate for accrual of the share dividends on the Series A
convertible preferred stock of FirstCom. However, if the closing of the merger
were to occur on May 31, 2000, the capital of AT&T Latin America would consist
of up to 124,159,828 shares, on a fully-diluted basis, excluding any shares of
non-voting, non-convertible and non-participating preferred stock issued to AT&T
Corp. to finance a tender offer for the FirstCom notes. Those fully-diluted
shares would be distributed as follows immediately after the merger:
(a) 81,092,382 common shares of AT&T Latin America would be owned
directly or indirectly by AT&T Corp. and Promon. (If the pending acquisition of
Keytech LD occurs before the closing of the merger, an additional 1,178,689
common shares would be owned by the selling stockholders of Keytech LD);
(b) 40,806,797 common shares of AT&T Latin America would be owned by
the former common shareholders of FirstCom or would be reserved for issuance
upon exercise of options and warrants to acquire common shares of FirstCom. As
of December 31, 1999, this number included 26,858,526 outstanding common shares
of FirstCom and 13,948,271 outstanding options and warrants to acquire common
shares of FirstCom. From November 1, 1999, the date of the merger agreement and
the announcement of the merger, through December 31, 1999, 2,484,000 options or
warrants were exercised, and FirstCom granted 95,000 new options to its
employees.
(c) up to 830,000 common shares of AT&T Latin America would be
reserved for issuance upon exercise of options granted by FirstCom and AT&T
Latin America between December 31, 1999 and the date of the merger; and
(d) 1,430,649 Series A convertible preferred shares of AT&T Latin
America would be owned by former holders of the Series A convertible preferred
stock of FirstCom.
The number of shares outstanding under items (a) and (d) above would be
lower if the merger were completed before May 31, 2000, and would be higher if
the merger were completed after May 31, 2000.
At June 30, 1999, FirstCom issued 1,250,000 shares of 15% Series A
convertible preferred stock ("Convertible Preferred Stock") for an aggregate
principal amount of $10,000. The Convertible Preferred Stock is convertible at
any time by the holders into FirstCom common stock on a one-for-one basis,
subject to adjustment to reflect the accretion of the 15% paid-in-kind dividend.
On November 1, 1999, the Convertible Preferred Stock was convertible into
1,313,086 shares of FirstCom common stock. In the merger, the Convertible
Preferred Stock
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will be exchanged for AT&T Latin America preferred stock having substantially
the same terms and conditions as the Convertible Preferred Stock. For purposes
of the pro forma adjustments, AT&T Latin America and FirstCom assumed the
conversion of Convertible Preferred Stock into 1,430,649 Series A common shares,
reflecting the accretion of the paid-in-kind dividend through May 31, 2000.
(I) To record the additional amortization expense for the Netstream
related goodwill and other intangibles as though the companies had been combined
at the beginning of the period.
(J) Employment contract:
Patricio E. Northland, FirstCom's chairman of the board and chief
executive officer, has executed a five-year employment agreement with AT&T Latin
America that will become effective upon completion of the merger. The employment
agreement includes a retention bonus of $500 payable on each six-month
anniversary of the closing date up to the third anniversary. Accordingly, $1,000
of compensation expense has been reflected for the year ended December 31, 1999.
(K) Depreciation & amortization:
The estimated goodwill amortization expense arising from the merger is
based on the straight-line method over a 20-year life. The adjustment is
calculated as total preliminary goodwill for FirstCom divided by the 20-year
estimated life for the year ended December 31, 1999. An adjustment has also been
made to reflect the decrease of the historical FirstCom goodwill amortization in
the statement of operations of approximately $896 for the year ended December
31, 1999. The depreciation and amortization expense represents a preliminary
estimate of the calculation of goodwill as required by U.S. GAAP. The actual
goodwill recorded in the financial statements of AT&T Latin America may vary
significantly from the amounts presented in this unaudited pro forma combined
financial information pending the results of the review now underway by an
independent appraiser.
(L) Net basic and diluted loss per share:
The computation of net basic loss per share of common stock is computed
by dividing net loss for the year by the weighted average number of common
shares outstanding during the year. The weighted average number of shares
outstanding for the year ended December 31, 1999 excludes 13,948,271 outstanding
stock options and warrants and 1,430,649 shares of Convertible Preferred Stock
that are anti-dilutive.
(M) Weighted average common shares outstanding:
Adjustment to number of AT&T Latin America shares that would have been
outstanding had the transactions occurred at the earliest date presented. This
calculation is based on the following assumption of the number of common shares
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outstanding of AT&T Latin America, which reflects the outstanding shares of
FirstCom as of December 31, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
SHAREHOLDER OUTSTANDING CLASS OF COMMON SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FirstCom shareholders 28,289,175 Class A common shares
- -------------------------------------------------------------------------------------------------------------
Affiliate of Promon 8,109,238 Class A common shares
- -------------------------------------------------------------------------------------------------------------
Affiliate of AT&T Corp. 72,983,144 Class B common shares
-----------
- -------------------------------------------------------------------------------------------------------------
Total 109,381,557
===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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INDUSTRY OVERVIEW
GENERAL
Liberalization of the global communications industry and technological
change have resulted in an increasingly data-intensive business environment. In
Latin America, regulatory, technological, marketing and competitive trends have
expanded opportunities in the converging voice and data communications markets.
Liberalization of the communications industry in Latin America is also leading
to expanded opportunities in the local communications services market. Existing
communications infrastructure in Latin America generally has limited capability.
The company believes that there is significant unmet demand for advanced
communications services, including reliable, high capacity data circuits,
private line local area networks and domestic and international long distance
connectivity.
AT&T Latin America believes that deregulation of the communications
sector in many Latin American countries, coupled with technological innovation,
will lead to market developments similar to those that have occurred in the
United States. These developments would include an increase in traffic volume
and the market entry of new communications service providers. However, AT&T
Latin America cannot assure you that deregulation in Latin America will have
this effect. A reversal of the regulatory trends could adversely affect recent
entrants to the market, including AT&T Latin America.
AT&T Latin America believes that demand for transmission capacity will
continue to increase as customers require increased capability to handle complex
data, voice and video communications. Digital signals carried over optical
fibers are superior in many respects to signals carried over copper wires,
wireless or satellite-based transmission systems. In Latin America, many
incumbents and other communications carriers continue to use such older
technologies for parts of their networks, although many incumbents are using
fiber optic technology to expand their existing networks. In addition to
offering significantly faster and more accurate transmission of data and voice
communications, digital fiber optic networks generally require less maintenance
than comparable copper wire networks.
LOCAL ACCESS MARKET
The local access market in both developed and emerging countries, which
once was the domain of incumbent carriers, is increasingly open to competition.
Throughout Latin America, including the countries in which AT&T Latin America
and FirstCom currently operate, local markets may be entered via any combination
of (a) construction of proprietary wired network infrastructure, (b)
construction of wireless local loop, PCS or cellular networks and (c) resale
using existing local carrier's network. AT&T Latin America believes that
companies providing local access through fiber optic rings will be uniquely
positioned to provide services for large business customers due to the high
capacity of such systems and the other factors referred to above.
AT&T Latin America has based its strategy in part on the experiences of
alternative service providers and competitive local exchange carriers in the
United States and other developed countries. However, in Latin America the
regulatory and market environments differ from country to country and differ
from those in the United States and other developed countries.
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As a result, AT&T Latin America cannot assure you that the liberalizing Latin
American markets and the emerging role of alternative service providers will be
comparable to trends in more developed countries.
ARGENTINA
COUNTRY OVERVIEW. Argentina, where AT&T Latin America will have
operations when it completes its pending acquisition of Keytech LD, is the
second largest country in South America with an estimated population of
approximately 36 million at December 1999. Greater Buenos Aires, the country's
primary economic center, has a population of approximately 12.5 million. From
1994 through 1997, real GDP increased by an average annual growth rate of
approximately 4.3%.
MARKET OVERVIEW. Argentina has one of the most developed communications
markets in Latin America due, in part, to its early privatization efforts.
According to Pyramid Research, Argentina's telephone subscribers grew from just
over 5 million at year end 1994 to approximately 8.2 million at December 1999.
As is generally the case throughout Latin America, Argentina has a relatively
low penetration rate per 100 inhabitants ("teledensity") of approximately 22.8
lines in service at the end of 1999. AT&T Latin America believes that
Argentina's continued growth in demand for communication services primarily will
be influenced by the full liberalization of the market in November 2000 and
demand of business customers for broadband communications services.
COMPETITION. AT&T Latin America's principal competitors in Argentina
will be Telecom Soluciones S.A. and Advance Telecomunicaciones S.A., which are
data transmission companies controlled by Telecom Argentina S.A. and Telefonica
de Argentina S.A., respectively. Telecom Argentina and Telefonica de Argentina
are the incumbents in northern and southern Argentina, respectively. Telecom
Soluciones and Advance Telecomunicaciones use the infrastructure of their
incumbent owners to deliver services to their customers. AT&T Latin America
anticipates increased competition from both the incumbent operators, as well as
new market entrants, once Argentina's communications market is liberalized in
November 2000.
TELECOMMUNICATIONS LAWS AND REGULATIONS. The Argentine government's
liberalization of the telecommunications sector began in 1989 with the
restructuring of Empresa Nacional de Telecomunicaciones ("ENTEL"), the
state-owned monopoly telecommunications operator, into two regional
telecommunications service providers. These regional providers were purchased by
two consortia: Telecom Argentina (Telecom Italia and France Telecom) which
operates in the northern region of Argentina and Telefonica de Argentina
(Telefonica de Espana and financial partners) which operates in the southern
region of the country. The exclusivity in basic telephony enjoyed by the
incumbents ended in 1999 when two consortia headed by Movicom (Compania de Radio
Comunicaciones Moviles S.A. (a BellSouth affiliate)) and CTI (Compania de
Telefonos del Interior S.A. (a GTE Mobile Communication International
affiliate)) respectively, were authorized to offer nationwide local and long
distance services.
In March 1998, the Argentine government announced the liberalization
plan for the telecommunications market, which entails the full liberalization of
services by November 2000. The following companies, among others, have been
granted licenses for the provision of telephone services as of November 2000:
(i) local telephony: Keytech LD (which AT&T
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Latin America agreed to acquire on February 23, 2000), Techtel S.A. and Impsat
S.A.; (ii) long distance: Keytech LD, Comsat S.A. and Impsat S.A. were granted
licenses to offer long distance services beginning in November 2000.
The Argentine data sector was not included in the exclusivity granted
to the incumbents. Any telecommunications provider may apply for licenses to
provide data services. A number of companies have recognized the opportunity and
the growth potential of this market and have initiated operations using
terrestrial and satellite-based access platforms.
BRAZIL
COUNTRY OVERVIEW. Brazil is the largest country in South America with
an estimated population of approximately 164 million at December 1999. Sao
Paulo, Latin America's largest city and preeminent international economic
center, has a population of approximately 20 million. From 1994 through 1997,
real GDP increased by an average annual growth rate of approximately 2.7%.
Pyramid Research estimates that real GDP will grow at a compound annual growth
rate of approximately 1.4% from 1998 to 2002.
MARKET OVERVIEW. AT&T Latin America believes that demand for
communications services in Brazil has historically not been fully satisfied due
to insufficient investment in facilities, high prices, relatively poor service
quality and long waiting periods for installation of service. One of the stated
goals of the Brazilian government in privatizing Brazil's former local and long
distance incumbent, Telebras, in 1998 was to expand significantly the national
communications network and improve service quality. According to Pyramid
Research, Brazil's total number of lines in service has increased since the
privatization of Telebras from approximately 17.0 million in 1997 to
approximately 22.9 million in 1999. However, Brazil continues to have a
relatively low penetration rate per 100 inhabitants ("teledensity") of
approximately 14.0 lines in service at the end of 1999. AT&T Latin America
believes that continued growth in demand for communication services in Brazil
will be influenced by the level of growth of the Brazilian economy, demand of
business customers for broadband communications services, foreign investment and
international trade and the continued expansion of the Brazilian communications
infrastructure.
COMPETITION. Brazil's communications market today is dominated by the
incumbent carriers which are former Telebras operating companies, including
Embratel and the three local carriers, Telefonica, Telemar and TeleNorteLeste.
Telefonica (formerly TeleSP), the largest of the local carriers, is controlled
by Telefonica de Espana S.A. Embratel, which has operated historically as
Brazil's long distance carrier, is controlled by a consortium led by MCI
Worldcom.
Following the privatization of the Telebras operating companies, the
Brazilian government sold at auction "Mirror" licenses to provide public
switched communications in each of the three areas of Brazil served by the
incumbent local carriers.
AT&T Latin America believes that, following the July 1998 deregulation
of local and domestic and international long distance telephony, competition in
these services increased due to the arrival of new entrants, including
communications carriers that also provide services in other countries. The
company believes that the existing communications service providers have
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established customer relationships, as well as other capabilities and resources
to expand their current service offerings. The existing service providers
include local carriers, wireless telephone operators, providers of data
services, cable television network operators and operators of existing private
network infrastructure, such as utilities and railroads.
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, many of which are beyond the company's control. Among such
factors are the business strategies and financial and technical capabilities of
potential competitors, prevailing market conditions, applicable Brazilian
regulations with respect to new entrants and the company, as well as the
effectiveness of the company's strategy to prepare for increased competition.
TELECOMMUNICATIONS LAWS AND REGULATIONS. Telecommunications and postal
services in Brazil are regulated by the Ministry of Communications pursuant to
the Telecommunications Law of 1962, as amended. Brazil's telecommunications laws
were significantly revised in September 1997 when the Brazilian legislature
enacted the General Telecommunications Law. This law authorized the creation of
the ANATEL, an independent agency that regulates all aspects of
telecommunications services, except radio and television broadcasting, including
the granting of licenses under the General Telecommunications Law.
The Brazilian communications market is currently in a transition from a
controlled duopoly in each of the three major regions to full liberalization and
competition. Entry into fixed switched telephony is restricted to the former
Telebras operating companies and respective Mirror companies until December 31,
2000. See "The Companies - Description of AT&T Latin America - Regulation and
Licenses."
CHILE
COUNTRY OVERVIEW. Chile is a highly urbanized country, with an
estimated population of approximately 15 million at December 1999, 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. 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 communications. From 1994 through 1997,
real GDP increased by an average annual rate of 6.1%. Inflation has been
significantly curtailed, falling from 18.7% in 1991 to 6.3% in 1997. GDP has
been projected to grow at an average annual growth rate of 4.3% through 2000.
MARKET OVERVIEW. As the first Latin American communications market to
commence deregulation, Chile has experienced substantial growth in its
communications sector. According to Pyramid Research, Chile's lines in service
have increased from approximately 2.7 million in 1997 to approximately 3.6
million in 1999, indicating a teledensity of approximately 24%.
COMPETITION. Chile's communications market is extremely competitive.
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, Compania de
Telecomunicaciones de Chile. There are currently five communications groups that
provide both local and long distance services, three of which also provide data
services.
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There are also three other licensed providers of local telephony services and
four other licensed providers of domestic and international long distance
services.
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, applicable Chilean regulations, as well as the effectiveness of the
company's strategy to prepare for increased competition.
TELECOMMUNICATIONS LAWS AND REGULATIONS. The Ley General de
Telecomunicaciones, 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 communications sector and to establish a framework
for a multicarrier dialing system. The most significant amendments were: (a) 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 (b) 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 Chilean Undersecretary of
Telecommunications may suspend their service.
The Chilean Telecommunications Law also requires providers of public
telephone services to conform to a multicarrier system in which end-users,
rather than local telephone carriers, will determine on a call-by-call or
contractual basis the long distance carrier they want to use. In addition, long
distance carriers are authorized to establish direct connections to end users
through their own networks.
The Chilean Telecommunications Law provides for substantial fines, the
suspension of service and other penalties for violations of the multicarrier
dialing system. The routing of calls by a local telephone company to a long
distance carrier other than the carrier selected by the end user or the
obstruction or delay of an interconnection between the local telephone carrier
and any long distance carrier would constitute violations, and the local
telephone carrier may be required to indemnify the provider of long distance
services for any such violations.
COLOMBIA
COUNTRY OVERVIEW. Colombia is the third largest country in South
America with an estimated population of approximately 42 million. Bogota, the
capital of Colombia, has a population of approximately 5.5 million. Cali and
Medellin, the two next largest cities in Colombia, have populations of
approximately 2.0 million and 1.9 million, respectively. From 1994 through 1997,
GDP grew at an average annual rate of 9%. Inflation continuously dropped each
year from 23.8% in 1994 to 18.5% in 1997. However, in 1998 the Colombian economy
began experiencing a severe economic crisis and is currently experiencing its
first economic
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recession in over 50 years. A combination of low international commodity prices,
a decline in global lending to emerging markets, a drop in domestic consumption
and high interest rates have resulted in an economic recession and a negative
economic performance. In June of 1999, Colombia's central bank effectively
devalued the Colombian peso by 9% by widening the foreign exchange band for the
peso, and in September 1999, the central bank discontinued the use of the
foreign exchange band and permitted the peso to float freely against the U.S.
dollar. In the third quarter of 1999, citing Colombia's macroeconomic imbalances
and rising levels of government debt, Moody's Investors Services and Standard &
Poor's downgraded the country's credit rating to below "investment grade." In
addition to increasing borrowing costs for Colombian companies, the impairment
of Colombia's credit rating could further lower investor confidence in that
country and compound its economic difficulties.
MARKET OVERVIEW. As Colombia continues to deregulate its communications
market, the country has continued to experience significant growth in
communications revenue and telephone density. With new competitors entering the
local market, local operators are marketing aggressively to obtain subscribers.
According to Pyramid Research, total lines in service in Colombia has increased
from approximately 5.4 million in 1997 to approximately 6.9 million in 1999,
indicating a teledensity of approximately 17%.
In the data communications industry, the addition of new operators
increased the selection of services available to the business community. As a
result of increasing, local and wide area networking demands and more companies
seeking out-sourced solutions for data processing, packet switching, Internet
access, value-added services, electronic commerce and online services,
significant growth of the communications industry has taken place in Colombia.
Internet is the fastest growing data communications service in the Colombian
market. The increasing demand for Internet access and services has encouraged a
greater number of Internet service providers to enter the market.
COMPETITION. Colombia's communications market has been dominated by the
incumbent long distance operator, Empresa Nacional de Telecomunicaciones
("TELECOM"). However, TELECOM has limited local network presence relative to
Empresa de Telecomunicaciones de Santafe de Bogota, Empresas Publicas de
Medellin and EMCATEL, the communications entity which separated from Empresas
Municipales de Cali in Bogota, Medellin and Cali, respectively. TELECOM's
initial investment in Teleductos resulted from their interest in finding
alternative last mile providers to reach their large long distance corporate
customers. The competitive long distance and domestic telephone services market
does not affect Teleductos since it does not operate as a long distance
telephone service provider.
There are several companies that provide value-added services to
corporate customers, although their traditional focus has been the provisioning
of domestic satellite-based VSAT solutions. In the metropolitan areas,
specifically in Bogota, there appears to be a limited number of high-speed
communication service providers. However, there has been increased competition
in the provisioning of "last mile" solutions in Bogota from Emtelco and
Teledatos.
TELECOMMUNICATIONS LAWS AND REGULATIONS. The principal components of
Colombian regulation of communications services include Decree 1990 ("Decree
1990") issued in 1990, Law 142 ("Law 142") enacted in 1994 and various other
decrees issued by Colombian governmental authorities. These laws and the
governmental authorities that regulate the
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communications industry constitute the legal and regulatory framework within
which the company provides services in Colombia.
Decree 1990 embodies the general principles applicable to a number of
communications activities and authorizes the Ministry of Communications (the
"Colombian Ministry") to regulate certain areas of the communications sector, in
accordance with the plans adopted by the National Council for Economic and
Social Policy of Colombia including the administration, regulation and control
of radioelectric spectrum and frequencies and the physical infrastructure in
Colombia. Law 142 was issued to develop policies and regulations related to
certain public services and includes the regulation of local and long distance
public switched fixed telephony services, both national and international. Law
142 created the Superintendency of Public Services ("SSP") and the Commission
for the Regulation of Telecommunications ("CRT"). The SSP oversees the
management and performance of utilities and has the power to impose sanctions
for non-compliance with regulations. CRT performs the regulatory function within
the communications industry with the stated purpose of promoting competition and
improving efficiency and quality of service.
Additionally, all network operators are obligated by law to make their
networks available for interconnection with other networks.
PERU
COUNTRY OVERVIEW. Peru is the fourth largest country in South America
with an estimated population of 25 million at December 1999. Lima, the capital
of Peru and the major economic center in Peru, has a population of approximately
6.8 million. In 1990, the Peruvian government embarked on a series of economic
and political measures to curtail inflation and restore economic stability. From
1994 through 1997, GDP increased by an average annual growth rate of 9.3%.
Pyramid Research estimates that GDP will 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 stated goals of
privatizing Peru's former local and long distance incumbent, Telefonica del Peru
("TDP"), in 1994 (the "Privatization") was to expand significantly the national
communications network and improve service quality. The number of lines in
service has increased since the Privatization from approximately 772,000 in 1994
to approximately 2 million. Notwithstanding the significant recent growth in
lines in service, Peru continues to have a relatively low penetration rate with
7.8 lines in service per 100 inhabitants as of the end of 1999. The company
believes that continued growth in demand for communication services in Peru will
be influenced by the growth of the Peruvian economy, foreign investment and
international trade, the continued expansion of the communications network and
the re-balancing of tariffs. The company believes that Peru's communications
market offers an excellent environment for the growth of communications
business. The company believes that the Peruvian economy is also a source of
growing demand for communication services with growing domestic and
multinational businesses attracting significant foreign investment.
COMPETITION. Peru's communications market is dominated by TDP, a
company formed by the merger in 1994 of the former local telephone service
incumbent, Compania Peruana de
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Telefonos, and ENTEL, the former long distance telephone service incumbent. TDP
is 35% owned by Telefonica de Espana S.A. BellSouth, which formerly operated as
Tele2000, is also an important competitor. BellSouth provides cellular, public
pay phone and cable television services in Lima and other Peruvian cities.
BellSouth also owns and operates a small fiber optic loop over which it offers
frame relay services.
The company's management believes that following the August 1998
deregulation of local and domestic and international long distance telephony,
competition in these services may arise from a variety of new entrants,
including communications carriers providing services in other countries as well
as companies currently providing services in other industries previously
liberalized in Peru. In addition to the public switched long distance concession
granted to the company, other entities, including BellSouth, have been granted
such a concession. In addition, existing communications service providers,
including local carriers, wireless telephone operators, the providers of data
services, cable television network operators and operators of existing private
network infrastructure, may have established customer relationships as well as
other capabilities and resources to expand their current service offerings.
The identity of new entrants and the scope of increased competition,
and any corresponding adverse effect on the company's Peruvian 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, applicable Peruvian regulations with respect to new entrants
and the company Peru, as well as the effectiveness of the company Peru's
strategy to prepare for increased competition.
TELECOMMUNICATIONS LAWS AND REGULATIONS. The principal features of
Peruvian regulation of communications services include the General
Telecommunications Law (the "Peruvian Telecommunications Law"), the General
Regulation to the Telecommunications Law and the 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 communications services, and has the stated
objective of providing a competitive market in communications. The law grants
the Peruvian government the ability to oversee communications services through
the Ministry of Transportation, Communications, Housing and Construction (the
"Ministry"). The Ministry has the authority to (a) grant, renew and cancel
concessions, authorizations, permits and licenses; (b) approve communications
policy; (c) manage the electric spectrum and approve the assignment of
frequencies; and (d) discontinue the rendering of value added services offered
by concessionaires when such services cause any damage or harm to the public
communications network.
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THE COMPANIES
THE FOLLOWING IS A DESCRIPTION OF THE BUSINESSES OF AT&T LATIN AMERICA
AND OF FIRSTCOM. ADDITIONAL INFORMATION REGARDING FIRSTCOM IS CONTAINED IN ITS
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE SECURITIES
EXCHANGE ACT OF 1934. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE __.
DESCRIPTION OF AT&T LATIN AMERICA
GENERAL. AT&T Corp. created AT&T Latin America Corp. (formerly Kiri
Inc.) in October 1999 to be a leading provider of broadband communications
services mainly to business customers throughout the Region. Through its
operating subsidiaries, AT&T Latin America provides data, voice, video
conferencing, Internet and electronic commerce services to its target markets.
AT&T Corp. began to execute its strategy on August 20, 1999 when it
agreed to acquire Netstream from Promon. AT&T Corp. completed the acquisition on
December 8, 1999. Netstream is now an indirect wholly-owned subsidiary of AT&T
Latin America. In connection with the Netstream acquisition, AT&T Corp.
contributed $10 million in cash to the equity capital of AT&T Latin America. SL
Participacoes, an affiliate of Promon, contributed an additional $40 million in
cash to the equity capital of AT&T Latin America, in exchange for a 10% equity
interest.
Today, AT&T Latin America's principal assets consist of:
o 100% of the equity interest in Netstream, a Brazilian
communications carrier that owns and manages fiber optic
networks in the cities of Sao Paulo, Rio de Janeiro, Belo
Horizonte and Barueri/Alphaville. AT&T Latin America plans to
construct additional networks in the cities of Brasilia,
Campinas, Curitiba, Porto Alegre and Salvador;
o cash and liquid assets representing the proceeds from $50
million of cash equity contributions received from its
stockholders (affiliates of AT&T Corp. and Promon) in early
December 1999. Before the merger, AT&T Latin America will
receive an additional $20 million in cash equity contributions
from its stockholders. Some of these contributions have been,
and continue to be, used to finance AT&T Latin America's
growth and operations;
o an agreement by AT&T Corp. to provide a license under a
service mark license agreement with AT&T Corp. to use the AT&T
brand name and logo in the Region; and
o an agreement to acquire Keytech LD, a development stage
broadband communications company in Argentina. Keytech LD has
licenses that authorize or will authorize it by November 8,
2000 to provide domestic and international long distance
services, local telephony services, value-added services and a
range of data services; Keytech LD also has rights to use
1910-1930 MHz wireless spectrum for fixed wireless links in
nine of Argentina's largest cities.
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At present, AT&T Latin America conducts all of its business operations
in Brazil, through Netstream. Netstream was organized in July 1998 by Promon and
its affiliates as a Brazilian limited liability company (SOCIEDADE DE
RESPONSABILIDADE LIMITADA). It began construction of its first network located
in Rio de Janeiro in August 1998 and began commercial operations in Rio de
Janeiro in November 1998.
AT&T Latin America believes that Netstream is one of Brazil's largest
facilities-based communications carriers, based on metropolitan network route
kilometers. Netstream provides fully integrated broadband data, voice, video
conferencing, Internet and electronic commerce services to its customers. AT&T
Latin America believes that Netstream is positioned to benefit from current
technical, regulatory and market developments in Brazil that have resulted in
increased demand for modern communications services, particularly among
data-intensive business users.
As of December 31, 1999, Netstream had installed 197 route kilometers
of fiber optic network, had connected 451 buildings in Sao Paulo, Rio de Janeiro
and Belo Horizonte, Brazil and served 866 users.
AT&T Latin America seeks to become a leading communications company
serving major metropolitan markets in the Region. Accordingly, it expects to
make additional selected acquisitions of businesses that fit its strategic
objectives.
On February 23, 2000, AT&T Latin America agreed to acquire 100% of the
capital stock of Keytech LD, a development stage broadband communications
company in Argentina, in exchange for 1,178,689 shares of AT&T Latin America
Class A common stock, plus $5 million in cash. The parties will place 550,000 of
those shares in escrow . The shares will be released to the selling stockholders
of Keytech LD over a period of six years to the extent they are not used to
satisfy indemnity obligations of the selling stockholders under the stock
purchase agreement. Keytech LD has licenses that authorize or will authorize it
by November 8, 2000 to provide domestic and international long distance
services, local telephony services, value-added services and a range of data
services. Keytech LD also has rights to use 1910-1930 MHz wireless spectrum for
fixed wireless links in nine of Argentina's largest cities. AT&T Latin America
will also pay up to an additional $1.5 million to the selling stockholders one
year after the closing of the acquisition if certain business are accomplished.
COMPETITIVE POSITION. AT&T Latin America believes that it has important
competitive strengths in the Brazilian market, including the following:
o most extensive fiber optic networks installed in the
commercial, industrial and financial centers in Brazil based
on route kilometers, featuring technologically advanced
network hardware and centralized network management;
o high-quality, advanced technology in the components of the
network infrastructure, which supports the company's broadband
communications services without the restrictions imposed by
legacy platforms;
o capability to deploy network extensions rapidly and to provide
new services;
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o entrepreneurial, customer-driven business culture, with a
strong reputation for innovation, service and quality among
customers;
o market recognition and acceptance of the AT&T brand; and
o access to global connectivity and multinational customer base
through Concert, AGNS and other affiliates of AT&T Corp.
NETWORKS. AT&T Latin America's broadband communications networks
provide "first mile" links within a given metropolitan area and connectivity to
points outside each metropolitan area. AT&T Latin America deploys its network
facilities to reach larger office buildings, office parks and other high
concentrations of business access lines and potential business customers. By
doing so, it seeks to use capital efficiently to reach a maximum number of
customers and prospects. AT&T Latin America does not currently own or use any
material tangible property other than its broadband communications networks in
Brazil.
AT&T Latin America will continue to deploy and expand its networks in
the central financial and business districts of major metropolitan areas in
Brazil. AT&T Latin America also intends to extend selectively its metropolitan
networks to reach nearby concentrations of industrial and multinational
corporate customers. It plans to connect its metropolitan area networks
initially using fiber optic capacity leased on a short-term basis. As inter-city
traffic increases, AT&T Latin America intends to replace that short-term leased
capacity by constructing, purchasing, swapping or signing long-term leases for
fiber optic links.
In each city, the company's broadband communications networks consist
of the following components:
o a network management center, operating on a 24-hour/7-day
basis, where Netstream monitors the functioning of the network
and traffic patterns;
o redundant primary "backbone" rings of 144-strand fiber optic
cable, each connected to the network management center,
extending through the main areas or avenues served by the
network;
o numerous redundant secondary rings of 72-strand fiber optic
cable, each connected to the backbone ring, which extend the
network along additional streets and to other locations where
the individual buildings served are located;
o for each building served, an access cable of 24-strand fiber
optic cable connecting central transmission equipment in the
building to the secondary ring in the street; and
o for each customer in a building, a "riser" of copper, coaxial
or fiber optic cable connecting the building's central
transmission equipment unit to one or more customer units.
AT&T Latin America's fiber optic networks provide greater bandwidth,
reliability, security and transmission quality compared to legacy transmission
facilities, such as copper cable or satellite systems. AT&T Latin America
intends to continue to deploy its networks using
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fiber optic technology and to introduce high-speed wireless connectivity, where
appropriate, to broaden network coverage without sacrificing service quality.
AT&T Latin America's metropolitan ATM/IP networks enable it to provide
its advanced data, voice, video conferencing, Internet and electronic commerce
services through a single customer connection. Although the major Brazilian
carriers are installing updated transmission equipment, AT&T Latin America
expects that those carriers' networks will consist predominantly of
earlier-generation digital and analog transmission equipment for many years.
AT&T Latin America's ATM/IP-based networks have the following advantages:
o the ability to carry distinct types of traffic (e.g., data,
voice, video, multimedia) over the network using a single
transmission system;
o cost efficiency, due to the reduced amount of hardware
required to transmit diverse traffic;
o high-speed routing of traffic through the network, due to
fewer capacity "bottlenecks";
o high network and service reliability through utilization of
ring-based, self-healing capabilities;
o high degree of control, flexibility and manageability of the
networks, allowing for more sophisticated central management;
and
o high levels of transmission quality.
AT&T Latin America's network architecture is compatible with
prior-generation transmission standards used in public networks in the Region,
so traffic can be passed readily between and among the company's networks, other
local private networks and public national networks. These technological
advantages, together with the high bandwidth of the company's metropolitan area
networks, permit it to offer the following service benefits to its customers:
o an integrated package of data, voice, video and audio
services, as well as basic communications and transmission
services, from a single provider;
o data transmission speeds ranging up to 622 megabits per second
and, within each metropolitan area, an ability to increase
bandwidth easily;
o an ability to accommodate flexibly the requirements of very
large networks, such as dial-up networks used by Internet
service providers and other complex multi-point networks used
by financial institutions, multinational corporations,
universities and government entities;
o a high degree of transmission quality, with negligible error
rate and "lost" traffic;
o through sophisticated central network management systems, an
ability to continuously monitor and optimize a customer's
traffic patterns and to allow the
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customer to have full end-to-end visibility of network
performance, even across interconnections with other carriers'
networks;
o maximum availability of the customer's internal and external
networks and externally transmitted data -- through the
"self-healing" design features, the networks re-route
automatically any transmission over the network that is held
up by faulty equipment or line damage; and
o flexibility to upgrade rapidly transmission speed and
bandwidth.
The locations and status of AT&T Latin America's broadband
communications networks are summarized in the table below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Route Kilometers
Installed as of Buildings Connected Number of Users
City and Locations Date Commenced 12/31/99 as of 12/11/99 as of 12/31/99
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sao Paulo November 1998 100 291 578
- ---------------------------------------------------------------------------------------------------------------------
Rio de Janeiro August 1998 48 133 258
- ---------------------------------------------------------------------------------------------------------------------
Belo Horizonte March 1999 41 27 30
- ---------------------------------------------------------------------------------------------------------------------
Barueri/Alphaville December 1999 8 -- --
- ---------------------------------------------------------------------------------------------------------------------
Total 197 451 866
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
AT&T Latin America has made arrangements for the interconnection of its
networks with the networks of Embratel, Telefonica and Telemar. Those
arrangements are accomplished by the co-location of terminal equipment in the
premises of either AT&T Latin America or the other companies. This co-location
permits the rapid satisfaction of customer service orders for services outside
the company's metropolitan area networks.
AT&T Latin America's communications equipment vendors have actively
participated in planning and developing electronic equipment for use in its
networks. AT&T Latin America currently obtains ATM equipment and IP-based
routers from Cisco, SDH transmission equipment principally from Nokia and voice
switching equipment from Siemens. AT&T Latin America is in the process of
analyzing additional suppliers in order to diversify its supplier base. Because
AT&T Latin America uses existing communications technology rather than
developing new technology, its research and development expenditures are not
material.
SERVICES. AT&T Latin America believes that customers demand high
quality, cost effective communications services with simplified vendor
interfaces. It also believes that larger and more sophisticated customers expect
AT&T Latin America to anticipate their communications requirements and provide
customized solutions. By offering an integrated package of advanced as well as
basic services, AT&T Latin America believes it can access a larger market,
improve customer retention, achieve higher margins and reduce the cost of
acquiring new customers.
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AT&T Latin America's integrated portfolio of services in Brazil falls
into several principal categories, which are described below:
o data services;
o Internet and IP-based services;
o voice services; and
o services to other carriers.
DATA SERVICES. AT&T Latin America data's services include basic
connectivity services, such as point-to-point private lines, and private network
services, which consist of multi-point communications such as wide area network
("WAN") services. The basic infrastructure, plus supporting services (available
or being deployed) such as frame relay and ATM, allows AT&T Latin America to
implement different communications applications, to support a wide range of
customers' needs. The availability of bandwidth and reliability of the services
allow customers to support additional value-added services, such as video
conferencing.
INTERNET AND IP-BASED SERVICES. AT&T Latin America's Internet services
consist of dial-up and dedicated access services offered primarily to
businesses, as well as wholesale Internet services offered to Internet Service
Providers. Wholesale services allow Internet Service Providers to outsource
entirely their access infrastructure to the company.
VOICE SERVICES. AT&T Latin America's voice services include a family of
services that allow it to provide high quality, reliable voice communications.
Services range from the provisioning of office or campus services, including
virtual Private Branch Exchange ("PBX"), to building a complete voice network
covering multiple locations. Through interfaces with other private networks and
with public networks, customers are able to place and receive calls originating
and terminating from outside the company's networks.
SERVICES TO OTHER CARRIERS. AT&T Latin America provides "last mile"
access services to other carriers seeking to reach customers on its networks.
CUSTOMERS. The company's business has grown rapidly since the
commencement of commercial operations in 1998. Its customer base has increased
from 55 users at December 31, 1998 to 866 users at December 31, 1999.
AT&T Latin America's customers include:
o major financial institutions and financial markets, including
the stock exchanges of Sao Paulo (Bovespa) and Rio de Janeiro
(BVRJ) and numerous Brazilian and international banks,
brokers, insurance companies and other financial institutions
including AGF, Banco Cidade, Banco Santander, Bank of America,
Barclay's Capital, BCN - Banco de Credito Nacional, JP Morgan
and Unibanco;
o information and consulting businesses, including Andima,
Bloomberg, Deloitte Consulting and Reuters;
o Internet service providers, including AmChamNet, AOL Brasil
and PSINet;
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o global and regional multinational corporations;
o several international and domestic communications carriers;
and
o many medium-size and smaller-size business and professional
entities.
Especially for larger users, and as competition increases in Brazil for
advanced communication services, AT&T Latin America expects that it may be
required to renegotiate the pricing of its services from time to time to remain
competitive with other communications service providers. Lower prices for
communications services could have a material adverse effect on AT&T Latin
America if they cannot be offset by increases in its customer base, increases in
overall usage of its networks, increases in the provision of higher value-added
services to customers, or some combination of these offsetting factors. Although
AT&T Latin America believes that competition and price erosion will be important
factors in the development of communications markets in the Region, AT&T Latin
America cannot predict the amount or timing of any price erosion in future
periods for any service or class of services.
AT&T Latin America's customer contracts generally provide for payment
in local currency and are generally indexed to various Brazilian inflation
indicators. The revenues of AT&T Latin America's customers are also generally
denominated in local currency.
SALES, MARKETING AND CUSTOMER SERVICE. AT&T Latin America seeks to
build collaborative, long-term relationships with its customers by offering to
them a broad portfolio of communications services, by continuously monitoring
and identifying customers' changing communications needs and by leveraging one
or more of its services into a partnership with the customer in which AT&T Latin
America becomes the single source provider of all of the customer's
communications needs. AT&T Latin America believes that, in addition to providing
its customers with a good value, the company's sales and marketing approach
allows it to integrate its services into bundled packages that improve gross
margins by encouraging customers to use a greater number of and more advanced
services.
In Brazil, AT&T Latin America has a sales force of approximately 30
professionals that are supported by the company's technical engineering and
network center staff. AT&T Latin America's sales force is trained to emphasize
the company's customer-focused sales and service efforts, including its 24
hour/365 day customer service center. AT&T Latin America's sales and marketing
professionals answer customer calls directly, rather than requiring customers to
use an automated queried message system. Customer assistance is provided, at all
hours, in either Portuguese or in English. The company also actively solicits
feedback from its customers in order to understand their preferences and to
enhance their overall satisfaction with AT&T Latin America. AT&T Latin America
believes that its emphasis on a single point of contact for meeting its
customers' communications needs provides the company with a competitive
advantage in Brazil's rapidly developing, but fragmented, communications
services market.
AT&T Latin America has also developed and installed customer-focused
software based on its Saville billing system to provide integrated
communications services. This software permits the company to present its
customers with one fully integrated monthly billing statement for local, long
distance, international, voice mail, paging and Internet access, and will also
permit it to include additional services, when available. AT&T Latin America
believes that its
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customer-focused software platform is an important element in the marketing of
the company's communications services and gives it a competitive advantage in
the marketplace.
AT&T Latin America's sales people are compensated by a combination of
salary and bonus. Because one of AT&T Latin America's near-term objectives is to
increase the size and quality of its customer base, the sales force prioritizes
target users not only by their size and potential usage of advanced
communications services, but also by their proximity to the company's existing
network. AT&T Latin America's current commission structure rewards sales to
existing customers and new customers in buildings already connected to the
network, as well as customers in target buildings within 100 meters of the
existing network.
AT&T Latin America's sales force is supported by highly-experienced
technical engineering personnel whose objective is to organize the efficient
delivery of communications solutions to each customer. The technical staff's
role includes the proper coordination of vendor service components, customer
site preparation and installation, testing, delivery and maintenance of the
service solution for the customer. All of AT&T Latin America's engineering
personnel have local market experience and are receiving additional training
from AT&T Corp.
COMPETITION. In Brazil, like the rest of Latin America, competition
continues to increase in communications markets. Several global communications
carriers have entered the market either by acquiring former public-sector
carriers in the privatization of the Telebras operating companies, acquiring
Mirror licenses that the Brazilian government sold by auction to create a
duopoly in each principal area of Brazil, or by forming or acquiring alternative
service providers like Netstream. See "Industry Overview -- Brazil."
The company believes that Brazil's limited-capacity communications
infrastructure, and the increasing demand by businesses for advanced
communications services creates an attractive market opportunity for new
entrants that can build networks quickly and offer high-quality integrated
services.
AT&T Latin America competes in the Brazilian communications market on
the basis of its network quality, customer responsiveness, range of services
offered, reputation for innovation and quality, general experience and price.
The company's competition in Brazil generally can be divided into three
categories:
o incumbent carriers;
o Mirror companies; and
o other communications providers.
INCUMBENTS. Brazil's incumbents provide varying degrees of low- and
high-speed data transmission services through their own and each others' private
leased circuits, public network infrastructure exchanges and data transmission
networks.
The incumbents, which include Embratel, Telefonica (formerly Telesp),
TeleNorteLeste and Telemar, benefit from:
o existing infrastructure;
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o a large base of existing customers; and
o an ability to market effectively to some large business
customers on the basis of broad geographic coverage.
The incumbents also have some possible market disadvantages, including:
o contractual commitments to the government to make large
investments in infrastructure, including additional
residential and rural infrastructure;
o the need to improve existing customer service and installation
practices to reflect the change from monopolistic environment
to a competitive environment; and
o the onset of competition from the Mirror companies and other
new market entrants in traditional telephony markets, as well
as advanced and value added services.
MIRROR COMPANIES. The competitive advantages of the Mirror companies
are their more modern networks, compared to incumbents' networks, and more
entrepreneurial business outlook. However, the Mirror companies also have
expensive contractual commitments to build facilities in the areas in which they
operate. Both Mirror companies and incumbent carriers will face additional
competition when the current duopoly in fixed telephony ends on December 31,
2001 in each of these areas.
OTHER COMMUNICATIONS PROVIDERS. In Brazil, adoption of the Minimal Law
of 1996 made it possible for private companies to offer value-added
communications services. Since that time, a growing number of regional and
global companies have entered the data communications market in Brazil in an
attempt to capitalize on unmet demand for these services. While these companies
have enjoyed some advantage over the incumbents through their ability to select
and fund freely their own equipment, the new entrants rely, to a large extent,
on leased capacity on the legacy networks of the incumbent operators. There are
several business-oriented communications providers in Brazil that currently
offer or plan to offer services to the company's target market. These include:
o METRORED. MetroRED is a data transmission service operator
offering dedicated last mile connections at speeds ranging
from 64K to STM-4 to large business customers and other
communications operators in the cities of Sao Paulo and Rio de
Janeiro. MetroRED is in the process of completing a long-haul
fiber network connecting the cities of Sao Paulo, Rio de
Janeiro and Belo Horizonte. AT&T Latin America believes that
MetroRED will expand its product portfolio in 2000 to include
IP, Frame Relay and ATM services.
o IMPSAT. Impsat, based in Argentina, established a subsidiary
in Brazil that has offered value added services since 1998
utilizing VSAT technology. As part of its Impsat 2000 project,
Impsat has stated an intention to build a long-haul fiber
optic network connecting the major metropolitan markets in
Argentina, Brazil, Colombia, Ecuador, Mexico and Venezuela.
Currently, Impsat is deploying fiber optic metropolitan
networks in the main cities in Brazil and has stated that it
will complete its construction in the latter part of 2000.
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o GLOBALONE. GlobalOne offers value-added services in Brazil to
large business customers via its proprietary points of
presence (POPs) and leased infrastructure from the incumbents.
o COMSAT. Comsat is an international satellite-based
communications company. The company believes Comsat is
broadening its position from satellite-band services to other
solutions to attempt to keep its customers from migrating to
different facilities-based systems, such as fiber optic.
o DIVEO. This Brazilian subsidiary of Diginet Americas
introduced its broadband wireless solution in the Sao Paulo
region at the end of 1999. It has announced plans to expand
its offering to other major metropolitan areas in Brazil
during 2000.
AT&T Latin America intends to continue to build on Netstream's
reputation as an innovative, responsive and high quality communications services
provider in Brazil in order to maintain and expand its existing customer base
even as the incumbents and Mirror companies place more emphasis on AT&T Latin
America's target markets and customers.
AT&T Latin America believes that it also has a competitive advantage
over certain alternative service providers which apply satellite technology,
including very-small aperture terminal ("VSAT") technology. Generally,
satellite-based communications solutions, while less expensive than fiber-based
services, provide customers with significantly slower transmission rates and
lower network performance capabilities. AT&T Latin America believes that its
existing and expanding fiber optic networks will provide it with significant
competitive advantage over these alternative service providers in addressing the
broadband needs of its targeted customers.
In the third category, several international communications companies
have either entered or are considering entering the Brazilian communications
market as deregulation and increased demand continues to open new market
opportunities. While increased competition may have an effect on the company's
pricing policies, AT&T Latin America believes that relationships with AT&T
Corp., Concert and AGNS will provide it with an increased portfolio of global
services and a competitive cost structure.
REGULATION AND LICENSES. Telecommunications and postal services in
Brazil are regulated by the Ministry of Communications pursuant to the
Telecommunications Law of 1962, as amended. Brazil's telecommunications laws
were significantly revised in September 1997 when the Brazilian legislature
enacted the General Telecommunications Law. This law authorized the creation of
ANATEL, which is an independent agency that regulates all aspects of
telecommunications services, except radio and television broadcasting, including
the granting of licenses under the General Telecommunications Law.
On May 12, 1998, ANATEL granted Promon two nation-wide unlimited term
non-exclusive licenses: a Specialized Circuit Service License
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and a Specialized Network Service License. Both licenses were transferred from
Promon to Netstream on June 7, 1999. These licenses permit the construction of
the network infrastructure and the development of fixed point-to-point and
point-to-multipoint systems to provide corporate voice, data and video
communications services using terrestrial links to closed user groups. In
Brazil, "closed user group" is a natural person, legal entity or group of
natural persons or legal entities performing a "specific activity," such as, for
example, an automotive manufacturer and its dealer network. The licenses do not
permit Netstream to provide services open to public correspondence, which means
that Netstream - like other alternative service providers in Brazil - is not
permitted to deliver traffic originating off-network to other points
off-network. However, Netstream is able to originate and terminate traffic going
to, or coming from points off-network. AT&T Latin America believes that
Netstream's licenses permit Netstream to provide its integrated portfolio of
advanced and basic services to its business customers.
The Brazilian telecommunication market is currently in a transition
from a regulated duopoly in fixed switched public telephony (encompassing local,
long distance and international calls) and cellular telecommunications services)
to full liberalization and competition. Entry into fixed switched public
telephony is restricted to the former Telebras companies and respective mirror
companies until December 31, 2001. Restrictions as to the number of providers of
fixed switched public telephony services are scheduled to cease as of January 1,
2002. ANATEL has not yet publicized specific legal, technical and financial
requirements for the issuance of future fixed switched public telephony
authorizations after 2001. However, AT&T Latin America expects that these
requirements may set high standards and that companies already operating in the
Brazilian market, such as Netstream, will be in a better position to satisfy
these standards than a telecommunications carrier that is organized after full
liberalization of the market.
EMPLOYEES. As of December 31, 1999, AT&T Latin America's subsidiaries
had a total of approximately 135 employees. The company expects that the number
of employees will increase rapidly throughout 2000, reaching an estimated 350 by
year-end.
AT&T Latin America believes that its future success will depend in
large part on its continued ability to attract and retain highly skilled and
qualified personnel. AT&T Latin America believes that Netstream offers and AT&T
Latin America will offer prospective employees competitive compensation and
benefits as well as the opportunity to work with advanced technology in a
high-growth company. However, AT&T Latin America cannot assure you that it will
be able to attract and retain an adequate number of qualified employees to meet
its hiring objectives. As is the case throughout Brazil, AT&T Latin America also
regularly uses the services of contract technicians for the installation and
maintenance of its network. AT&T Latin America believes that its relations with
its employees are good.
LEGAL MATTERS. Neither AT&T Latin America nor any of its subsidiaries
is a party to any material legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AT&T LATIN AMERICA
The following discussion includes forward-looking statements. See
"Forward-Looking Statements." For a discussion of other important factors,
including, but not limited to, continued development of AT&T Latin America's
business, actions of regulatory authorities and
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competitors and other factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
COMPANY OVERVIEW.
AT&T Latin America was formed in October 1999 to be a leading provider
of broadband communications services mainly to business customers throughout the
Region. AT&T Latin America currently conducts substantially all of its business
activities through its subsidiary, Netstream, which it acquired in December
1999. Except for $50 million cash proceeds that AT&T Latin America received in
December 1999 as capital contributions from its shareholders and a substantial
amount of goodwill arising from the acquisition of Netstream, the assets and
liabilities of Netstream currently constitute substantially all of the assets of
AT&T Latin America on a consolidated basis.
Throughout 1998 and until its acquisition by AT&T Latin America in
December 1999, Netstream was operated as a part of Promon. The historical
financial information of Netstream presented in this proxy statement/prospectus
reflects periods during which it did not operate independently of Promon.
Therefore, this financial information may not necessarily reflect the results of
operations or the financial condition of Netstream which would have resulted had
it been an independent company during the reporting periods presented.
On February 23, 2000, AT&T Latin America agreed to acquire Keytech LD,
a development stage broadband communications company in Argentina. AT&T Latin
America expects that it will complete the Keytech LD acquisition in the same
time frame of the merger subject to fulfillment of conditions to the
acquisition.
The revenues from services provided over AT&T Latin America's networks
have not been material. The company expects that the operating and net losses
and negative cash flows from its business will increase in the near future as it
expands and develops its networks and customer base. The more rapidly AT&T Latin
America expands its communications business, the greater its near term operating
losses and capital expenditures will be. There can be no assurance that AT&T
Latin America will achieve or sustain profitability or positive cash flows from
operating activities in the future as it develops its communications networks.
RESULTS OF OPERATIONS - AT&T LATIN AMERICA (AMOUNTS IN THOUSANDS OF
U.S. DOLLARS).
The following discussion of the results of operations of AT&T Latin
America includes information about:
o the 1999 historical consolidated results of operations of AT&T
Latin America, which cover the period beginning October 13,
1999, the date of the formation of AT&T Latin America, through
December 31, 1999; and
o pro forma consolidated results of operations of AT&T Latin
America for the twelve months ended December 31, 1999, which
results assume that the acquisition of Netstream occurred on
January 1, 1999 instead of December 8, 1999.
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For comparative purposes, the following discussion also refers to line
items included in the historical results of operations of Netstream for the
eleven-month period ending December 31, 1998.
Comparison of the 1999 pro forma consolidated results of operations of
AT&T Latin America with the 1998 historical results of operations for Netstream
would not be meaningful for the following reasons:
o as indicated above, Netstream operated as part of Promon for
the entire 1998 period and for most of 1999, until its
acquisition in December of 1999;
o Netstream did not have material commercial operations in 1998,
and its results of operations for that period do not include
material items; and
o if AT&T Latin America had in fact acquired Netstream on
January 1, 1999, its historical 1999 consolidated results of
operations might have differed significantly from those
indicated in the 1999 pro forma consolidated results of
operations of AT&T Latin America.
NET REVENUES. Net revenues of AT&T Latin America were $802 in 1999. On
a pro forma basis, assuming the acquisition of Netstream had occurred on January
1, 1999, net revenues for 1999 were $1,993. Netstream did not recognize any
revenues for the eleven months ended December 31, 1998. Revenue in 1999 was
derived primarily from the provision of data and Internet services in Sao Paulo
and Rio de Janeiro.
COST OF REVENUES. Cost of revenues were $865 in 1999, and were $6,041
on a pro forma basis. In 1998, Netstream did not recognize any costs of revenue.
Cost of revenues consists of leased line costs, maintenance costs and network
and operating systems costs (including labor). AT&T Latin America expects that,
until utilization of existing and planned facilities increases, costs of
revenues will increase both in absolute terms and as a percentage of revenue as
service is provided in additional cities.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative ("SG&A") expenses were $2,164 in 1999 and were $9,174 on a pro
forma basis. In 1998, Netstream's SG&A expenses were $3,848. SG&A expenses are
comprised primarily of marketing, sales commissions, office space (including
rent and lease expenses) and indirect labor expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1,707
in 1999 and $23,291 on a pro forma basis, including an estimate of the
calculation of goodwill as required by U.S. GAAP. In 1998, Netstream did not
recognize any depreciation and amortization expense. AT&T Latin America expects
that depreciation and amortization will increase significantly in 2000 and
upcoming periods as the company continues to invest in the growth and
installation of its networks.
INTEREST EXPENSE. AT&T Latin America did not have any interest expense
in 1999. On a pro forma basis, AT&T Latin America also did not have any interest
expense in 1999, because Netstream's debt to Promon, indicated in the Netstream
historical financial information, was eliminated in the acquisition of
Netstream. Interest expense consisted of capital lease expense. The company
expects that interest expense will increase significantly in 2000 and future
periods
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as debt financing is obtained from AT&T Corp. and from the capital markets to
expand its business. See - "Liquidity and Capital Resources - AT&T Latin
America."
NET LOSS. Net loss for 1999 was $4,124, and was $36,961 on a pro forma
basis as expenses related to the development of the company's networks exceeded
revenues. For the eleven months ended December 31, 1998, Netstream had a net
loss of $3,442.
LIQUIDITY AND CAPITAL RESOURCES - AT&T LATIN AMERICA.
FirstCom and Netstream have had significant operating losses and
negative cash flow from their respective operations since their inception. AT&T
Latin America expects to continue to incur significant operating losses and have
negative cash flow from operations through at least the end of 2002 as it
expands its existing communications networks and develops new networks and
services.
A significant portion of AT&T Latin America's capital requirements will
relate to network expansion and construction. The company continues to expand
its existing communications networks in Brazil and plans to construct new
networks in additional cities in Brazil. After completion of the merger, AT&T
Latin America plans to expand FirstCom's existing networks in Chile, Colombia
and Peru. After the completion of its pending acquisition of Keytech LD, the
company also plans to construct new networks in Buenos Aires and other cities in
Argentina. The company expects that its working capital, capital expenditure
needs and SG&A and interest expenses will continue to increase as this expansion
takes place, which will accelerate the company's need for additional capital.
AT&T Latin America estimates that it will use approximately $375
million in 2000 and the first half of 2001 to:
o develop and expand communications networks and services in
Argentina, Brazil, Chile, Colombia and Peru; and
o fund working capital needs, operating losses and debt service
obligations.
The company expects more than half of that amount will be used for
network expansion and to fund working capital needs and operating losses
relating to Brazil and, following the merger, to Chile, Colombia and Peru. Upon
completion of its pending acquisition of Keytech LD, AT&T Latin America expects
to use the balance for its construction of new networks in Argentina and for
working capital needs and operating losses resulting from its operations in
Argentina. AT&T Latin America expects that its funding needs will continue at a
comparable level from mid-2001 through the end of 2002.
The company's expansion plans, and the amount and timing of its capital
expenditures, will be affected by, among other things:
o the company's ability to raise financing in equity and debt
capital markets on reasonable terms;
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o completion of the pending acquisition of Keytech LD, which the
company expects to occur within the same time frame as the
merger, subject to the fulfillment of the conditions to that
acquisition; and
o the ability of the company to continue to obtain in timely
fashion required local authorizations to construct its
networks, particularly in Brazil and Argentina.
Moreover, the company may require additional funding if its operating losses are
greater than it anticipates or to take advantage of opportunities, including
expansion, acquisitions of businesses or investments in companies that are
complementary to its operations.
As part of the Netstream acquisition, AT&T Corp. contributed $10
million, and Promon contributed $40 million, to the equity capital of AT&T Latin
America. As of December 31, 1999, $48.9M of the contribution remained.
As a condition to the merger, AT&T Latin America will have received $70
million in equity contributions from its shareholders. In addition to the $50
million in cash equity contributions made to date, AT&T Corp. will contribute an
additional $20 million in cash to AT&T Latin America before the closing of the
merger, in exchange for additional shares of Class B common stock. AT&T Latin
America expects that Promon's affiliate will participate pro rata in this
additional $20 million cash contribution in proportion to its percentage
economic interest in AT&T Latin America.
As required under the merger agreement, AT&T Corp. will provide AT&T
Latin America with $100 million in debt financing upon completion of the merger
in the form of a revolving credit facility (the "AT&T Corp. Facility"). The AT&T
Corp. Facility will have a two-year maturity, and will bear interest at a rate
of 11% per annum payable quarterly. See "Other Material Agreements and
Arrangements."
Under the merger agreement, the consent of holders of at least a
majority in principal amount of the outstanding 14% Senior Secured Notes due
2007 of FirstCom to certain covenant waivers is a condition to the merger.
Alternatively, if requested by AT&T Corp., FirstCom is required to complete a
tender offer for its outstanding 14% Senior Secured Notes due 2007 and, as part
of that tender offer, to obtain the consent of holders at least a majority of
the aggregate principal amount of the Notes to certain amendments to the
covenants of FirstCom relating to the Notes. AT&T Latin America believes it is
likely that AT&T Corp. will make such a request. If so, the successful
completion of the tender and consent solicitation will be a condition to the
closing of the merger. AT&T Latin America expects that any tender offer for the
Notes, which will be subject to the completion of the merger and certain other
conditions, and payment of related costs and expenses, will be financed by AT&T
Latin America through the issuance to an affiliate of AT&T Corp. of new shares
of non-participating preferred stock of AT&T Latin America. This preferred stock
would be entitled to receive a fixed and cumulative cash dividend at a rate of
15% per annum, payable semi-annually. The preferred stock would be redeemable at
the option of either the holder or AT&T Latin America at any time after the
fourth anniversary of the issue date.
Currently, FirstCom has equipment financing facilities of $39.5 million
aggregate principal amount, under which $4.8 million was outstanding as of
December 31, 1999.
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Effective February 25, 2000, subsidiaries of FirstCom entered into a
short-term $10 million credit facility with a bank. The terms of that facility
are: (i) annual interest rate of LIBOR plus 6% or prime plus 5%, (ii) principal
maturity date of January 2, 2001, and (iii) interest payments on the outstanding
principal balance are due quarterly beginning June 30, 2000. The facility is
collateralized by certain telecommunications equipment. It is mandatorily
prepayable in the event of a change of control of FirstCom, including upon the
merger with AT&T Latin America.
During December 1999, one of FirstCom's Chilean subsidiaries obtained a
$1,400 working capital revolving credit facility from a local bank. This
facility is denominated in UF's (a Chilean inflation-adjusted unit) and bears
interest at the prevailing market rates at the time of each draw down.
The company believes that it will be able to raise sufficient capital
to implement its plan and, depending on prevailing market conditions, intends to
engage in capital raising activities (which may include an equity offering)
shortly after completion of the merger. However, if the company's plans or
assumptions change or prove to be inaccurate, if the company consummates
additional acquisitions, or if the company's operating income does not
significantly increase, it may be required to seek more capital than currently
anticipated. Sources of capital may include public and private equity and debt
financings and other financing arrangements. There can be no assurance that the
company will be able to obtain financing, or, if such financing is available,
that the company will be able to obtain it on acceptable terms. Failure to
obtain sufficient financing, could result in the delay or reduction in scope of
some or all of the company's development and expansion plans, which could
adversely affect the company's business and its ability to service its debt and
other obligations. Moreover, the percentage interest of existing stockholders of
AT&T Latin America will be diluted to the extent that the company obtains
financing or makes acquisitions by issuing additional equity securities.
Depending on market conditions and other factors, including the financing needs
of the company and the financial terms of any acquisitions, such issuances could
also be economically dilutive to the existing shareholders of AT&T Latin
America. See "Risk Factors."
MANAGEMENT AND GOVERNANCE OF AT&T LATIN AMERICA
DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the persons the parties currently expect will
serve as directors and executive officers of AT&T Latin America following the
merger, their ages and their positions following the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John A. Haigh 45 Chairman of the Board of Directors
Patricio E. Northland 44 President, Chief Executive Officer
and Director
</TABLE>
See "Proposed Composition of AT&T Latin America's Board and Committees"
for information about the composition of the rest of the AT&T Latin America
board.
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The following is biographical information for the expected directors
and executive officers of AT&T Latin America following the merger:
JOHN A. HAIGH since September 1999 has been president of the
International Ventures Organization for AT&T Corp., which includes AT&T Corp.'s
entire portfolio of international in-country ventures. From 1997, when he first
joined AT&T Corp., until September 1999, Mr. Haigh served as vice president -
corporate strategy and business development. From 1991 through 1996, Mr. Haigh
provided consulting services to AT&T Corp. as a consultant at Mercer Management
Consulting, where he had worked since 1983, in the areas of corporate strategy,
communication services strategy, consumer and business communication services
product management and marketing, as well as network services division process
re-engineering. Mr. Haigh spent his final year at Mercer Management Consulting
providing advice and counsel to the AT&T senior management team on matters of
corporate strategy. Mr. Haigh holds a bachelor of arts degree in economics from
Grinnell College and a master's degree in public policy from Harvard University.
PATRICIO E. NORTHLAND has over sixteen years of experience as an
international communications executive and entrepreneur. Mr. Northland has been
chairman of the board of directors, president and chief executive officer of
FirstCom since November 1996. Born in Chile, Mr. Northland is a U.S. citizen. In
1991, Mr. Northland founded AmericaTel Corporation, a Miami-based international
communications carrier providing satellite-based voice, data and fax
communications services to corporate customers throughout Latin America. 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 a master's degree in business administration from the University of Chicago.
PROPOSED COMPOSITION OF AT&T LATIN AMERICA'S BOARD AND COMMITTEES
The board of directors of AT&T Latin America will have nine members.
Three of those members will be "disinterested" individuals who have no
affiliation with AT&T Corp. or AT&T Latin America. The other six members will be
nominated by AT&T Corp. and will include the chief executive officer of AT&T
Latin America, Patricio E. Northland, and John A. Haigh, president of the
International Ventures Organization of AT&T Corp. The company expects the other
four directors to be nominated by AT&T Corp. and the three disinterested
directors will be selected to the board in advance of the FirstCom shareholders'
meeting to vote upon the merger.
Certain members of AT&T Latin America's board of directors will also
serve on an audit committee and a compensation committee of the board.
COMPENSATION OF AT&T LATIN AMERICA'S NAMED EXECUTIVE OFFICERS
At December 31, 1999, AT&T Latin America had officers but no employees.
None of its officers received any compensation for services rendered to AT&T
Latin America. AT&T Latin America had no retirement, incentive, bonus,
stock-based or other employee benefit plans. At December 31, 1999, no person who
will serve as a director or an executive officer of AT&T Latin America had
received any compensation for services rendered to AT&T Latin America.
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LONG-TERM INCENTIVE PLAN
Following the completion of the merger, AT&T Latin America expects that
its board of directors will adopt and subsequently submit to its stockholders
for their approval a long-term incentive plan. The purpose of the plan will be
to encourage eligible participants to acquire a proprietary and vested interest
in the growth and performance of the company, to generate an increased incentive
to contribute to the company's future success and prosperity, thus enhancing the
value of the company for the benefit of its share owners, and to enhance the
ability of the company to attract and retain individuals of exceptional
managerial talent upon whom, in large measure, the sustained progress, growth
and profitability of the company depends. The terms of the plan have not been
finalized but material provisions of the intended plan are summarized below.
TYPES OF AWARDS. The plan will provide for the award of:
o stock options, including incentive stock options (within the
meaning of Section 422 of the Internal Revenue Code);
o stock appreciation rights;
o restricted stock and restricted units;
o performance stock and performance units;
o deferred stock units;
o cash performance bonuses; and
o other awards as the compensation committee of the board of
directors may from time to time determine.
ELIGIBILITY. Any director, officer or employee of AT&T Latin America or
any of its affiliates, including any prospective employee, and any consultant or
contractor to AT&T Latin America or any of its affiliates selected by the
compensation committee will be eligible for awards. The number of participants
in the plan will vary from year to year.
SHARES SUBJECT TO THE LONG TERM INCENTIVE PLAN. Initially,
approximately 15% of the total outstanding shares of AT&T Latin America's Class
A common stock upon completion of the merger will be authorized to be issued
under the plan. On each January 1st of the fifth year through the tenth year in
which the plan is in effect, the number of shares authorized to be issued under
the plan will be increased by 3% of the total outstanding shares as of December
31 of the preceding year. If shares subject to an award under the plan cease to
be subject to that award as a result of forfeiture or if an award otherwise
terminates without a payment being made to the participant in the form of common
stock, the shares will again be available for future award under the plan. If a
participant tenders shares to exercise any award, or if AT&T Latin America
withholds shares to pay withholding taxes, only the net number of shares issued
to the participant will be counted against the number of shares reserved for
awards under the plan. If there is a change in the number or kind of outstanding
shares of common stock by reason of any recapitalization, reorganization,
merger, consolidation, stock split or any similar change affecting
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the common stock, the compensation committee will make appropriate adjustments
to the type and number of shares covered by awards then outstanding under the
plan, the exercise or reference price of outstanding awards and the shares that
remain available for award under the plan.
LIMITATIONS ON AWARDS. The maximum number of shares of AT&T Latin
America common stock with respect to which awards may be granted to any one
person in a calendar year will be 3,000,000. The maximum cash award that may be
awarded to any individual in a calendar year will be $2,000,000.
ADMINISTRATION. The plan will be administered by the compensation
committee, which will be authorized to delegate its authority except to the
extent that it relates to the compensation of AT&T Latin America's chief
executive officer, its four other most highly compensated executive officers or
any other individual whose compensation the board of directors or compensation
committee believes may become subject to Section 162(m) of the Code. The
compensation committee will have the authority to construe, interpret and
implement the plan and any agreements evidencing any awards under the plan, and
to prescribe, amend and rescind rules and regulations relating to the plan. The
determination of the compensation committee on all matters relating to the plan
or any award agreement will be final and binding.
STOCK OPTIONS. The compensation committee will be authorized to grant
options to purchase shares of common stock that are either "qualified," which
includes those awards that satisfy the requirements of Section 422 of the
Internal Revenue Code for incentive stock options, or "nonqualified," which
includes those awards that are not intended to satisfy the requirements of
Section 422 of the Internal Revenue Code. These awards will be subject to such
terms and conditions, if any, as the compensation committee deems appropriate.
Under the terms of the intended plan, the exercise price of the options will,
unless the compensation committee determines otherwise, not be less than the
fair market value of the common stock at the time of grant. The options will
generally have a term of ten years, unless the compensation committee specifies
a shorter term, and will vest and become exercisable at such times and subject
to such conditions as the compensation committee will determine.
The compensation committee may be authorized to permit a participant to
deliver shares of common stock to exercise an option, and may provide that, if a
participant does so when the market value of the common stock exceeds the
exercise price of the option, he or she will be automatically granted new
options for the number of shares delivered to exercise the option ("reload
options"). Reload options will be subject to the same terms and conditions as
the related option except that the exercise price will be the fair market value
on the date the reload option is granted and such reload options will not be
exercisable for six months.
STOCK APPRECIATION RIGHTS OR "SARs". The compensation committee will be
authorized to grant SARs either alone or in addition to other awards granted
under the intended plan. These awards will be subject to such terms and
conditions, if any, as the compensation committee deems appropriate. Under the
terms of the intended plan, the reference price of a SAR will, unless the
compensation committee determines otherwise, not be less than the fair market
value of the stock on the date of grant. Upon exercise of a SAR, a participant
will receive an amount in cash, its equivalent or stock that is equal to the
fair market value on the date of exercise over the reference price. SARs will
generally have a term of ten years, unless the compensation
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committee specifies a shorter term, and will vest and become exercisable at such
times and subject to such conditions as the compensation committee will
determine.
RESTRICTED STOCK AND RESTRICTED UNITS. The compensation committee will
be authorized to award restricted stock and restricted units. For purposes of
the intended plan, restricted stock will be an award of common stock and a
restricted unit will be a contractual right to receive common stock or cash
based on the fair market value of common stock. These awards will be subject to
such terms and conditions, if any, as the compensation committee deems
appropriate. Restricted stock and restricted units will generally become vested
and nonforfeitable and the restriction period will lapse at such times and
subject to such conditions as the compensation committee will determine.
PERFORMANCE STOCK AND PERFORMANCE UNITS. The compensation committee
will also be authorized to award performance stock and performance units. For
purposes of the intended plan, performance stock will be an award of common
stock and a performance unit will be a contractual right to receive common stock
or cash based on fair market value of common stock. These awards will be
contingent upon the attainment, in whole or in part, of certain performance
objectives over a period to be determined by the compensation committee. The
performance objectives may include cash generation targets, profits, revenue and
market share targets, profitability targets as measured through return ratios
and shareholder returns. The performance objectives may be measured on an
absolute basis versus predetermined targets, on a relative basis versus peer
companies or an external index. With regard to a particular performance period,
the compensation committee will have the discretion, subject to the plan's
terms, to determine the terms and conditions of awards, including the
performance objectives to be achieved during the performance measurement period
and the determination of whether and to what degree the specified objectives
have been attained.
DEFERRED STOCK. The compensation committee will also be authorized to
award deferred stock units, which confer upon a participant the right to receive
shares of common stock at the end of a specified deferral period. Deferred stock
units will carry no voting rights until the shares have been issued. Deferred
stock units will be fully vested at all times.
CASH PERFORMANCE BONUS. The compensation committee will also be
authorized to award short-term or long-term cash performance bonuses. These
awards may be contingent upon the attainment, in whole or in part, of certain
performance objectives over a period to be determined by the compensation
committee. The performance objectives may include cash generation targets,
profits, revenue and market share targets, profitability targets as measured
through return ratios, and shareholder returns. The performance objectives may
be measured on an absolute basis versus predetermined targets, on a relative
basis versus peer companies or an external index. With regard to a particular
performance period, the compensation committee will have the discretion, subject
to the plan's terms, to determine the terms and conditions of awards, including
the performance objectives to be achieved during the performance measurement
period and the determination of whether and to what degree the specified
objectives have been attained.
DIVIDEND EQUIVALENTS. The compensation committee will determine whether
participants will be entitled to receive either currently or at a future date,
dividends or other distributions paid with respect to awards and, if and to the
extent determined by the compensation committee,
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either will be credited with or receive currently an amount equal to dividends
paid with respect to the corresponding number of shares covered by awards.
TERMINATION OF EMPLOYMENT. If a participant's employment terminates
because of death, disability, early retirement (with the compensation
committee's consent) or normal retirement:
o during the performance measurement period, then an award of
performance stock or performance units will become vested and
nonforfeitable as to that percentage of the award that would
have been earned based on the attainment of performance
objectives for the days worked as a percentage of total days
in the performance period (or such greater percentage as the
compensation committee may determine). Unless the compensation
committee determines otherwise, any unvested performance stock
or performance unit award will be forfeited on termination of
employment;
o during the period in which the transfer of shares is
restricted, then the restricted stock or restricted units will
become vested and nonforfeitable as to that percentage of the
shares based upon the days worked as a percentage of total
days in the restricted period (or such greater percentage as
the compensation committee may determine). Unless
nonforfeitable on the date of termination or otherwise
determined by the compensation committee, a restricted stock
or restricted unit award will be forfeited on termination of
employment; and
o the holder (or his or her beneficiary or legal representative)
may exercise any option and/or SAR, regardless of whether then
exercisable, for a period of one year (or such greater or
lesser period as determined by the compensation committee at
or after grant), but in no event after the date the option
and/or SAR would otherwise expire. If an option and/or SAR
holder's employment is terminated for any other reason, all of
his or her options and/or SAR will immediately terminate,
regardless of whether then exercisable (unless determined
otherwise by the compensation committee at the time of or
following the date of grant).
NONTRANSFERABILITY OF AWARDS. Awards under the plan will generally not
be assignable or transferable other than by will or by the laws of descent and
distribution, and all awards and rights will be exercisable during the life of
the participant only by the participant or his or her legal representative. The
compensation committee may, upon such terms and conditions as it determines
appropriate, permit transfers to the participant's family members or to entities
of which the participant or his or her family members are the sole beneficiaries
or owners.
STATUS OF PARTICIPANTS. The participants in the plan will be unsecured
general creditors of AT&T Latin America and any of its affiliates. Unless
otherwise provided in an award agreement, a participant will have no rights as a
stockholder with respect to any shares covered by any award until the underlying
shares are delivered. An award will not confer on a participant any right to
continued employment. Unless otherwise required by law or determined by the
compensation committee, awards under the plan will not be taken into account for
purposes of any other compensation or benefit plan or arrangement of AT&T Latin
America and any of its affiliates.
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TAX WITHHOLDING. AT&T Latin America and any of its affiliates will be
entitled to withhold from any payment any required withholding or other taxes,
and may require that the participant provide sufficient funds to AT&T Latin
America and any of its affiliates to satisfy any required withholding tax
obligations before any delivery of shares or other payment to the participant.
The compensation committee may permit a participant to satisfy any required
withholding tax obligations by delivering shares of common stock previously
owned by the participant or by withholding a number of shares of common stock
otherwise deliverable to the participant, in each case having a fair market
value at the time equal to the amount of the required withholding taxes, and
upon such other terms and conditions as the compensation committee determines
appropriate.
TERM AND AMENDMENT. The intended plan will have a ten year term. The
board of directors or the compensation committee will be authorized to amend,
suspend or terminate the plan. The expiration of the term of the plan, or any
amendment, suspension or termination will not adversely affect any outstanding
award held by a participant without the consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description
of the material U.S. federal income tax consequences that may arise with respect
to awards under the intended plan.
The grant of an option will give rise to no tax consequences for the
participant or AT&T Latin America and any of its affiliates. Upon exercising an
option, other than an incentive stock option, the participant will generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the shares acquired on the date of exercise, and AT&T
Latin America and any of its affiliates generally will be entitled to a tax
deduction in the same amount. A participant generally will not recognize taxable
income upon exercising an incentive stock option and AT&T Latin America and any
of its affiliates will not be entitled to any tax deduction with respect to an
incentive stock option if the participant holds the shares for the applicable
periods specified in the Internal Revenue Code.
With respect to other awards, upon the payment of cash or the issuance
of shares or other property that is either not restricted as to transferability
or not subject to a substantial risk of forfeiture, the participant will
generally recognize ordinary income equal to the cash or the fair market value
of shares or other property delivered. AT&T Latin America and any of its
affiliates will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
CHANGE OF CONTROL. Under the terms of the intended plan, if there is a
change of control of AT&T Latin America, all awards that are not then vested
will, unless otherwise determined by the compensation committee, either become
vested and any restrictions or limitations will lapse or be assumed or replaced
by the acquiring entity. If the options are assumed by the acquiring entity and
the participant's employment is terminated within 18 months after the change of
control, the options will be immediately vested. For these purposes, a "change
of control" means the occurrence of any of the following events:
o the members of the board of directors at the beginning of any
two year period (the "Incumbent Directors") cease for any
reason other than death to constitute at least
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a majority of the board of directors, provided that any
director whose election, or nomination for election by the
company's stockholders, was approved by a vote of at least a
majority of the members of the board of directors then still
in office who were Incumbent Directors, other than as a result
of a proxy contest, or any agreement arising out of an actual
or threatened proxy contest, will be treated as an Incumbent
Director;
o any person, but excluding AT&T Corp., AT&T Latin America, any
of their affiliates or any of their employee benefit plans,
becomes the "beneficial owner" (as defined in Rule 13(d)(3) or
14(d)(2) under the Securities Exchange Act) of securities of
AT&T Latin America representing the greater of 25% of the
combined voting power of AT&T Latin America's then outstanding
securities and the percentage share then held by AT&T Corp. or
its affiliates; or
o provided such transaction is consummated, the stockholders of
AT&T Latin America approve a definitive agreement for the
merger or other business combination of AT&T Latin America
with or into another corporation (other than AT&T Corp., AT&T
Latin America or any of their affiliates), or the sale or
other disposition of all or substantially all of the assets of
AT&T Latin America to any other entity (other than AT&T Corp.
or any of its affiliates), a majority of the directors of
which were not directors of AT&T Latin America immediately
prior to the merger and in which the stockholders of AT&T
Latin America immediately prior to the effective date of such
merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of
the voting power they owned in AT&T Latin America immediately
prior to such transaction; or
SHAREHOLDER APPROVAL. AT&T Corp. has informed AT&T Latin America that
it will approve the long-term incentive plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of agreements that AT&T Latin America will enter into
with AT&T Corp., its controlling stockholder, in connection with the merger, see
"Other Material Agreements and Arrangements - Regional Vehicle Agreement with
AT&T Corp.," "- Service Mark License Agreement with AT&T Corp." and "- Credit
Facility."
PRINCIPAL STOCKHOLDERS OF AT&T LATIN AMERICA
The following table sets forth, as of March 3, 2000, information
regarding the beneficial ownership of AT&T Latin America's common stock by:
o each person that is known by AT&T Latin America to own
beneficially more than five percent of the outstanding shares
of AT&T Latin America;
o each of AT&T Latin America's directors and named executive
officers who own its shares; and
o all current directors and executive officers as a group.
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The table also sets forth the voting power for each of these persons
and groups as of March 3, 2000. With respect to the percentage of voting power
set forth in the following table:
o each holder of Class A common stock is entitled to one vote
per share; and
o each holder of Class B common stock is entitled to ten votes
per shares.
The table also sets forth expected beneficial ownership and voting
information with respect to holders of common stock of AT&T Latin America as of
May 31, 2000 giving effect to the merger and the pending acquisition of Keytech
LD.
<TABLE>
<CAPTION>
Expected Expected
Pre-Merger Pre-Merger Post-Merger Post-Merger
Percentage of Percentage of Expected Percentage of Percentage of
Pre-Merger Shares Total Voting Post-Merger Shares Total Voting
Name and Address Number of Shares Beneficially Power on a Number of Shares Beneficially Power on a
of Beneficially Owned/ Fully-Diluted Beneficially Owned/Economic Fully-Diluted
Beneficial Owner Owned Economic Interest Basis Owned(1) Interest Basis
- -------------------- ----------------- ------------------ ----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corp. (2) 36,000 90% 98.9% 72,983,144
shares of Class
B common stock
- -------------------- ----------------- ------------------ ----------------- ------------------ ----------------- ------------------
SL Participacoes 4,000 10% 1.1% 8,109,238
(3) shares of Class
A common stock
- -------------------- ----------------- ------------------ ----------------- ------------------ ----------------- ------------------
Patricio E. N/A N/A N/A
Northland (4)
- -------------------- ----------------- ------------------ ----------------- ------------------ ----------------- ------------------
All directors and N/A N/A N/A
executive officers
as a group
- -------------------- ----------------- ------------------ ----------------- ------------------ ----------------- ------------------
</TABLE>
* Less than 1%
(1) Reflects reclassification of the capital stock of AT&T Latin America
before the merger. See Note H in "Unaudited Pro Forma Combined
Financial Information."
(2) Includes the shares owned by BENTIS, Inc., a wholly-owned subsidiary of
AT&T Corp. The address of AT&T Corp. is 295 North Maple Avenue, Basking
Ridge, New Jersey 07920.
(3) The address of SL Participacoes, an affiliate of Promon Ltda., is
Avenida Juscelino Kubitschek, 1830, 14o. andar, Torre 4, CEP 04543-900,
Sao Paulo SP, Brazil.
(4) Includes [____] shares of AT&T Latin America that may be purchased upon
the exercise of outstanding stock options. The address of Mr. Northland
is 220 Alhambra Circle, Suite 910, Coral Gables, Florida 33134. Mr.
Northland is currently a shareholder of FirstCom (for information about
his shareholdings in FirstCom see the FirstCom Annual Report on Form
10-K, filed February 23, 2000, incorporated in this document by
reference), and he does not own any shares of AT&T Latin America.
DESCRIPTION OF FIRSTCOM
GENERAL. FirstCom provides broadband communications services primarily
to business customers in four major metropolitan business centers in the Region:
Santiago, Chile; Lima/Callao, Peru; and Bogota and Cali, Colombia. FirstCom
primarily targets business customers and other communications carriers and other
high volume users by offering a wide range of high bandwidth integrated services
including data, voice, video, audio and Internet access. Specific service
offerings vary depending on the current concessions held by FirstCom in each
particular country, as well as local laws and regulations and the infrastructure
in each country.
Until November 1996, FirstCom was a development stage company whose
activities primarily consisted of the acquisition of licenses, concessions and
rights-of-way in selected Latin American communications markets. Since that
time, it has focused on the development and operation of high-capacity fiber
optic networks in Latin American business centers.
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FirstCom currently operates fiber optic ATM/IP networks in Santiago,
Chile, Lima/Callao, Peru, and Bogota and Cali, Colombia. As of December 31,
1999, FirstCom's primary and secondary backbone and access cable consisted of
the following, by country:
o CHILE: approximately 275 route kilometers extending through
Santiago's downtown business district and the outlying
industrial and airport corridor;
o PERU: approximately 1,005 route kilometers extending through
Lima's major commercial and industrial districts and the port
city of Callao; and
o COLOMBIA: approximately 715 route kilometers extending through
the major commercial and industrial districts of Bogota and
Cali.
CHILE. In Chile, FirstCom currently holds concessions to provide the
following services:
o data and voice transmission services and value-added services
on a private line basis;
o public switched domestic and international long distance
services; and
o public switched local services.
FirstCom also maintains a concession to own and operate satellite earth
stations throughout Chile.
Through FirstCom's Chilean subsidiaries, FirstCom currently provides
its corporate customers in Santiago with the following broadband communications
services:
o high-quality voice and high-speed data communications services
on a private line basis, LAN to LAN interconnections,
dedicated channels for access to local information warehouses
(e.g. credit bureaus, etc.), remote terminal access, PBX to
PBX connections, remote printing capabilities, local and wide
area network design, engineering, installation, systems'
integration and support services;
o domestic and international long distance services, switched
and transported, in part, through FirstCom's own gateway
switch and satellite earth station, as well as through
interconnections with other Chilean long distance carriers;
and
o high-speed Internet access services including value-added
services such as web hosting and mission critical
applications.
PERU. In Peru, FirstCom currently holds concessions to provide the
following services:
o data and voice transmission services and value-added services
on a private line basis;
o public switched domestic and international long distance
services; and
o public switched local services.
Through its Peruvian subsidiary, FirstCom currently provides its
corporate customers in Lima and Callao with the following broadband
communications services:
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o high-quality voice and high-speed data communications services
on a private line basis, LAN to LAN interconnection and remote
terminal access;
o domestic and international long distance services switched and
transported through interconnections with Telefonica del Peru;
o local voice services switched and transported through
Telefonica del Peru (service to begin in 2000); and
o high-speed Internet access services.
COLOMBIA. In Colombia, FirstCom currently holds concessions to provide
data and voice transmission services and value-added services on a private line
basis.
Through its Colombian operations, FirstCom currently provides to its
corporate customers in Bogota and Cali with the following broadband
communications services:
o high-quality voice and high-speed data communications services
on a private line basis, LAN to LAN interconnection and remote
terminal access;
o high-speed Internet access services.
FirstCom entered the Colombian market in February 1999 with the
acquisition of approximately 76% of Teleductos S.A., now known as FirstCom
Colombia S.A., and has a presence in Bogota and Cali. In October 1999 FirstCom
increased its ownership of FirstCom Colombia to approximately 86%.
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DESCRIPTION OF AT&T LATIN AMERICA'S CAPITAL STOCK
The following is a summary of the material terms of AT&T Latin
America's Class A common stock and other capital stock as it will exist upon
completion of the merger. For a more detailed description, see the forms of AT&T
Latin America's amended and restated certificate of incorporation and bylaws
attached as exhibits to the merger agreement, which is attached as Annex A to
this proxy statement/prospectus, and the applicable provisions of Delaware law.
AUTHORIZED CAPITAL STOCK
AT&T Latin America will be authorized to issue 460 million shares of
capital stock, consisting of 300 million shares of Class A common stock, par
value $0.01 per share, 150 million shares of Class B common stock, par value
$0.01 per share, and 10 million shares of preferred stock, par value $0.001 per
share.
COMMON STOCK
VOTING RIGHTS. Holders of AT&T Latin America's Class A common stock are
entitled to one vote per share, and holders of Class B common stock are entitled
to ten votes per share, on all matters to be voted on by stockholders, including
the election of directors.
Generally, except as required by law, all matters to be voted on by
stockholders must be approved by a majority of the votes that holders of Class A
and Class B shares present in person or represented by proxy are entitled to
cast, voting together as a single class, subject to any voting rights granted to
holders of any preferred stock of AT&T Latin America. Except as otherwise
provided by law or in AT&T Latin America's certificate of incorporation, and
subject to any voting rights granted to holders of any outstanding preferred
stock, amendments to AT&T Latin America's certificate of incorporation need the
approval of a majority of the votes entitled to be cast by all holders of Class
A and Class B shares voting as a single class. Amendments that would alter or
change the relative powers, preferences or special rights of the Class A shares
or the Class B shares in an adverse manner, however, also must be approved by a
majority of the votes entitled to be cast by the holders of the class so
affected, voting as a separate class. Separate class votes are not required for
amendments to decrease or increase the authorized shares of any class so long as
adequate shares are reserved for issuance upon conversion of the Class B shares
or any shares of preferred stock. Stockholders may not act by written consent.
DIVIDENDS. Holders of AT&T Latin America's Class A and Class B shares
share equally on a per share basis in any dividend declared by the board of
directors, subject to any preferential rights of any outstanding preferred
stock. Dividends to holders of shares of Class A common stock or Class B common
stock consisting of shares of common stock or options or other securities
convertible into shares of common stock may be paid only in shares of Class A
common stock or options or other securities convertible into Class A common
stock.
AT&T Latin America's may not split, reclassify, subdivide or combine
shares of either class of common stock without at the same time proportionally
reclassifying, subdividing or combining shares of the other class.
ISSUANCE OF SHARES OF CLASS B COMMON STOCK, OPTIONS OR WARRANTS. AT&T
Latin America may not issue additional shares of Class B common stock, or issue
options, rights or
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warrants to subscribe for additional shares of Class B common stock, except in
connection with a pro rata offer to all holders of its common stock of rights to
purchase additional shares of the class of common stock held by them. The Class
A shares and the Class B shares will be treated equally with respect to any
offer AT&T Latin America makes to holders of common stock of options, rights or
warrants to subscribe for any of its other capital stock.
MERGER OR CONSOLIDATION. In the event of a merger or consolidation, the
holders of Class A shares and Class B shares will be entitled to receive the
same per share consideration, if any.
CONVERSION OF CLASS B SHARES. Class B shares are convertible into Class
A shares on a share-for-share basis at the option of the holder at any time, or
automatically upon transfer to a person or entity which is not a permitted
transferee. Permitted transferees include AT&T Corp. and any person or entity it
controls.
LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of AT&T Latin America, subject to the rights of any
shares of preferred stock, the net assets of AT&T Latin America available for
distribution to holders of equity securities will be distributed pro rata to the
holders of shares of common stock. The holders of shares of Class A common stock
and Class B common stock will be entitled to any of those distributions on an
equal basis.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of AT&T Latin America's common
stock do not have any preemptive rights under the certificate of incorporation,
bylaws or Delaware law to subscribe for any additional shares of, or other
obligations convertible into or exercisable for shares of, AT&T Latin America's
capital stock in connection with any future issuance by AT&T Latin America. No
shares of common stock are subject to redemption.
NASDAQ LISTING. AT&T Latin America intends to apply for the listing of
shares of its Class A common stock on the Nasdaq National Market under the
trading symbol "ATTL." The shares of Class B common stock will not be publicly
listed or traded.
PREFERRED STOCK
GENERALLY. AT&T Latin America's board of directors may, without
approval of its stockholders, issue a number of shares of preferred stock in one
or more series that does not together with the shares of existing outstanding
preferred stock exceed the amount established by the certificate of
incorporation, which currently is 10,000,000 shares. The board of directors may
fix the numbers of shares of each series and the designation, powers,
preferences and rights and the qualifications, limitations and restrictions of
the shares of each series.
The specific matters that the board of directors may determine include
the following:
o the designation of each series;
o the voting rights, if any, of each series;
o the rate of any dividends;
o redemption rights, if any, of each series;
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o the amount payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of AT&T Latin America;
o rights and terms of any conversion or exchange;
o dividend, distribution, redemption or purchase limitations and
restrictions relating to other capital stock, if any, while
any shares of such series are outstanding;
o restrictions on the creation of indebtedness or the issuance
of shares of the same series or any other series; and
o the ranking of a series compared to other classes or series as
to the payment of dividends, the distribution of assets and
all other matters.
SERIES A CONVERTIBLE PREFERRED STOCK. Upon completion of the merger,
each outstanding FirstCom Series A convertible preferred share will convert into
a share of AT&T Latin America Series A convertible preferred stock.
Rights of the holders of shares of Series A convertible preferred stock
of AT&T Latin America will include:
CONVERSION. Shares of Series A convertible preferred stock will be
convertible at the option of the holder into one share of Class A common stock,
subject to adjustment. The shares of Series A convertible preferred stock will
automatically convert at any time after the second anniversary of the merger
that the closing trading price of shares of AT&T Latin America's Class A common
stock is greater than $15 for thirty consecutive trading days.
DIVIDENDS. Holders of Series A convertible preferred stock receive
in-kind stock dividends at the annual rate of 15%, payable quarterly until June
30, 2001, and are entitled to receive other dividends paid from time to time to
common shareholders and all accrued and unpaid dividends.
LIQUIDATION. Upon any voluntary or involuntary liquidation, dissolution
or winding up, or specified changes of control, of AT&T Latin America, holders
of shares of Series A convertible preferred stock will be entitled to receive
$8.00, plus all accrued and unpaid dividends.
VOTING. Holders of shares of Series A convertible preferred stock will
be entitled to one vote for each share of Series A common stock of AT&T Latin
America into which the share of Series A convertible preferred stock is
convertible. As of the merger, this exchange ratio will be one-for-one and the
holders of shares of Series A convertible preferred stock will be entitled to
one vote per share.
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SPECIAL REQUIRED APPROVAL. The certificate of designation for the
Series A convertible preferred stock will provide that without the approval of
75% of the outstanding shares of Series A convertible preferred stock, voting
together as a class, AT&T Latin America may not:
o amend, repeal, alter or waive its certificate of incorporation
or bylaws if it would have a material adverse effect on the
rights, preferences or privileges of the Series A convertible
preferred stock;
o authorize or issue any new or existing capital stock
(including securities convertible or exchangeable into capital
stock) with superior or on parity preferences or priorities or
rights as to dividends, liquidation preference, assets or
voting, or preemptive rights;
o redeem, purchase or otherwise acquire any shares of AT&T Latin
America other than the Series A convertible preferred stock;
and
o authorize or pay dividends or other distributions on any
shares of AT&T Latin America other than the Series A
convertible preferred stock.
PROVISIONS OF AT&T LATIN AMERICA'S CERTIFICATE OF INCORPORATION AND BYLAWS THAT
COULD DELAY, DEFER OR PREVENT CHANGES OF CONTROL
Some provisions of AT&T Latin America's certificate of incorporation
and bylaws could delay, defer or prevent a change in control of AT&T Latin
America that might be otherwise beneficial to a stockholder. These provisions
include:
o unequal voting rights per share between the shares of Class A
common stock and shares of Class B common stock, which are
held by AT&T Corp.;
o a prohibition on stockholder action by written consent;
o advance notice requirements for stockholder proposals for
special meetings; and
o the authority of the board of directors to issue without
stockholder approval shares of preferred stock with such terms
as the board may determine.
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TERRITORIAL RESTRICTIONS IN AT&T LATIN AMERICA'S CERTIFICATE OF INCORPORATION
Under its certificate of incorporation, AT&T Latin America may
currently only provide telecommunications services in the Region and Venezuela.
However, the regional vehicle agreement restricts its provision of services in
Venezuela. AT&T Latin America is not currently permitted to provide services in
Cuba, Mexico or in several other South American and Caribbean jurisdictions that
are not sovereign countries (including, for example, Puerto Rico, the U.S. and
British Virgin Islands territories, the Cayman Islands, Curacao, French Guiana
and others) or anywhere else outside of the Region.
OTHER PROVISIONS OF AT&T LATIN AMERICA'S CERTIFICATE OF INCORPORATION AND BYLAWS
BOARD OF DIRECTORS; DISINTERESTED DIRECTORS. When the merger is
completed, AT&T Latin America will have nine directors, including three
disinterested directors. Disinterested directors are people who are not (a)
directors, officers or employees of AT&T Corp. or any of its affiliates or (b)
officers or employees of AT&T Latin America. Promon's affiliate may designate
its chief executive officer as a director until an underwritten primary offering
of Class A shares, so long as Promon's affiliate and its permitted transferees
hold at least 5% of the outstanding common stock of AT&T Latin America. However,
Promon's affiliate has indicated to AT&T Latin America that it does not plan to
exercise this right. The total number of AT&T Latin America directors may be
increased, but only if approved by:
o the existing disinterested directors, if the total number of
disinterested directors is fewer than five; or
o at least 80% of the disinterested directors, if the total
number of disinterested directors is five or more.
BOARD POLICY. Before the merger, the board of directors of AT&T Latin
America will adopt a policy relating to specified corporate opportunities. The
form of this board policy is an exhibit to the merger agreement included in this
proxy statement/prospectus as Annex A. This policy provides that AT&T Corp. and
its affiliates will only be required to make a corporate opportunity available
to AT&T Latin America if it:
o directly relates to the Exclusive Services and Non-Exclusive
Services that AT&T Latin America may provide under the
regional vehicle agreement;
o directly relates to AT&T Latin America's Region;
o can, in the good faith judgment of AT&T Corp., be financed by
AT&T Latin America without the issuance of additional debt or
equity to AT&T Corp. or one of its affiliates; and
o has been presented to:
- an AT&T Latin America officer or director, who is not
also an officer or director of AT&T Corp. or one of
its affiliates;
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- an AT&T Latin America officer or director, who is
also an officer or director of AT&T Corp. or one of
its affiliates, specifically in his or her capacity
as an officer or director of AT&T Latin America; or
- a senior employee of AT&T Corp., specifically for
consideration by AT&T Latin America.
The board policy provides that AT&T Corp. and its affiliates need not
present to AT&T Latin America any opportunity other than those described above
and AT&T Corp. and its affiliate may pursue, or direct to any other person, any
opportunity presented to, and not pursued by, AT&T Latin America's board of
directors.
This board policy may not be amended without the approval of a majority
of the disinterested directors of AT&T Latin America.
TRANSACTIONS WITH AT&T CORP. AFFILIATES. AT&T Latin America's bylaws
provide that no transaction between AT&T Latin America and AT&T Corp. or its
affiliates will be void or voidable solely because any directors or officers of
AT&T Corp. or the relevant affiliate are present at or participate in the AT&T
Latin America board of directors or committee meeting that approves the
transaction or solely because his or their votes are counted for the approval,
if:
o the material facts about the transaction are disclosed or
known to the AT&T Latin America board of directors or relevant
committee and the board of directors or, alternatively, that
committee, and a majority of the AT&T Latin America's
disinterested directors have approved of it;
o the transaction is approved by the holders of a majority of
the outstanding AT&T Latin America shares entitled to vote on
the transaction that are not owned by AT&T Corp. or one of its
affiliates (other than AT&T Latin America or its controlled
subsidiaries), voting together as a single class;
o the transaction is approved in accordance with arrangements,
standards or guidelines that were approved as set forth above;
or
o the transaction is fair to AT&T Latin America at the time AT&T
Latin America enters into it.
AT&T Latin America directors who are not disinterested directors may be
counted in determining the quorum for any approvals of the AT&T Latin America
board of directors or its committees that are made in accordance with the
foregoing. AT&T Latin America shares owned by AT&T Corp. or its affiliates
(other than AT&T Latin America or its controlled subsidiaries) may be counted in
determining quorum for any approvals by AT&T Latin America stockholders that are
made in accordance with the foregoing.
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COMPARISON OF CERTAIN RIGHTS OF FIRSTCOM SHAREHOLDERS
AND AT&T LATIN AMERICA STOCKHOLDERS
Upon the completion of the merger, you will become holders of Class A
common stock of AT&T Latin America and your rights will be governed by the
amended and restated certificate of incorporation and bylaws of AT&T Latin
America that will then be in effect. Delaware is the jurisdiction of
incorporation of AT&T Latin America, and Texas is the jurisdiction of
incorporation of FirstCom. As stockholders of AT&T Latin America, your rights
will also be governed by the Delaware General Corporation Law instead of the
Texas Business Corporation Act, which governs your rights as shareholders of
FirstCom. The following description summarizes some similarities and the
material differences between your rights as shareholders of FirstCom and your
rights as holders of Class A common stock of AT&T Latin America but is not
intended to list all similarities and differences.
VOTING RIGHTS; QUORUM
FIRSTCOM. Under Texas law, the holder of each outstanding share of
stock, regardless of class, is entitled to one vote per share on each matter
submitted to a shareholder vote, except as limited or expanded by the articles
of incorporation. The FirstCom articles of incorporation do not provide
otherwise.
Texas law permits a corporation to specify the number of outstanding
shares entitled to vote at a meeting that must be present for a quorum at a
shareholders' meeting so long as the corporation specifies no fewer than
one-third of the holders of the outstanding shares of stock entitled to vote at
a meeting. The FirstCom articles of incorporation provide that the holders of a
majority of the outstanding stock entitled to vote at a meeting constitute a
quorum unless otherwise required by statute.
AT&T LATIN AMERICA. Under Delaware law, the holder of each outstanding
share of stock, regardless of class, is entitled to one vote per share on each
matter submitted to a stockholder vote, except as limited or expanded by the
certificate of incorporation. The AT&T Latin America certificate of
incorporation provides for one vote for each share of Class A Common Stock of
AT&T Latin America, which you will receive, and ten votes for each share of
Class B common stock, which AT&T Corp. owns.
Delaware law permits a corporation to specify the number of outstanding
shares entitled to vote at a stockholders' meeting that must be present for a
quorum so long as the corporation specifies no fewer than one-third of the
holders of the outstanding shares of stock entitled to vote at a meeting. AT&T
Latin America's certificate of incorporation provides that one-third of the
outstanding shares of voting stock entitled to vote constitute a quorum.
NUMBER, ELECTION AND REMOVAL OF DIRECTORS
FIRSTCOM. The number of directors of FirstCom is fixed by FirstCom's
bylaws as at least five and not more than nine. FirstCom's board of directors
currently consists of five directors. Directors serve until the next annual
meeting of shareholders or until their successors are elected and qualified.
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FirstCom's bylaws require advance notice of nominations by shareholders
for election of directors or other business brought before an annual meeting by
a shareholder.
The Texas Business Corporation Act permits the removal of one or more
directors of a corporation by a majority of the outstanding shares entitled to
vote, unless otherwise provided in the bylaws or articles of incorporation of
the corporation. FirstCom's articles of incorporation and bylaws do not
otherwise provide. Texas law permits vacancies in the board of directors to be
filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum, or by election at an annual shareholders meeting or
at a special shareholders meeting called for that purpose.
AT&T LATIN AMERICA. Upon the merger, the AT&T Latin America certificate
of incorporation will provide for a board of directors consisting of nine
directors. For more information about the board of directors, see "Description
of AT&T Latin America's Capital Stock - Other Provisions of AT&T Latin America's
Certificate of Incorporation and Bylaws - Board of Directors."
AT&T Latin America's bylaws do not require advance notice of
nominations by stockholders for election of board of directors or other business
brought before an annual meeting of stockholders, but do require advance notice
of the purpose or purposes of a special meeting of the stockholders.
Any director or the entire board of directors of a Delaware corporation
that does not have a classified board of directors may be removed with or
without cause by the vote of the holders of a majority of the corporation's
outstanding shares entitled to vote thereon unless the certificate of
incorporation otherwise provides. Under Delaware law, unless otherwise provided
in the certificate of incorporation or bylaws, vacancies of an unclassified
board of directors may be filled by a majority of the directors then in office,
although less than a quorum, or the sole remaining director. If the remaining
directors are less than a quorum, a Delaware court of chancery may upon the
request of the holders of least 10% of the stockholders entitled to vote for the
directors, order a special election to fill the vacancies. The AT&T Latin
America bylaws provide that any or all of AT&T Latin America's directors may be
removed from office at any time, either with or without cause, by the
affirmative vote of stockholders owning a majority in amount of the outstanding
shares of AT&T Latin America entitled to vote. The AT&T Latin America bylaws
also provide that board of directors vacancies may be filled by a majority of
the remaining directors, although less than a quorum.
DIRECTOR LIABILITY
FIRSTCOM. FirstCom's articles of incorporation provide that to the
fullest extent provided under Texas law, the board of directors of FirstCom will
not be liable for monetary damages to FirstCom or its shareholders for action or
omissions except:
o any breach of the director's duty of loyalty to FirstCom or
its shareholders;
o acts or omission not taken in good faith or which involve
intentional misconduct or knowing violation of law;
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o an act or omission for which the liability of a director is
expressly provided by an applicable statute; or
o any transaction from which the director derived an improper
personal benefit.
FirstCom's articles provide that FirstCom will further limit the
liability of its directors to the extent Texas law permits.
AT&T LATIN AMERICA. Delaware law permits a corporation to limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for:
o any breach of the duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o violation of certain provisions of Delaware law relating to
unlawful payments of dividends, stock purchases and
redemptions;
o any transaction from which the director derived an improper
personal benefit; or
o any act or omission prior to the adoption of such a provision
in the certificate of incorporation.
The AT&T Latin America certificate of incorporation provides that no
directors will be liable to AT&T Latin America or any of its stockholders for
breach of any fiduciary or other duty as a director, to the extent permitted by
Delaware law (as it is now or later in effect).
INDEMNIFICATION
FIRSTCOM. Under the Texas Business Corporation Act, a corporation may
indemnify a director if the director:
o conducted himself in good faith;
o reasonably believed while conducting business in his official
capacity that his conduct was in the corporation's best
interests and otherwise that his conduct was not opposed to
the corporation's best interests; and
o in the case of a criminal proceeding, had no reasonable cause
to believe that his conduct was unlawful.
However, directors may not be indemnified for a proceeding if the
director is found liable on the basis that she received an improper benefit or
is found liable to the corporation, except for reasonable expenses actually
incurred by the director in connection with the proceeding. In no case may a
corporation indemnify a director if he is found liable for willful or
intentional misconduct in the performance of her duty to the corporation. Under
its articles of incorporation, FirstCom may indemnify any person, including
present or former directors, officers, trustees, employees or agents of FirstCom
or any person serving at the request of FirstCom as a director,
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officer, employee or agent of another person, to the extent permitted by the
Texas Business Corporation Act.
AT&T LATIN AMERICA. Delaware law generally permits a corporation to
indemnify its directors and officers against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with a
third-party action, other than a derivative action, and against expenses
actually and reasonably incurred in the defense or settlement of a derivative
action. However, there must be a determination that the individual must have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation or, with respect to a criminal
action, had no reasonable cause to believe his conduct was unlawful. This
determination is made, in the case of an individual who is a director or officer
at the time of the determination, by:
o a majority of the directors not a party to the action, even
though less than a quorum;
o a committee of such directors designated by a majority vote of
such directors, even though less than a quorum;
o independent legal counsel in a written opinion; or
o a majority vote of the stockholders, at a meeting at which a
quorum is present.
Without court approval, however, no indemnification may be made in
respect of any derivative action in which the individual is adjudged liable to
the corporation.
Delaware law requires indemnification of directors and officers for
reasonable expenses relating to a successful defense on the merits or otherwise
of a derivative or third-party action.
Delaware law permits a corporation to advance expenses relating to the
defense of any proceeding to directors and officers contingent upon that
individuals' commitment to repay any advances unless it is determined ultimately
that indemnification is proper.
Under Delaware law, subject to public policy issues, a corporation may
provide for more favorable indemnification and advancement of expenses than
provided by statute through bylaw, agreement, vote of stockholders,
disinterested directors or otherwise.
AT&T Latin America's bylaws provide that it will indemnify any person
made a party to a third-party action as a result of being a director or officer
of AT&T Latin America and it may indemnify any other person party to a
third-party action as a result of being an employee of AT&T Latin America,
against expenses, judgment, fines and amount paid in settlement actually and
reasonably incurred. AT&T Latin America will provide indemnification only upon a
determination that the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of AT&T Latin
America, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. This determination
must be made in accordance with the procedure provided for under Delaware law as
described above. In derivative actions, indemnification will be limited to
expenses actually and reasonably incurred by the indemnified party. Without
court approval, no indemnification for derivative actions may be made if the
person is found liable to AT&T Latin America.
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VOTING RIGHTS ON BUSINESS COMBINATIONS; TRANSACTIONS WITH INTERESTED
STOCKHOLDERS
FIRSTCOM. Under the Texas Business Corporation Act, the vote of the
holders of two thirds of each class of a corporation's outstanding stock
entitled to vote must approve a merger or the sale, lease or disposition of all
or substantially all of a corporation's property and assets. However, the
articles may provide for a different percentage of votes required, except in the
case of transactions subject to Part 13 of the Texas Business Corporation Act
(see below). FirstCom's articles of incorporation provides that to the extent
permitted by Texas law, any action under the Texas Business Corporations Act
requiring an affirmative vote of two-thirds of the outstanding shares entitled
to vote on a matter shall only require an affirmative vote of a majority of the
outstanding shares entitled to vote on that matter. FirstCom's articles of
incorporation also provide that some transactions require the affirmative vote
of the holders of seventy-five percent of the Series A convertible preferred
shares, voting as a class.
FirstCom is subject to Part 13 of the Texas Business Corporation Act,
which prohibits a Texas corporation from engaging in a business combination with
an affiliated shareholder, defined generally as a person owning 20% or more of a
corporation's outstanding voting stock, for three years after becoming an
affiliated shareholder unless:
o the board of directors approved the business combination or
the transaction in which the affiliated shareholder became an
affiliated shareholder before the person became an affiliated
shareholder; or
o holders of two-thirds of the outstanding voting stock of the
corporation not owned by the affiliated shareholder approve
the business combination at least six months after the person
became an affiliated shareholder.
AT&T LATIN AMERICA. AT&T Latin America is subject to Section 203 of the
Delaware General Corporation Law. Under Section 203, an interested stockholder,
defined generally as a person owning 15% or more of a corporation's outstanding
voting stock, is prevented from engaging in a business combination with the
corporation for three years after becoming an interested stockholder unless:
o the board of directors approved the business combination
itself or the transaction in which the interested stockholder
became an interested stockholder;
o the interested stockholder owns more than 85% of the stock
after the consummation of the transaction in which the
stockholder became interested; or
o the board of directors approves the business combination and
two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder approves the business
combination.
Business combinations under Delaware law include the following:
o any merger or consolidation of the corporation with the
interested stockholder;
o any sale, lease, exchange or other disposition, except
proportionately as a stockholder of the corporation, to or
with the interested stockholder of assets of our company
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having an aggregate market value equal to 10% or more of
either the aggregate market value of all the assets of the
corporation or the aggregate market value of all the
outstanding stock of the corporation;
o certain transactions resulting in the issuance or transfer by
the corporation of our stock to the interested stockholder;
o certain transactions involving the corporation which have the
effect of increasing the proportionate share of the stock of
any class or series of the corporation which is owned by the
interested stockholder; or
o certain transactions in which the interested stockholder
receives financial benefits provided by the Corporation.
RIGHT TO CALL SPECIAL MEETINGS
FIRSTCOM. Under the Texas Business Corporation Act, holders of not less
than 10% of all shares entitled to vote have the right to call a special
shareholder's meeting, unless the articles of incorporation specify a different
percentage. If so specified, special meetings of the shareholders may be called
by holders of at least the percentage of shares so specified in the articles of
incorporation, so long as that percentage does not exceed 50%. Additionally, a
special meeting of shareholders may be called by the president, the board of
directors or any other person authorized in the articles of incorporation or
bylaws. FirstCom's bylaws authorize each of the board of directors, any person
expressly authorized to call a special meeting by the board of directors and the
holders of not less than 10% of all the shares entitled to vote at a proposed
special meeting.
AT&T LATIN AMERICA. Delaware law permits the board of directors and
anyone else authorized by a corporation's certificate of incorporation or bylaws
to call a special meeting of stockholders. AT&T Latin America's bylaws provide
that special meetings of stockholders may be called at any time by the president
(or in the vice-president in the event of the president's absence or
disability), the board of directors or by written request of stockholders owning
a majority in amount of the entire capital stock of AT&T Latin America entitled
to vote at any stockholders meeting.
DURATION OF PROXIES
FIRSTCOM. The Texas Business Corporations Act provides that a proxy is
revocable unless coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. No proxy is valid after eleven months
from its date unless otherwise provided in the proxy. The FirstCom bylaws
provide that a proxy shall not be valid more than three years from its date,
unless the proxy provides for a longer period.
AT&T LATIN AMERICA. The Delaware General Corporation Law provides that
no proxy is valid more than three years after its date unless the proxy provides
otherwise. Proxies are irrevocable if so provided and so long as coupled with an
interest sufficient in law to support an
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irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
SHAREHOLDER ACTION BY WRITTEN CONSENT
FIRSTCOM. Under Texas law, shareholders may take any action without a
meeting, without prior notice and without a vote if all shareholders entitled to
vote on the matter consent to the action in writing. Furthermore, if a
corporation's articles of incorporation so provide, shareholders may take any
action under Texas law by a consent signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take this action at a meeting. FirstCom's articles of incorporation
permit shareholder action by written consent.
AT&T LATIN AMERICA. Delaware law allows any action required or
permitted to be taken by stockholders of a corporation to be taken without a
meeting and without a stockholder vote if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of stockholders, except as specifically prohibited by the
certificate of incorporation. The AT&T Latin America certificate of
incorporation prohibits action by written consent of AT&T Latin America's
stockholders.
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION AND BYLAWS
FIRSTCOM. Under the Texas Business Corporation Act, a corporation's
articles may be amended with the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote on such amendment, unless
a different percentage is specified in the articles of incorporation, subject to
any class votes. Holders of each class of shares are entitled to vote as a class
upon a proposed amendment to the charter, whether or not entitled to vote
thereon by the charter, if the amendment would adversely affect the powers,
preferences or special rights of that class or would change the number of
authorized shares or the par value of that class, reclassify, cancel, or
exchange shares of that class, create a new class of shares having equal or
superior preferences or rights of that class, or increase the rights of an
already outstanding class. FirstCom's articles of incorporation provide that to
the extent permitted by Texas law, any action under the Texas Business
Corporations Act requiring an affirmative vote of two-thirds of the outstanding
shares entitled to vote on a matter will only require an affirmative vote of a
majority of the outstanding shares entitled to vote on that matter. FirstCom
articles of incorporation also provide that certain amendments of the articles
require the affirmative vote of the holders of seventy-five percent of the
Series A convertible preferred shares, voting as a separate class.
Under Texas law, a board of directors may amend or repeal a
corporation's bylaws, or adopt new bylaws, unless:
o the articles of incorporation reserve such power exclusively
to the stockholders; or
o the stockholders, in amending, repealing or adopting a
particular bylaw provision, expressly provide that the board
of directors may not amend or repeal that bylaw.
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In all cases, Texas law provides stockholders the power to amend or repeal the
bylaws unless the articles of incorporation or a bylaw adopted by the
stockholders provides otherwise. The FirstCom articles of incorporation and the
FirstCom bylaws do not provide otherwise.
AT&T LATIN AMERICA. Under the Delaware General Corporation Law,
amendments to the certificate of incorporation may be adopted by the board of
directors and the affirmative vote of a majority of the outstanding stock of
each class entitled to vote. Holders of the outstanding shares of a class of
stock are entitled to vote as a class upon a proposed amendment to the charter,
whether or not entitled to vote thereon by the charter, if the amendment would
change the aggregate number of authorized shares or the par value of shares of
that class or would adversely affect the powers, preferences or special rights
of that class.
AT&T Latin America's certificate of incorporation provides that its
provisions may be repealed, altered, amended or rescinded as permitted by
Delaware law, except that any proposed amendment that would alter or change the
relative powers, preferences or participating, option or other special rights of
the shares of Class A Common Stock will require a vote of a majority of the
holders of Class A Common Stock, voting as a class.
Under Delaware law, the power to adopt, amend or repeal bylaws is
vested in the stockholders provided that the certificate of incorporation of a
Delaware corporation may contain provisions conferring upon directors the power
to amend, alter or repeal bylaws. The provisions of AT&T Latin America's
certificate of incorporation and bylaws confer the power to amend, alter or
repeal the bylaws on the board of directors, in addition to the stockholders.
The provisions of the AT&T Latin America bylaws relating to the existence of
disinterested directors and to transactions with affiliates may not be amended
by:
o the board of directors without the consent of all the
disinterested directors, if there are four or fewer, or 80% of
the disinterested directors, if there are more than four; or
o the stockholders, without the approval of the holders of Class
A common stock voting as a class.
DISSENTERS' RIGHTS
FIRSTCOM. Under the Texas Business Corporation Act, shareholders have
the right to dissent from most mergers and the sale, lease, exchange or other
disposition of all or substantially all of the property and assets of the
corporation if that action requires the special authorization of the
corporation's shareholders, or any plan of exchange in which the shareholders'
shares are to be acquired. However, a shareholder does not have dissenters'
rights to any plan of merger if there is a single surviving or new domestic or
foreign corporation, or from any plan of exchange, if:
o the shares held by the shareholder are part of a class or
series listed on a national securities exchange, listed on a
Nasdaq market, designated as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers ("NASD"), or held of record on the
applicable record date by not less than 2,000 holders;
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o the shareholder is not required by the terms of the plan of
merger or exchange to accept for the shareholder's shares any
consideration that is different than the consideration to be
provided to any other holder of shares of the same class or
series; and
o the shareholder is not required by the terms of the plan of
merger or exchange to accept for his or her shares any
consideration other than:
(a) shares of a corporation that, immediately after the
merger or exchange, will be a part of a class or
series listed, or authorized for listing on a
national securities exchange, approved for quotation
as a national market security on an interdealer
quotation system by the NASD, or held of record by
not less than 2,000 holders;
(b) cash in lieu of fractional shares; or
(c) a combination of subsections (a) and (b) above.
FirstCom's shareholders will not have dissenters' rights as a result of the
merger.
AT&T LATIN AMERICA. Stockholders of a Delaware corporation have the
right under Delaware law to dissent and demand payment of the fair value of
their stock in a merger on consolidation, except that these rights are not
available for shares that, among other things, are:
o listed on a national securities exchange or designated on a
national market system security or an interdealer quotation
system by the NASD; or
o held by more than 2,000 stockholders;
unless the corporation's stockholders are required to accept for such stock
anything other than:
o stock of the surviving corporation;
o stock of any corporation either listed on a national
securities exchange or designated on a national market system
security or an interdealer quotation system by the NASD or
held by more than 2,000 stockholders;
o cash in lieu of fractional shares of corporations described in
the two immediately preceding bullet points; or
o a combination of the stock or cash described in the three
immediately preceding bullet points.
PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
FIRSTCOM. Under Texas law, shareholders have certain preemptive rights
and rights to cumulate voting unless otherwise provided by the articles of
incorporation. FirstCom's articles of incorporation provide that no shareholders
will have preemptive rights or the right to cumulate voting.
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AT&T LATIN AMERICA. Delaware law does not provide stockholders
preemptive rights or the right of cumulative voting unless the certificate of
incorporation provides otherwise. The AT&T Latin America certificate of
incorporation provides that no stockholder will have preemptive rights and does
not provide for cumulative voting. As a stockholder of AT&T Latin America, you
will not have preemptive rights or the right of cumulative voting.
PAYMENT OF DIVIDENDS
FIRSTCOM. Under Texas law, a board of directors may authorize a
corporation to make distributions to its stockholders out of its surplus,
subject to any restriction in its charter. Texas law does not permit
distributions if such distribution exceeds the surplus of the corporation or
would render the corporation insolvent. Subject to the rights of outstanding
preferred stock, the FirstCom articles of incorporation do not further restrict
the ability of the FirstCom board of directors to declare dividends.
AT&T LATIN AMERICA. Under Delaware law, a board of directors may
authorize a corporation to make dividends and other distributions to its
stockholders, subject to any restrictions in its certificate of incorporation,
either out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the board of directors declares the dividend and/or the
preceding fiscal year. Delaware law does not permit distributions out of net
profits, however, if, following the distribution, the corporation's capital
would be less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. Dividends declared by the AT&T Latin America board are subject to the
rights of any preferred stock.
INSPECTION OF BOOKS AND RECORDS
FIRSTCOM. Under Texas law, any stockholder who holds at least 5% of all
of the outstanding shares of a corporation or that has held his shares for at
least six months will have the right to examine at any reasonable time, for any
proper purpose, the relevant books and records of account, minutes and share
transfer records of the corporation.
AT&T LATIN AMERICA. Under Delaware law, any stockholder of a Delaware
corporation may examine the list of stockholders and any stockholder making a
written demand may inspect any other corporate books and records for any purpose
reasonably related to the stockholder's interest as a stockholder.
SHAREHOLDER RIGHTS PLAN
FIRSTCOM. FirstCom has adopted a shareholder rights plan pursuant to a
rights agreement with American Stock Transfer & Trust Company as rights agent.
As the result of an amendment to the rights plan, the merger will not trigger
the distribution of rights under the rights plan. For a description of the terms
and conditions of the rights agreement, see "Where You Can Find More
Information" for how to find the Form 8-A dated April 3, 1998 filed by FirstCom
incorporated in this document by reference, which sets forth a description of
the rights plan.
AT&T LATIN AMERICA. AT&T Latin America does not have a shareholder
rights plan.
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LEGAL MATTERS
Debevoise & Plimpton, New York, New York will pass upon the validity of
the issuance of shares of AT&T Latin America common stock being offered by this
document. Baker & McKenzie, New York, New York, will be delivering an opinion
concerning federal income tax consequences of the merger to FirstCom
shareholders. Debevoise & Plimpton also will be delivering an opinion concerning
federal income tax consequences of the merger to AT&T Latin America. See "The
Merger -- Certain U.S. Federal Income Tax Consequences" on page __. A member of
Baker & McKenzie beneficially owns 250,000 shares of FirstCom common stock and
is a member of the board of directors of FirstCom.
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EXPERTS
The financial statements of AT&T Latin America Corp. as of December 31,
1999 and for the period from inception (October 13, 1999) through December 31,
1999 included in this proxy statement/prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on their authority as experts in accounting and auditing.
The financial statements of FirstCom Corporation incorporated in this
proxy statement/prospectus by reference to the Annual Report on Form 10-K for
the year ended December 31, 1997, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent certified public accountants, have
audited FirstCom's consolidated financial statements included in the FirstCom
Annual Report on Form 10-K for the years ended December 31, 1999 and 1998, as
set forth in their report, which is incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement. FirstCom's
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
Ernst & Young Auditores Independentes S.C., independent auditors, have
audited the Netstream Telecom Ltda. financial statements at September 30, 1999
and December 31, 1998, and for the nine months ended September 30, 1999 and the
eleven months ended December 31, 1998, as set forth in their report. The
Netstream Telecom Ltda. financial statements are included in the proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Ernst & Young Auditores Independentes S.C.'s report, given on their authority as
experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
AT&T Latin America has filed with the SEC a registration statement
under the Securities Act that registers the distribution to FirstCom
shareholders of shares of AT&T Latin America common stock to be issued in the
merger. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about FirstCom and AT&T
Latin America. The rules and regulations of the SEC allow us to omit some
information included in the registration statement from this document.
In addition, FirstCom files reports, proxy statements and other
information with the SEC under the Exchange Act. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
read and copy this information at the following locations of the SEC:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, including
FirstCom and AT&T Corp., which file electronically with the SEC. The address of
that site is http://www.sec.gov. You can also inspect reports, proxy statements
and other information about FirstCom at the offices of the Nasdaq Stock Market,
20 Broad Street, New York, New York 10005.
The SEC allows FirstCom to "incorporate by reference" information into
this document. This means that the companies can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
FirstCom has previously filed with the SEC. They contain important information
about FirstCom and its financial condition. Some of these filings have been
amended by later filings, which are also listed.
SEC FILINGS (FILE NO. 0-25194) PERIOD/DATE FILED
- ------------------------------ -----------------
Annual Report on Form 10-K December 31, 1999 (filed February
23, 2000)
Quarterly Report on Form 10-QSB March 31, 1999 (filed May 17, 1999)
June 30, 1999 (filed August 16,
1999)
September 30, 1999 (filed
November 15,1999)
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SEC FILINGS (FILE NO. 0-25194) PERIOD/DATE FILED
- ------------------------------ -----------------
Definitive Proxy Statement Filed September 10, 1999
Current Reports on Form 8-K July 1, 1999 (filed July 8, 1999)
July 28, 1999 (filed August 2,
1999)
July 27, 1999 (filed August
6, 1999)
November 1, 1999 (filed
November 4, 1999)
February 1, 2000 (filed
February 3, 2000)
February 22, 2000 (filed
February 25, 2000)
March 6, 2000 (filed March 7,
2000)
Registration Statements Form 8-A dated November 29, 1994
setting forth a description of
FirstCom's common shares
Form 8-A dated April 3, 1998
setting forth a description of
the Common Stock Purchase Rights
Subsequently filed reports All documents filed by FirstCom
under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after
the date of this prospectus and
prior to the termination of this
offering
FirstCom incorporates by reference additional documents that it may
file with the SEC between the date of this document and the dates of the
FirstCom special meeting. These documents include periodic reports, including
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through FirstCom, or from the SEC through the SEC's web site at the
address provided above. Documents incorporated by reference are available from
FirstCom without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from FirstCom at the following
addresses:
FirstCom Corporation
220 Alhambra Circle
Coral Gables, Florida 33134
(305) 448-4422
Attention: Chief Financial Officer
If you would like to request documents, please do so by ______________
to receive them before the special meeting. If you request any incorporated
documents from FirstCom, it will mail them to you by first class mail, or
another equally prompt means, within one business day after FirstCom receives
your request.
FirstCom has not authorized anyone to give any information or make any
representation about the merger or FirstCom that differs from, or adds to, the
information in this document or in
152
<PAGE> 164
FirstCom's documents that are publicly filed with the SEC. Therefore, if anyone
does give you different or additional information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange
or sell, or to ask for offers to exchange or buy, the securities offered by this
document or to ask for proxies, or if you are a person to whom it is unlawful to
direct these activities, then the offer presented by this document does not
extend to you.
The information contained in this document speaks only as of its date
unless the information specifically indicates that another date applies.
Information in this document about FirstCom has been supplied by FirstCom.
153
<PAGE> 165
AT&T LATIN AMERICA CORP.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
AND FROM THE DATE OF INCEPTION
(OCTOBER 13, 1999) THROUGH DECEMBER 31, 1999
F-1
<PAGE> 166
CONTENTS
Report of Independent Accountants....................................F-3
Audited Financial Statements
Consolidated Balance Sheet...........................................F-4
Consolidated Statement of Operations.................................F-5
Consolidated Statement of Shareholders' Equity.......................F-6
Consolidated Statement of Cash Flows.................................F-7
Notes to Consolidated Financial Statements...........................F-8
F-2
<PAGE> 167
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
AT&T Latin America Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of AT&T
Latin America Corp. and its subsidiaries (the "Company") at December 31, 1999,
and the results of their operations and their cash flows for the period from
inception (October 13, 1999) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 25, 2000
F-3
<PAGE> 168
AT&T LATIN AMERICA CORP.
CONSOLIDATED BALANCE SHEET
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
AS OF DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 24,223
Account receivable 1,286
Recoverable taxes 2,109
Investments 27,078
Other receivables 118
------------
TOTAL CURRENT ASSETS 54,814
Plant and equipment, net (Notes 2 and 3) 68,269
Goodwill and other intangible assets, net (Notes 2 and 4) 261,345
------------
TOTAL ASSETS $ 384,428
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,414
Current portion of obligations under capital leases 317
Trade accounts payable 5,339
Social charges payable 865
Other current liabilities 161
Employee bonus 531
------------
TOTAL CURRENT LIABILITIES 8,627
Non-current portion of obligations under capital leases 383
Deferred tax liability 1,624
Commitments and contingencies (Note 7) --
------------
TOTAL LIABILITIES 10,634
------------
Shareholders' equity:
Common stock --
Additional paid-in capital 376,566
Accumulated deficit (4,124)
Accumulated other comprehensive income 1,352
------------
TOTAL SHAREHOLDERS' EQUITY 373,794
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 384,428
------------
The accompanying footnotes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 169
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
Revenue $ 802
Operating costs and expenses:
Cost of revenues 865
Selling, general and administrative 2,164
Depreciation and amortization 1,707
---------------
TOTAL OPERATING COSTS AND EXPENSES 4,736
---------------
LOSS FROM OPERATIONS (3,934)
Foreign exchange loss 190
---------------
NET LOSS $ (4,124)
---------------
Basic and diluted loss per share $ (103.10)
---------------
Weighted average shares outstanding 40,000
---------------
The accompanying footnotes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 170
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Number of Common Paid-in Accumulated Comprehensive Shareholders'
Shares Shares Capital Deficit Income Equity
--------- -------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Original share issuance 1,000 $ -- $ -- $ -- $ -- $ --
Additional capital increase 39,000 -- 376,566 -- -- 376,566
Currency translation
adjustments 1,352 1,352
Net loss for the period (4,124) (4,124)
------ -------- -------- -------- -------- --------
Comprehensive net loss (2,772)
------ -------- -------- -------- -------- --------
Balances At
December 31, 1999 40,000 $ -- $376,566 $ (4,124) $ 1,352 $373,794
------ -------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 171
AT&T LATIN AMERICA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
OCTOBER 13, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (4,124)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 1,707
Interest, net 87
Changes in operating assets and liabilities:
Accounts receivable (415)
Recoverable taxes (82)
Other receivables (11)
Trade accounts payable 2,777
Payroll and related charges 284
Other current liabilities (309)
Taxes payable 103
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17
---------------
Cash flows from investing activities:
Investments in short-term securities (27,078)
Purchases of property and equipment (6,422)
Acquisition of Netstream, net of cash acquired (320,287)
---------------
NET CASH USED IN INVESTING ACTIVITIES (353,787)
---------------
Cash flows from financing activities:
Short-term debt 1,414
Capital infusion 376,566
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 377,980
NET INCREASE IN CASH 24,210
Cash at inception 13
CASH AT END OF YEAR $ 24,223
---------------
Supplemental information on cash disclosures:
Interest paid $ --
---------------
Taxes paid $ --
---------------
</TABLE>
The accompanying footnotes are an integral part of these consolidated
financial statements.
F-7
<PAGE> 172
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
AT&T Latin America Corp. ("the Company" or "ATTLA") was incorporated on
October 13, 1999, organized under the laws of the State of Delaware.
ATTLA is currently a provider of broadband communications services
mainly to business and government customers throughout Brazil. However,
the Company's target regions also include most countries in South
America and the Caribbean.
Through its operating subsidiary, Netstream Telecom Ltda.
("Netstream"), ATTLA provides data, voice, video conferencing, Internet
and electronic commerce services to its Brazilian markets.
The consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include the
results of Netstream for the period December 8 through December 31,
1999 and any activity in the various holding companies within the ATTLA
company structure. (See Note 4, Acquisition and Intangible Assets, for
additional information related to the Netstream acquisition.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates, The most significant estimates relate to the useful
lives of the property and equipment and intangible assets, including
goodwill.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and securities, held
by major financial institutions with favorable credit ratings, with
original maturities of three months or less.
PLANT AND EQUIPMENT
Plant and equipment are stated on the basis of cost. Construction,
engineering and labor costs directly related to the development of the
Company's networks are capitalized. The Company begins depreciating
these costs when the networks become commercially operational. Plant
and equipment are depreciated using the straight-line method over
estimated useful lives as follows:
F-8
<PAGE> 173
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
Switching equipment 5
Transmission equipment 7
Cables 10
Underground installation 25
Other plant and equipment 3 to 10
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of assets acquired from
Netstream over the fair value at the date of acquisition and is being
amortized using the straight-line method over 20 years. Amortization
expense related to goodwill was $1,073 in 1999.
Intangible assets, which are recorded at cost, include a contract with
America On-Line Brazil and the work force in place. Amortization is
provided by the straight-line method over three and five years,
respectively. Amortization expense related to the intangible assets was
$122 in 1999.
INCOME TAX
The Company is not a separate taxable entity for Federal and state
income tax purposes and the results of the Company's operations are
included in the Federal and state tax returns of AT&T Corp. and its
affiliates. In these financial statements, the Company has provided for
income taxes as if it were a separate taxpayer.
Deferred income taxes have been accounted for under the liability
method in accordance with SFAS No. 109, "Accounting for Income Taxes",
whereby deferred taxes and liabilities are established for the
differences between the financial reporting and income tax basis of
assets and liabilities, as well as net operating losses and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance
when in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
FOREIGN CURRENCY TRANSACTIONS
The Company accounts for foreign currency transactions in accordance
with Financial Accounting Standards Board (FASB) Statement No. 52,
"Foreign Currency Translation" - The Company's functional currency is
the U.S. dollar. Foreign currency transactions are transactions
denominated in a currency other than the entity's functional currency.
Foreign currency transactions may produce receivables or payables that
are fixed in terms of the amount of foreign currency that will be
received or paid. A change in exchange rates between the functional
currency and the currency in which a transaction is denominated
increases or decreases the expected amount of functional currency cash
flows upon settlement of the transaction. That increase or decrease in
expected
F-9
<PAGE> 174
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
functional currency cash flows is a foreign currency transaction gain
or loss (measured from the transaction date or the most recent
intervening balance sheet date, whichever is later) that is included in
determining net income for the period in which the exchange rate
changes.
REVENUE RECOGNITION
Revenues are recognized as services are provided.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and were
$56 for the initial operating period from October 13, through December
31, 1999.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are calculated in accordance with FASB
Statement No. 128, "Earnings Per Share".
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximated fair value based on the short maturity of these financial
instruments.
3. PLANT AND EQUIPMENT, NET
December 31,
1999
------------
DESCRIPTION
Switching equipment $ 2,223
Transmission equipment 24,243
Cables 2,350
Underground installation 19,821
Other plant and equipment 17,311
Construction in Progress 5,368
----------
71,316
Less accumulated depreciation and amortization 3,047
----------
PLANT AND EQUIPMENT, NET $ 68,269
----------
Depreciation expense related to the plant and property was $512 in
1999.
4. ACQUISITION AND INTANGIBLE ASSETS
On December 8, 1999, AT&T Corp. acquired 100% of the issued and
outstanding capital stock of Netstream Telecom Ltda. ("Netstream")
pursuant to a cash purchase agreement. Netstream was in the development
stage until May 1999, when it began providing service in Brazil's two
largest cities, Rio
F-10
<PAGE> 175
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
de Janeiro and Sao Paulo. The Company plans to extend services to other
Brazilian cities in 2000. Netstream operates under specialized circuit
and network services licenses provided by the Brazilian National
Telecommunicacoes Agency (Agencia Nacional de Telecomunicacoes or
"ANATEL"), which are granted for an indefinite term.
Netstream was originally formed in February 1998 as a division of
Promon Tecnologia S.A. ("Promon"), a Brazilian engineering company. The
Netstream division of Promon primarily consisted of certain general and
administrative costs incurred in connection with the commencement of
operations. Netstream was formed on July 14, 1998 as a wholly owned
subsidiary of Promon and the Netstream division of Promon was
subsequently transferred. Promon and other affiliated companies
provided various financing and management services for Netstream.
On August 20, 1999, the owners of Netstream entered into a definitive
sale agreement with an indirect wholly owned subsidiary of AT&T Corp.,
for the sale of 100% of the capital of Netstream, including settlement
of the due to Promon and other affiliates' outstanding balances, This
transaction required approval by ANATEL which was granted on November
12, 1999.
The Netstream transaction closed on December 8, 1999. ATTLA accounted
for the acquisition under the purchase method of accounting for
financial reporting purposes. Accordingly, the purchase price of
$322,500 has been allocated to the identifiable assets and liabilities
based on fair values at the acquisition date. The excess of the
purchase price over the value of the identifiable net assets in the
amount of $257,600 and $4,900 has been classified as goodwill and other
intangibles, respectively. Goodwill is amortized on a straight-line
basis over 20 years. The other intangible assets represent the fair
value of a contract with America On-Line Brazil of $3,600 and the work
force in place of $1,300 that are amortized on a straight-line basis
over three and five years, respectively.
ATTLA evaluates the amortization period and the carrying value of
intangibles, including goodwill, on a periodic basis, including
evaluating the performance of the underlying business which gave rise
to such amount to determine whether events or circumstances warrant
revised estimates of useful lives or whether impairment exists. In
performing the review of recoverability, ATTLA estimates future
undiscounted cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount, an impairment is
recognized based on the difference between the estimated fair value and
the carrying value. Management believes that no impairment existed at
December 31, 1999.
F-11
<PAGE> 176
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
The net purchase price was allocated as follows (in thousands):
Working capital, other than cash $ (1,000)
Property and equipment 61,000
Goodwill and other intangibles 262,500
--------
PURCHASE PRICE, NET OF CASH RECEIVED $322,500
--------
The results of operations of ATTLA include the operating results of
Netstream for the period from December 8 through December 31, 1999. The
pro forma results of operations for the current period as though the
companies had been combined at the beginning of the period are as
follows:
Unaudited
---------
Revenues, net $ 1,993
Net loss (36,961)
Net loss per share (924)
5. INCOME TAXES
As of December 31, 1999, the components of the tax effects of temporary
differences that give rise to the deferred income tax
assets/(liabilities) are as follows:
Non-Current
-----------
Net operating loss carryforwards $ 1,771
Pre-operating expenses deferred for tax purposes 4,489
Capital leases 78
Intangible assets (1,775)
--------
4,563
Less: valuation allowance (6,187)
--------
NET DEFERRED TAX LIABILITY $ (1,624)
--------
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding the future realization of
the net deferred tax asset.
Income tax expense for the initial operating period from October 13,
1999 through December 31, 1999 differed from the amounts computed by
applying the applicable statutory income tax rate in which the Company
operates as a result of the following:
F-12
<PAGE> 177
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
December 31,
1999
------------
Statutory federal tax provision/(benefit) $ (1,402)
State and local taxes expense 3
Non deductible goodwill 364
--------
Unutilized foreign losses $ (1,035)
--------
Net income tax provision (benefit) $ (12)
--------
At December 31,1999, the Company has foreign net operating loss
carryforwards of approximately $5,366 million. These carryforwards are
available to offset up to 30% future taxable income and do not expire.
6. RELATED PARTY TRANSACTIONS
DUE TO AFFILIATED COMPANIES
Loans from affiliated companies, which result from the acquisition of
plant and equipment and payment of expenses by the affiliates on behalf
of the Company, are as follows:
December 31,
1999
------------
SLE Participacoes S.A. $ 149
-------
Promon and its subsidiaries act as general contractor for the
construction and installation of Netstream's broadband network.
The following amounts were charged to Netstream by Promon and are
included in plant and equipment:
December 31,
1999
------------
Engineering services $ 276
Construction management fee 24
Engineering services and certain general and administrative expenses
are charged to Netstream at cost. Construction management fees charged
to Netstream are based on rates similar to those charged by Promon to
unrelated companies for similar services. General and administrative
expenses charged by Promon during the period were immaterial.
F-13
<PAGE> 178
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and facilities under noncancelable
lease arrangements. Future minimum payments under capital leases and
operating leases with initial terms of one year or more at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
Capital Operating
December 31, Leases Leases
------------ ------- ---------
<S> <C> <C>
2000 $ 362 8,625
2001 366 591
2002 11 504
2003 -- 429
2004 -- 202
------ --------
TOTAL MINIMUM LEASE PAYMENTS 739 $ 10,351
--------
Less amount representing interest (94)
------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS,
INCLUDING CURRENT MATURITIES OF $294 $ 645
------
</TABLE>
Operating leases includes $ 8,024 minimum obligation on fines for
interruption on leased line contracts, signed with several
telecommunications companies in Brazil. These contracts expire from 1
to 3 years and the fines vary up to 50% of the total payments until the
end of the contract.
Plant and equipment includes the following amounts for capitalized
leases:
December 31,
1999
------------
Equipment $ 521
Less allowances for amortization (128)
------
$ 393
------
Rent expense for the initial operating period from October 13 through
December 31, 1999 was $ 97.
F-14
<PAGE> 179
AT&T LATIN AMERICA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA
- --------------------------------------------------------------------------------
OTHER
In accordance with the legislation in force in Brazil, tax registers
related to federal, state and municipal taxes arc subject to
examination by the respective tax authorities from 5 to 30 years.
Commitments for construction or purchase of plant and equipment
approximated $1,759 at December 31, 1999.
In December 1999, Netstream entered into an import financing loan with
Dresdner Bank with principal amount of $1,414 at a 7.28% fixed rate
interest for one year.
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. Although there can be no
assurance that the Company will prevail in every case, management does
not believe that the ultimate disposition of known legal contingencies
will have a material effect on the Company's financial condition,
results of operations or cash flows.
8. SUBSEQUENT EVENTS
On February 23, 2000, the Company agreed to acquire 100% of Keytech LD,
S.A., a development stage broadband communications company based in
Argentina. As of September 30, 1999, Keytech's net loss and total
assets were approximately $1,000 and $1,800, respectively. The purchase
price for Keytech LD is 1,178,689 shares of the Company's Class A
common stock (of which 550,000 shares will be placed in escrow to cover
indemnity obligations of the seller), plus $5 million in cash. The
Company will also pay up to an additional $1.5 million to the Keytech
LD shareholders one year after the acquisition if certain business
milestones are accomplished. The Company believes this transaction to
be immaterial.
F-15
<PAGE> 180
NETSTREAM TELECOM LTDA.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
ELEVEN MONTHS ENDED DECEMBER 31, 1998 WITH
REPORT OF INDEPENDENT AUDITORS
F-16
<PAGE> 181
NETSTREAM TELECOM LTDA.
FINANCIAL STATEMENTS
Nine Months Ended September 30, 1999
and Eleven Months Ended December 31, 1998
CONTENTS
Report of Independent Auditors...........................................F-18
Audited Financial Statements
Balance Sheets...........................................................F-19
Statements of Operations.................................................F-21
Statements of Quotaholders' Equity.......................................F-22
Statements of Cash Flows.................................................F-23
Notes to Financial Statements............................................F-24
F-17
<PAGE> 182
REPORT OF INDEPENDENT AUDITORS
The Quotaholders
Netstream Telecom Ltda.
We have audited the accompanying balance sheets of Netstream Telecom Ltda. as of
September 30, 1999 and December 31, 1998, and the related statements of
operations, statements of quotaholders' equity, and statements of cash flows for
the nine months ended September 30, 1999 and the eleven months ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Netstream Telecom Ltda. at
September 30, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the nine months ended September 30, 1999 and the eleven
months ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young Auditores Independentes S.C.
Pedro L. Siqueira Farah
Partner
Sao Paulo, Brazil
November 26, 1999
F-18
<PAGE> 183
NETSTREAM TELECOM LTDA.
BALANCE SHEETS
(Expressed in thousands of U.S. dollars)
September 30, December 31,
1999 1998
------------- ------------
ASSETS
CURRENT ASSETS:
Cash $ 29 $ 2
Account receivable 284 --
Recoverable taxes 1,855 65
Other receivables 141 271
------- -------
TOTAL CURRENT ASSETS 2,309 338
------- -------
PLANT AND EQUIPMENT, NET 47,484 12,212
RECOVERABLE TAXES -- 430
------- -------
TOTAL ASSETS $49,793 $12,980
======= =======
F-19
<PAGE> 184
NETSTREAM TELECOM LTDA.
BALANCE SHEETS
(Expressed in thousands of U.S. dollars, except quota data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES AND QUOTAHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases $ 307 $ 137
Trade accounts payable:
Plant and equipment 1,977 --
Other 330 392
Social charges payable 681 185
Other current liabilities 744 37
Due to affiliated companies 29,400 13,267
-------- --------
TOTAL CURRENT LIABILITIES 33,439 14,018
-------- --------
NON-CURRENT LIABILITIES:
Obligations under capital leases 375 457
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
QUOTAHOLDERS' EQUITY:
Capital, par value R$ 1.00, authorized and
outstanding quotas - 50,000,000 in 1999 26,540 1,082
and 1,264,127 in 1998
Additional paid-in capital 2,309 831
Accumulated deficit (15,443) (3,442)
Accumulated other comprehensive income 2,573 34
-------- --------
15,979 (1,495)
-------- --------
TOTAL LIABILITIES AND QUOTAHOLDERS' EQUITY $ 49,793 $ 12,980
======== ========
</TABLE>
See accompanying notes
F-20
<PAGE> 185
NETSTREAM TELECOM LTDA.
STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1999
and Eleven Months Ended December 31, 1998
(Expressed in thousands of U.S. dollars, except quota and per quota data)
September December
30, 1999 31, 1998
---------- ----------
GROSS REVENUE $ 533 $ --
Sales taxes 138 --
---------- ----------
NET REVENUE 395 --
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of revenues 1,768 --
Selling, general and administrative 9,691 3,848
Depreciation and amortization 1,511 --
---------- ----------
12,970 3,848
---------- ----------
LOSS FROM OPERATIONS 12,575 3,848
Foreign exchange loss 254 6
Interest expense 51 --
---------- ----------
LOSS BEFORE INCOME TAXES 12,880 3,854
Income tax benefit 879 412
---------- ----------
NET LOSS $ 12,001 $ 3,442
========== ==========
BASIC LOSS PER QUOTA $ 5.13 $ 2.72
========== ==========
WEIGHTED AVERAGE QUOTAS OUTSTANDING 2,339,183 1,264,127
========== ==========
See accompanying notes.
F-21
<PAGE> 186
NETSTREAM TELECOM LTDA.
STATEMENTS OF QUOTAHOLDERS' EQUITY
Nine Months Ended September 30, 1999
and Eleven Months Ended December 31, 1998
(Expressed in thousands of U.S. dollars, except quota amounts)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Number of paid-in Accumulated comprehensive Quotaholders'
Quotas Capital capital deficit income Equity
--------- ------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ORIGINAL QUOTA ISSUANCE 1,264,127 1,082 -- -- -- 1,082
Additional capital increase -- 831 -- -- -- 831
Net loss -- -- -- (3,442) -- (3,442)
Currency translation adjustments -- -- -- -- 34 34
----------
Comprehensive loss -- -- -- -- -- (3,408)
---------- ------ ------- ------- ------- ----------
BALANCES AT DECEMBER 31, 1998 1,264,127 1,082 831 (3,442) 34 (1,495)
Capital increase on September 24, 1999 48,735,873 25,458 -- -- -- 25,458
Additional capital increase -- -- 1,478 -- -- 1,478
Net loss -- -- -- (12,001) -- (12,001)
Currency translation adjustments -- -- -- -- 2,539 2,539
Comprehensive loss -- -- -- -- -- (9,462)
---------- ------ ------- ------- ------- ----------
BALANCES AT SEPTEMBER 30, 1999 50,000,000 26,540 2,309 (15,443) 2,573 15,979
========== ====== ======= ======= ======= ==========
</TABLE>
See accompanying notes
F-22
<PAGE> 187
NETSTREAM TELECOM LTDA.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999
and Eleven Months Ended December 31, 1998
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (12,001) $ (3,442)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization expense 1,511 --
Unrealized foreign exchange loss 235 6
Expenses contributed by affiliated company 1,478 831
Changes in operating assets and liabilities: -- --
Accounts receivable (362) --
Other current liabilities 37 (278)
Trade accounts payable 106 403
Social charges payable 721 190
Other current liabilities 352 38
Due to affiliated companies 7,950 2,245
--------- --------
Net cash provided by (used in) operating activities 27 (7)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Initial capital contribution -- 9
---------- ---------
Net cash provided by investing activities 9
---------- ---------
Net increase in cash $ 27 $ 2
Cash at beginning of period 2 --
---------- ---------
Cash at end of period $ 29 $ 2
========== =========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Plant and equipment and recoverable taxes acquired through increase
in due to affiliated companies $ 51,065 $ 12,260
========== =========
Plant and equipment acquired through capital leases 135 524
========== =========
Increase in capital through conversion of due to affiliated companies balances 25,458 1,073
========== =========
Plant and equipment included in current liabilities 3,093 --
========== =========
Capital lease payment financed through due to affiliated companies $ 46 $ --
========== =========
</TABLE>
See accompanying notes.
F-23
<PAGE> 188
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
1. ORGANIZATION AND BASIS OF PRESENTATION
Netstream Telecom Ltda. ("the Company" or "Netstream") is a limited
liability company organized under the laws of Brazil. The Company provides
broadband telecommunication services to business and government customers
in Brazil. The Company was in the development stage until May 1999, when
it began providing service in Brazil's two largest cities, Rio de Janeiro
and Sao Paulo. The Company plans to extend services to other Brazilian
cities, including Belo Horizonte, Brasilia, Campinas, Curitiba, Porto
Alegre and Salvador, in 1999 and 2000. The Company operates under
specialized circuit and network services licenses provided by the
Brazilian National Telecommunications Agency (Agencia Nacional de
Telecomunicacoes or "ANATEL"), which are granted for an indefinite term.
Netstream was originally formed in February 1998 as a division of Promon
Tecnologia S.A. ("Promon"), a Brazilian engineering company. The Netstream
division of Promon primarily consisted of certain general and
administrative costs incurred in connection with the start-up of
operations. The Company was formed on July 14, 1998 as a wholly owned
subsidiary of Promon and the Netstream division of Promon was subsequently
transferred to the Company. Promon and other affiliated companies provide
various financing and management services for the Company. See related
party transactions Note 5.
Promon is controlled by Promon Ltda., a limited liability company owned by
certain individuals (the "Controlling Owners"), along with minority
interests held by the current and former employees of Promon or its other
affiliates. Such individuals and current and former employees are referred
to herein as the "Owners".
On August 20, 1999, the Controlling Owners entered into a definitive sale
agreement with an indirect wholly owned subsidiary of AT&T Corp. for the
sale of 100% of the capital of the Company, including settlement of the
due to Promon and other affiliates' outstanding balances. This transaction
requires approval by ANATEL. Such approval was granted on November 12,
1999. This transaction is expected to close during December 1999.
F-24
<PAGE> 189
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
1. ORGANIZATION AND BASIS OF PRESENTATION -- CONTINUED
In connection with the sale agreement, SL Participacoes S.A. was created
to hold the direct ownership interests of the Owners. On September 24,
1999, the capital of the Company was increased through the conversion of
Netstream's liabilities to Promon into 48.7 million quotas. As of
September 30, 1999, the Company's capital consisted of 50,000,000
registered quotas of R$ 1.00 each, of which one quota is held by Promon
Ltda. and the remainder are held by SL Participacoes S.A.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include
the combined results of the Company and the Netstream division of Promon.
Substantially all transactions of the Company were funded by Promon
through the due to affiliates account. The cash flow statement reflects
only the cash receipts and disbursements which were effected through
Netstream's bank account. Other transactions which were effected through
Promon's bank accounts are considered non-cash transactions and are
reported as supplemental information to the cash flow statement.
Additional paid-in-capital of $ 1,478 and $ 831 in 1999 and 1998,
respectively, represents certain general and administrative costs absorbed
by Promon on behalf of the Company, net of the related income tax benefits
of $ 879 and $ 412 which will be realized by Promon.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) CURRENCY TRANSLATION
The financial statements have been translated into U.S. dollars from
the Company's functional currency, the Brazilian REAL, in accordance
with Financial Accounting Standards Board (FASB) Statement No. 52,
"Foreign Currency Translation." Assets and liabilities have been
translated using exchange rates in effect at the balance sheet dates.
Statement of operations amounts have been translated using average
exchange rates for the reporting periods. Translation gains and
losses are included in accumulated other comprehensive income within
quotaholders' equity.
F-25
<PAGE> 190
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial
statements and the accompanying notes. Actual results could differ
from those estimates.
c) PLANT AND EQUIPMENT
Plant and equipment are stated on the basis of cost. Construction,
engineering and labor costs directly related to the development of
the Company's networks are capitalized. The Company begins
depreciating these costs when the networks become commercially
operational. Plant and equipment are depreciated using the
straight-line method over estimated useful lives as follows:
Years
-------
Switching equipment 5
Transmission equipment 7
Cables 10
Underground installation 25
Other plant and equipment 3 to 10
d) INCOME TAXES
Income and social contribution taxes have been provided using the
liability method in accordance with FASB Statement No. 109,
"Accounting for Income Taxes."
F-26
<PAGE> 191
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
e) REVENUE RECOGNITION
Revenues are recognized as services are provided.
f) ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are expensed as incurred and were
$739 and $450 in 1999 and 1998, respectively.
g) EARNINGS (LOSS) PER QUOTA
Earnings (loss) per quota are calculated in accordance with FASB
Statement No. 128, "Earnings Per Share."
h) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximated fair value based on the short maturity of these
financial instruments. The fair value of the due to affiliated
companies' balances is not estimable as the timing and manner of
settlement is uncertain in the absence of the successful completion
of the sale agreement referred to in Note 1.
3. PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Description
Switching equipment $ 2,160 $ --
Transmission equipment 17,281 --
Cables 2,053 --
Underground installation 15,772 --
Other plant and equipment 10,470 --
Construction in progress 1,259 12,212
-------- ------
48,995 12,212
Less accumulated depreciation 1,511 --
-------- --------
Plant and equipment, net $ 47,484 $ 12,212
======== ========
</TABLE>
F-27
<PAGE> 192
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
4. INCOME TAXES
The Company is subject to income taxes but has not incurred a liability
for such taxes due to losses incurred. At September 30, 1999 the Company
has tax loss carryforwards of approximately $ 269. These carryforwards are
available to offset up to 30% future taxable income and do not expire.
The tax effects of temporary differences that give rise to deferred tax
assets are presented below:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Net operating loss carryforwards $ 89 $ --
Pre-operating expenses deferred for tax
purposes 2,692 839
Depreciation 446 --
Capital leases 84 --
------- -----
3,311 839
Less: valuation allowance (3,311) (839)
------- -----
Net deferred tax asset $ -- $ --
======= =====
</TABLE>
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding the future realization of the
net deferred tax asset.
Income tax expense for the periods ended September 30, 1999 and December
31, 1998 differed from the amounts computed by applying the applicable
statutory income tax rate in which the Company operates as a result of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Computed "expected" tax benefit $ 4,766 $ 1,271
Effect of increase in social contribution rate (515) --
Increase in valuation allowance (3,376) (839)
Other 4 (20)
------- -------
$ 879 $ 412
======= =======
</TABLE>
F-28
<PAGE> 193
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
5. RELATED PARTY TRANSACTIONS
a) Due to affiliated companies
Loans from affiliated companies, which result from the acquisition of
plant and equipment and payment of expenses by the affiliates on
behalf of the Company, are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
Promon Tecnologia S.A. $ 7,204 $ --
Promon Engenharia Ltda. 663 --
Promon Eletronica Ltda. 21,384 13,267
SL Participacoes S.A. 149 --
---------- --------
$ 29,400 $ 13,267
========== ========
</TABLE>
Loans from affiliated companies are non interest bearing and are due to be
repaid by December 31, 1999. Repayment is expected to occur in connection
with the closing of the sale of the Company referred to in Note 1. In the
absence of this closing prior to December 31, 1999, the affiliated
companies have indicated they will extend the repayment terms of the above
balances to December 31, 2000.
F-29
<PAGE> 194
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
5. RELATED PARTY TRANSACTIONS -- CONTINUED
(b) Plant and equipment acquisitions and operating expenses
Promon and its subsidiaries act as general contractor for the construction
and installation of Netstream's broadband network and also have incurred
certain operating expenses on Netstream's behalf.
The following amounts were charged to Netstream by Promon and are included
in plant and equipment and recoverable taxes:
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Purchases of property and equipment,
including value-added taxes $ 41,782 $ 11,819
Engineering services 1,534 441
Construction management fee 7,749 --
</TABLE>
Substantially all of the operating expenses of Netstream were funded
through the due to affiliated companies' balances.
The purchases of property and equipment, including value-added taxes,
engineering services and the operating expenses were charged to Netstream
at cost. Construction management fees changed to Netstream were based on
rates similar to those charged by Promon to unrelated companies for
similar services.
General and administrative expenses include finance, legal, facilities and
systems. These expenses were allocated to the Company based on utilization
or other methods which management believes to be reasonable.
F-30
<PAGE> 195
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and facilities under noncancelable
lease arrangements. Future minimum payments under capital leases and
operating leases with initial terms of one year or more at September 30,
1999 were as follows:
<TABLE>
<CAPTION>
For the 12 Month Periods Ended Capital Operating
September 30 Leases Leases
------------------------------- ------- ---------
<S> <C> <C>
2000 $ 331 $ 593
2001 366 567
2002 103 515
2003 -- 439
2004 -- 265
2005 -- 11
----- ------
Total minimum lease payments 800 2,390
Less amount representing interest (118)
-----
Present value of net minimum lease payments, including
current maturities of $307 $ 682
=====
</TABLE>
Installments under the capital leases are indexed to the U.S. dollar.
Plant and equipment includes the following amounts for capitalized leases:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Equipment $ 504 $ 588
Less allowances for amortization (78) --
----- -----
$ 426 $ 588
===== =====
</TABLE>
F-31
<PAGE> 196
NETSTREAM TELECOM LTDA.
NOTES TO FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the periods ended September 30, 1999 and December 31,
1998 was $276 and $123, respectively.
OTHER
In accordance with the legislation in force in Brazil, tax registers
related to federal, state and municipal taxes are subject to examination
by the respective tax authorities for 5 to 30 years.
Commitments for construction or purchase of plant and equipment
approximated $8,552 at September 30, 1999.
In the normal course of business, the Company may be subject to
proceedings, lawsuits and other claims. Although there can be no assurance
that the Company will prevail in every case, management does not believe
that the ultimate disposition of known legal contingencies will have a
material effect on the Company's financial condition, results of
operations or cash flows.
F-32
<PAGE> 197
ANNEX A
<PAGE> 198
===============================================================================
AGREEMENT AND PLAN OF MERGER
among
AT&T CORP.,
KIRI INC.,
FRANTIS, INC.
and
FIRSTCOM CORPORATION
Dated as of November 1, 1999
===============================================================================
<PAGE> 199
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................................................2
1.1. The Merger........................................................................................2
1.2. Closing...........................................................................................2
1.3. Effective Time of the Merger......................................................................2
1.4. Certificate of Incorporation and By-Laws..........................................................3
1.5. Directors; Officers...............................................................................3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES......................................................................................3
2.1. Effect on Capital Stock...........................................................................3
2.2. Delivery of Certificates..........................................................................4
2.3. Company Stock Options.............................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................................8
3.1. Representations and Warranties of the Company.....................................................8
3.2. Representations and Warranties of Parent.........................................................22
ARTICLE IV COVENANTS........................................................................................26
4.1. No Solicitation..................................................................................26
4.2. Conduct of Business..............................................................................27
4.3. Filings; Other Action............................................................................32
4.4. Access to Information; Pre-Closing Review........................................................33
4.5. Publicity........................................................................................34
4.6. Further Action...................................................................................34
4.7. Insurance; Indemnity.............................................................................35
4.8. Shareholder Approval; Preparation of Proxy Statement.............................................35
4.9. Certain Tax Matters..............................................................................36
4.10. Senior Notes ...................................................................................37
4.11. Ancillary Agreements.............................................................................38
4.12. Netstream Purchase Price Adjustment..............................................................38
4.13. Conduct of Business of RV and Netstream..........................................................38
4.14. RV Public Shares.................................................................................41
4.15. Credit Facility..................................................................................41
</TABLE>
i
<PAGE> 200
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V CONDITIONS.........................................................................41
5.1. Conditions to Each Party's Obligations.............................................41
5.2. Additional Conditions to Obligations of Parent, RV and
Merger Sub.........................................................................42
5.3. Additional Conditions to Obligations of the Company................................44
ARTICLE VI TERMINATION........................................................................45
6.1. Termination........................................................................45
6.2. Effect of Termination..............................................................47
ARTICLE VII GENERAL PROVISIONS.................................................................47
7.1. Nonsurvival of Representations and Warranties......................................47
7.2. Amendment..........................................................................47
7.3. Extension; Waiver..................................................................48
7.4. Notices............................................................................48
7.5. Assignment; Binding Effect.........................................................49
7.6. Entire Agreement...................................................................49
7.7. Fees and Expenses..................................................................49
7.8. Governing Law......................................................................50
7.9. Headings...........................................................................50
7.10. Interpretation.....................................................................50
7.11. Investigations.....................................................................51
7.12. Severability.......................................................................51
7.13. Enforcement of Agreement...........................................................51
7.14. Counterparts.......................................................................51
</TABLE>
ii
<PAGE> 201
Schedule A Definitions
Exhibit A Certificate of Incorporation and By-Laws of RV and of Merger Sub
Exhibit B Form of RV Board Policy
Exhibit C-1 Forms of Amended and Restated Certificate of Incorporation of RV
Exhibit C-2 Form of Amended and Restated By-Laws of RV
Exhibit D Form of Service Mark License Agreement
Exhibit E Form of RV Agreement
Exhibit F Terms of Credit Facility
Exhibit G Form of Certificate of Designation
Annex A Representation Letters
iii
<PAGE> 202
AGREEMENT AND PLAN OF MERGER, dated as of November 1, 1999
("Agreement"), among AT&T Corp., a New York corporation ("Parent"), Kiri Inc.,
a Delaware corporation ("RV"), Frantis, Inc., a Delaware corporation and
wholly-owned subsidiary of RV ("Merger Sub"), and FirstCom Corporation, a Texas
corporation (the "Company"). Certain capitalized terms used herein are defined
in Schedule A attached hereto.
RECITALS
A. Each of Parent, RV, Merger Sub and the Company desire to enter
into the business combination transaction described herein, in which the
Company would merge with and into Merger Sub (the "Merger").
B. The Boards of Directors of Parent and the respective Boards of
Directors or shareholders (as the case may be) of each of RV and Merger Sub
have duly adopted resolutions approving the transactions contemplated hereby.
C. The Board of Directors of the Company, acting on the
recommendation of a special committee of independent directors, has approved
this Agreement and the Merger, has determined by unanimous resolution that the
Merger is in the best interests of the Company and its shareholders and intends
to recommend to the shareholders of the Company that they vote to approve the
Merger.
D. Concurrently with the execution of this Agreement and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain shareholders of the Company have entered into a voting agreement, dated
as of the date hereof (the "Voting Agreement"), among Parent and the several
shareholders named therein, providing, among other things, that such
shareholders will vote in favor of the Merger.
E. JAMTIS, Inc., a Delaware corporation ("Jamtis"), and an
indirect wholly-owned subsidiary of Parent, has entered into agreements (the
"Netstream Acquisition Agreements") to acquire quotas (the "Netstream Shares")
representing 100% of the outstanding equity interest in Netstream Telecom
Ltda., a Brazilian company ("Netstream").
F. Parent intends to cause Jamtis to merge with a wholly-owned
subsidiary of RV, such that, following such merger, (i) Jamtis will be a direct
wholly-owned subsidiary of RV, and (ii) Netstream will be an indirect
wholly-owned subsidiary of RV.
G. Pursuant to the Netstream Acquisition Agreements, Promon
Tecnologia S.A., a Brazilian corporation (sociedade anonima) (together with its
affiliates, "Promon")
<PAGE> 203
has agreed to purchase, prior to the Closing a 10% interest in the capital of
RV, in the form of RV Class A Shares.
H. Each of Parent, RV, Merger Sub and the Company intend that the
Merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
I. Each of Parent, RV, Merger Sub and the Company intend that,
immediately following the Effective Time, on a fully-diluted basis, (i) the
former shareholders of the Company will own, collectively, approximately 34% of
the shares of common stock of RV, in the form of RV Class A Common Stock or RV
Preferred Stock, as the case may be, (ii) Promon will own, directly or
indirectly, approximately 6% of the shares of common stock of RV, in the form
of RV Class A Common Stock, and (iii) Parent will own, directly or indirectly,
approximately 60% of the shares of common stock of RV, in the form of RV Class
B Common Stock (as defined herein).
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. On the terms and subject to the conditions set
forth in this Agreement, and in accordance with applicable state corporation
laws, the Company shall be merged with and into Merger Sub at the Effective
Time (as defined in Section 1.3 below). Upon the Effective Time, the separate
existence of the Company shall cease, and Merger Sub shall continue as the
surviving corporation (the "Surviving Corporation").
1.2. Closing. Unless this Agreement shall have been terminated
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "Closing")
shall take place as promptly as practicable (and in any event within two
business days) following satisfaction or waiver of the conditions set forth in
Article V (the "Closing Date"), at the offices of Debevoise & Plimpton, 875
Third Avenue, New York, New York 10022, unless another date or place is agreed
to in writing by the parties hereto.
1.3. Effective Time of the Merger. As soon as practicable
following the satisfaction or waiver of the conditions set forth in Article V,
the Surviving Corporation
2
<PAGE> 204
shall file a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the Delaware General Corporation Law
("DGCL"). The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware, or
at such other time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
1.4. Certificate of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation following the Merger, until amended in accordance with
the DGCL.
1.5. Directors; Officers. (a) The directors of Merger Sub at the
Effective Time shall be the initial directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
(b) The officers of Merger Sub at the Effective Time shall be the
officers of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any further act or deed on the part of Parent, RV,
Merger Sub, the Company or any holder of any of the following securities:
(a) Common Stock of the Company. Each issued and outstanding share
of common stock, par value $0.001 per share, of the Company (together
with any rights appurtenant thereto, "Company Common Stock") shall be
converted into the right to receive one fully paid and non-assessable
share of Class A common stock, par value $0.01 per share, of RV ("RV
Class A Common Stock").
(b) Preferred Stock of the Company. Each issued and outstanding
share of Series A convertible preferred stock, par value $0.001 per
share, of the Company ("Preferred Stock") shall be converted into the
right to receive one fully paid and non-assessable share of Series A
convertible preferred stock, par value $0.001 per share, of RV ("RV
Preferred Stock").
3
<PAGE> 205
2.2. Delivery of Certificates. (a) Exchange Agent; Exchange Fund.
As of the Effective Time, Parent and the Company shall cause to be deposited,
with a bank or trust company designated by Parent (and reasonably acceptable to
the Company) (the "Exchange Agent"), for exchange in accordance with this
Article II, through the Exchange Agent, for the benefit of the holders of
shares of Company Common Stock, certificates representing the shares of RV
Class A Common Stock issuable pursuant to Section 2.1 in exchange for issued
and outstanding shares of Company Common Stock. All of such deposited
certificates representing shares of RV Class A Common Stock, collectively,
together with any dividends or distributions with respect thereto, are referred
to hereinafter as the "Exchange Fund."
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Parent shall instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Company Common Stock
(collectively, the "Certificates"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in form and have such other provisions as Parent
and the Company may reasonably specify) and (ii) instructions to effect the
surrender of the Certificates in exchange for certificates representing shares
of RV Class A Common Stock. Upon surrender of one or more Certificates for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary or other reasonable documents as may be
required pursuant to such instructions, the holder of such Certificates shall
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of RV Class A Common Stock which such holder has the
right to receive in respect of the Certificates surrendered by such holder
pursuant to the provisions of this Article II, and the Certificates so
surrendered shall forthwith be cancelled. In the event of transfer of ownership
of Company Common Stock which is not registered in the transfer of records of
the Company, a certificate representing the proper number of shares of RV Class
A Common Stock may be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to present only the right to receive upon such
surrender a certificate representing shares of RV Class A Common Stock, and
cash in lieu of any fractional shares of RV Class A Common Stock as
contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect
to RV Class A Common Stock with a record date after the Effective Time shall be
paid to the holder of
4
<PAGE> 206
any unsurrendered Certificate with respect to the shares of RV Class A Common
Stock represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(e) until the holder of
such Certificate shall have duly surrendered such Certificate in accordance
with Section 2.2(b). Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of RV Class A Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender or as
promptly thereafter as practicable, the amount of any cash payable with respect
to a fractional share of RV Class A Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and the amount of dividends or other
distributions, if any, with a record date after the Effective Time theretofore
paid with respect to such whole shares of RV Class A Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of RV Class A Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All
shares of RV Class A Common Stock issued upon conversion of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article
II.
(e) Treatment of Fractional Shares. (i) No certificates or scrip
representing fractional shares of RV Class A Common Stock shall be issued upon
the surrender for exchange of Certificates, and such fractional interests will
not entitle the owner thereof to vote or to any rights of a stockholder of the
Surviving Corporation.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (x) the aggregate number of shares
of RV Class A Common Stock delivered to the Exchange Agent over (y) the
aggregate number of whole shares of RV Class A Common Stock to be distributed
in connection with the Merger (such excess being referred to herein as the
"Excess Shares"). Following the Effective Time, Parent and RV will cause the
Exchange Agent, on behalf of the former stockholders of the Company, to sell
the Excess Shares at then-prevailing prices on the securities exchange on which
they are listed in the manner provided in clause (iii) of this Section.
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(iii) The sale of the Excess Shares by the Exchange Agent will be
executed through one or more member firms and will be executed in round lots to
the extent practicable. The Exchange Agent will use reasonable efforts to
complete the sale of the Excess Shares as promptly following the Effective
Time, as, in its sole judgment, is practicable consistent with obtaining the
best execution of such sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been distributed to the former
stockholders of the Company, the Exchange Agent will hold such proceeds in
trust for such holders (the "Excess Shares Trust"). All commissions, transfer
taxes and other out-of-pocket transaction costs incurred in connection with
such sale of Excess Shares shall be paid by RV. The Exchange Agent will
determine the portion of the Excess Shares Trust to which each holder of
Company Common Stock, is entitled, if any, by multiplying the amount of the
aggregate proceeds comprising the Excess Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder of Company Common Stock is entitled (after taking into account all such
shares held at the Effective Time by such holder) and the denominator of which
is the aggregate amount of fractional share interests to which all holders of
Company Common Stock are entitled pursuant to the Merger are entitled pursuant
to the Merger provided, that no holder of Company Common Stock will be entitled
to receive cash in an amount equal to or greater than the value of one full
share of RV Class A Common Stock.
(iv) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Company Common Stock with respect to
fractional share interests, the Exchange Agent will make available such amounts
to such holders.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the stockholders of the Company for six months
after the Effective Time shall be delivered to RV upon demand, and any
stockholders of the Company who have not theretofore complied with this Article
II shall thereafter look only to RV for payment of their claim for RV Class A
Common Stock, any cash in lieu of fractional shares of RV Class A Common Stock
and any dividends or distributions with respect to RV Class A Common Stock.
(g) No Liability. None of Parent, RV and the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock or RV Class A
Common Stock, as the case may be, for such shares (or dividends or distributions
with respect thereto) or cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. RV or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock such amounts as
the Surviving
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Corporation or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law, or any court order. To the extent that amounts
are so withheld by RV or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock in respect of which such deduction and
withholding was made by RV or the Exchange Agent.
2.3. Company Stock Options. (a) Each option (each, a "Company Stock
Option" and collectively, the "Company Stock Options") to purchase shares of
Company Common Stock granted under the Company's long-term incentive plans and
directors stock option plans or pursuant to the authority of the Board of
Directors of the Company that is outstanding immediately prior to the Closing
Date shall be deemed to constitute an option to acquire one share of RV Class A
Common Stock (each, an "Assumed Award"), provided that any fractional share of
RV Class A Common Stock resulting from an aggregation of all of the shares of a
holder subject to Company Stock Options shall be rounded to the nearest whole
share, and provided, further, that, for any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422 through 424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424 of the
Code. Each such Assumed Award, to the extent permissible under Section 424(a)
of the Code, shall thereafter be exercisable until the end of the period during
which the Company Stock Option was exercisable and shall otherwise have terms
no less favorable to the holder thereof than the original Company Stock Option.
(b) RV shall take such actions as are necessary for the assumption
of Company Stock Options pursuant to this Section 2.3, including the
reservation, issuance and listing of RV Class A Common Stock as is necessary to
effectuate the transactions contemplated by this Section 2.3. RV shall prepare
and file with the SEC a registration statement on an appropriate form, or a
post-effective amendment to a registration statement previously filed under the
Securities Act (as defined herein), with respect to the shares of RV Class A
Common Stock subject to the Assumed Awards and, where applicable, shall use its
reasonable best efforts to have such registration statement declared effective
by Closing Date and to maintain the effectiveness of such Assumed Awards (and
to maintain the current status of the prospectus contained therein) for so long
as such Assumed Awards remain outstanding. With respect to those individuals,
if any, who, subsequent to the Closing, will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, RV
shall use its reasonable efforts to administer Company Stock Options assumed
pursuant to this Section 2.3 in a manner that complies with Rule 16b-3
promulgated under the Exchange Act (as defined herein).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to Parent, RV and Merger Sub as of the date
hereof and as of the Closing Date as follows:
(a) Existence; Good Standing; Corporate Authority. Each of the
Company and its Subsidiaries is (i) a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and (ii) duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States or (to the extent the concepts of "qualified to do business" and
"good standing" exist) any other jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such licensure, qualification or good standing necessary, except where
the failure to be so in good standing or to be so licensed or qualified,
individually or in the aggregate, would not have a material adverse effect on
(x) the business, operations, results of operations, assets or financial
condition of the Company or any Subsidiary, or (y) the ability of the Company
to perform its obligations under this Agreement or any Ancillary Agreement (any
of the foregoing events or circumstances being referred to herein as a
"Material Adverse Effect"). Each of the Company and its Subsidiaries has the
requisite corporate power and authority to own, operate and lease its
properties and assets and carry on its business as now conducted and proposed
to be conducted as discussed in the Company Reports (as defined below). The
Company has delivered to Parent true and correct copies of the Certificate of
Incorporation and By-Laws of the Company and of the comparable organizational
documents of each Subsidiary of the Company, each of which is in full force and
effect.
(b) Authorization, Validity and Effect of Agreements. The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Company of
this Agreement and such Ancillary Agreements, the performance of its
obligations hereunder and thereunder and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Company, and no other action on the
part of the Company or any shareholder thereof is necessary to authorize the
execution and delivery by the Company of this Agreement or such Ancillary
Agreements, to perform the obligations hereunder or thereunder or to consummate
the transactions contemplated
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hereby or thereby (other than the approval of this Agreement and the Merger by
the holders of a majority of the shares of Company Common Stock). The Board of
Directors of the Company, acting on the recommendation of a duly constituted
special committee of independent directors, has duly adopted resolutions
determining that the Merger is advisable and the terms of this Agreement and
the Merger are fair to, and in the best interests of, the Company and the
Company's shareholders. This Agreement has been, and upon execution as
contemplated herein, each Ancillary Agreement to which the Company is a party,
will have been, duly and validly executed and delivered by the Company, and
(assuming due execution and delivery of this Agreement and each of such
Ancillary Agreements by each other party hereto and thereto) constitutes the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
(c) Compliance with Laws. Except as set forth on Schedule 3.1(c)
of the Disclosure Letter, neither the Company nor any of its Subsidiaries is in
violation of any foreign, federal, state or local law, statute, ordinance,
rule, regulation, order, judgment, ruling or decree ("Laws") of any foreign,
federal, state or local judicial, legislative, executive, administrative or
regulatory body or authority or any court, arbitration, board or tribunal (each
such entity, a "Governmental Entity") applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, except for
violations which, individually or in the aggregate, would not have a Material
Adverse Effect.
(d) Capitalization of the Company. (i) As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 shares of
Company Common Stock and 10,000,000 shares of Preferred Stock and (A)
24,376,556 shares of Company Common Stock are issued and outstanding, (B)
1,313,086 shares of Preferred Stock are issued and outstanding, (C) options to
purchase an aggregate of 10,578,500 shares of Company Common Stock are
outstanding (the "Options"), 10,578,500 shares of Company Common Stock are
reserved for issuance upon the exercise of outstanding Options and 300,000
shares are reserved for future grants under all stock option or other incentive
plans or arrangements of the Company (the "Company Stock Plans"), and there are
no stock appreciation rights or limited stock appreciation rights or other
equity-related rights or awards outstanding other than the Options, (D)
warrants to purchase 5,758,771 shares of Company Common Stock are outstanding
(the "Warrants"), and 5,758,771 shares are reserved for issuance upon the
exercise of the Warrants, and (E) no shares of Company Common Stock or
Preferred Stock are held by the Company's Subsidiaries or in treasury. Except
for the Warrants, the Options and the shares of Preferred Stock outstanding,
the Company has no outstanding bonds, debentures, notes or other obligations,
instruments or securities entitling the holders thereof to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of the Company on any matter. Schedule 3.1(d) of the
Disclosure Letter sets forth for each Option and Warrant outstanding as of the
date hereof, (I) its exercise price, (II) its expiration date, (III) the
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first date upon which it becomes exercisable, and (IV) the number of shares of
Company Common Stock (or other securities) for which it is exercisable.
(ii) Except as set forth on Schedule 3.1(d)(ii), of the Disclosure
Letter, since June 30, 1999 the Company has not (A) issued any shares of its
capital stock, (B) granted any options or warrants to purchase any shares of
its capital stock or (C) split, combined or reclassified any shares of its
capital stock. All issued and outstanding shares of Company Common Stock and
Preferred Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights.
(iii) Except for the Options, the Warrants, the outstanding shares
of Preferred Stock and the rights (the "Company Rights") distributed to holders
of Company Common Stock pursuant to the Rights Agreement, dated as of April 1,
1998 (in the form attached as Exhibit 2.1 to the SEC Form 8-A filed by the
Company on April 3, 1998), between the Company and American Stock Transfer &
Trust Company (the "Rights Agreement"), and except as set forth in this Section
3.1(d) or in Schedule 3.1(d) of the Disclosure Letter, there are no other
shares of capital stock of the Company, no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of, or equity interests in, the
Company or any of its Subsidiaries. Except as set forth in the certificate of
designation relating to the outstanding shares of Preferred Stock, there are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company and, other than outstanding Options, there are no awards outstanding
under any Company Stock Plans or any other outstanding stock-related awards.
There are no voting agreements, voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party (or,
to the knowledge of the Company, to which any two or more shareholders are
parties, other than the Voting Agreement) with respect to the voting of capital
stock of the Company or any of its Subsidiaries.
(e) Subsidiaries. Schedule 3.1(e) of the Disclosure Letter sets
forth for each Subsidiary of the Company: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share or
equity capital; (iii) the number of issued and outstanding shares of capital
stock or equity capital; and (iv) the legal and beneficial owner or owners of
such shares. Except as set forth on Schedule 3.1(e) of the Disclosure Letter,
each of the outstanding shares of capital stock or other equity interest of
each of the Company's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned, directly or indirectly, by the Company
free and clear of all liens, pledges, security interests, claims or other
encumbrances (collectively, "Encumbrances"). Except
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for interests in the Company's Subsidiaries or as set forth on Schedule 3.1(e)
of the Disclosure Letter, neither the Company nor any of its Subsidiaries owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, firm, partnership, limited liability company, joint venture,
business, association, trust, business trust or other entity (each
individually, along with any natural person and any Government Entity, a
"Person").
(f) No Violation; Consents. (i) Except as set forth on Schedule
3.1(f) of the Disclosure Letter, neither the execution, delivery or performance
by the Company of this Agreement or any of the Ancillary Agreements nor the
consummation by the Company of the transactions contemplated hereby or thereby
will: (A) violate, conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-Laws (or comparable organizational
documents) of the Company or any of its Subsidiaries; (B) violate, conflict
with, result in a breach of any provision of, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
result in the termination or in a right of termination of, accelerate the
performance required by or benefit obtainable under, result in the triggering
of any payment or other obligations pursuant to, result in the creation of any
Encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries under, or result in there being declared void, voidable, subject
to withdrawal, or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, Permit, lease, contract, plan, agreement or other
instrument, commitment or obligation to which the Company or any of its
Subsidiaries is a party, by which the Company or any of its Subsidiaries or any
of their respective properties is bound, or under which the Company or any of
its Subsidiaries or any of their respective properties is entitled to a benefit
(each of the foregoing, to the extent the same have any continuing force or
effect, a "Contract" and collectively, "Contracts"), except for any of the
foregoing matters which, individually or in the aggregate, would not have a
Material Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated hereby (a "Material Delaying Effect"); or (C) violate
any Laws applicable to the Company, any of its Subsidiaries or any of their
respective assets or properties, except for violations which, individually or
in the aggregate, would not have a Material Adverse Effect.
(ii) Except as set forth on Schedule 3.1(f) of the Disclosure
Letter, and other than the filings required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the Securities Exchange Act
of 1934, as amended (together with the rules and regulations promulgated
thereunder, the "Exchange Act"), the Securities Act of 1933, as amended (with
respect to the Registration Statement) or filings in connection with the
maintenance of qualification to do business in other jurisdictions (the filings
disclosed in the Disclosure Letter relating to this clause (ii), the other
filings referred to in this clause (ii) and the Other Antitrust Filings and
Consents required or permitted to be
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made or obtained, collectively, the "Regulatory Filings"), neither the
execution, delivery or performance by the Company of this Agreement or any of
the Ancillary Agreements nor the consummation by the Company of the
transactions contemplated hereby or thereby will require any consent, approval
or authorization of, or declaration, filing or registration with, (A) any
Governmental Entity, including any such consent, approval, authorization,
declaration, filing or registration under any Laws of any foreign jurisdiction
relating to antitrust matters or competition ("Foreign Antitrust Laws"), (B)
any other Law of any foreign jurisdiction, or (C) any other Person, except for
those consents, approvals, authorizations, declarations, filings or
registrations the failure of which to obtain or make, individually or in the
aggregate, would not have a Material Adverse Effect or a Material Delaying
Effect.
(g) Company Reports; Absence of Undisclosed Liabilities. (i) Each
registration statement, report (including annual and quarterly reports), proxy
statement or information statement (as defined under the Exchange Act) and all
attachments and exhibits thereto prepared by the Company or relating to its
securities or properties since January 1, 1997, each in the form (including all
exhibits and amendments thereto) filed with the Securities and Exchange
Commission (the "SEC") (collectively, as amended or restated, the "Company
Reports"), as of their respective dates (or the respective dates of the latest
amendments thereto or restatements thereof), (A) complied as to form in all
material respects with the applicable requirements of the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act") and the Exchange Act and (B) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference in the
Company Reports fairly presented the financial position of the entity or
entities to which it relates as of its date, and each of the consolidated
statements of results of operations and consolidated statements of cash flows
included in or incorporated by reference in the Company Reports fairly
presented the results of operations or cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with United States generally accepted accounting
principles consistently applied during the periods involved.
(ii) Except as set forth on Schedule 3.1(g) of the Disclosure
Letter, neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether liquidated, accrued, contingent or otherwise, except (x)
liabilities and obligations in the respective amounts reflected or reserved
against in the consolidated balance sheet of the Company and its Subsidiaries
as of June 30, 1999 included in the Company Reports and (y) liabilities and
obligations incurred in the ordinary course of business since that date which
individually or in the aggregate would not have a Material Adverse Effect.
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(h) Rights Agreement; Absence of Affiliated Shareholder. (i) The
Company has duly amended the Rights Agreement to provide that none of the
approval, execution or delivery of this Agreement or the consummation of the
Merger will cause (x) the Company Rights to become exercisable under the Rights
Agreement, (y) Parent or Merger Sub (or any of their respective affiliates), to
be deemed an "Acquiring Person" (as defined in the Rights Agreement), or (z)
result in the occurrence of a "Distribution Date" or "Triggering Event" (as
defined, respectively, in the Rights Agreement).
(ii) No shareholder of the Company is or, at any time during the
three-year period preceding the date hereof or the Effective Time, has been, an
"affiliated shareholder" of the Company as such term is defined in Part
Thirteen of the Texas Business Corporation Act.
(i) Litigation. Except as disclosed in the Company Reports, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
audits (collectively, "Litigation") by a third party (including a Governmental
Entity) pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, other than those which, individually or in
the aggregate, would not have a Material Adverse Effect. Except as disclosed in
the Company Reports, no Governmental Entity has advised the Company or any of
its Subsidiaries of an intention to conduct any audit, investigation or other
review with respect to the Company or any of its Subsidiaries that the Company
reasonably believes would be material.
(j) Absence of Certain Changes. Except as set forth in the Company
Reports or on Schedule 3.1(j) or 3.1(d) of the Disclosure Letter, since June
30, 1999, the Company and its Subsidiaries have conducted their business only
in the ordinary course of such business consistent with past practices, and
there has not occurred (i) any Material Adverse Effect; (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
the capital stock of the Company or any of its Subsidiaries (other than
Subsidiaries that, at all times since June 30, 1999, have been wholly-owned,
directly or indirectly, by the Company) or any repurchase, redemption or any
other acquisition by the Company or any of its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests
in, the Company or any of its Subsidiaries; (iii) any change in accounting
principles, practices or methods used by the Company or any of its
Subsidiaries; (iv) any entering into or amendment of any employment agreement,
which is, or would be required to be, set forth on Schedule 3.1(m), with, or
any increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment) of compensation payable, or to
become payable, by the Company or any of its Subsidiaries to, their respective
directors, officers or employees; (v) any entering into or amendment of any
increase in the rate or terms (including, without limitation, any acceleration
of the right to receive payment) of any
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bonus, insurance, pension or other employee benefit plan or arrangement
covering any such directors, officers or employees; (vi) any revaluation by the
Company or any of its Subsidiaries of any of their respective assets except for
write-downs and write-offs not exceeding $500,000 or equivalent in the
aggregate or for which specific reserves were made in the preparation of the
consolidated balance sheet of the Company and its Subsidiaries, as at June 30,
1999, included in the Company Reports; (vii) any transaction or commitment made
by the Company or any of its Subsidiaries to buy or sell any assets that are or
would be material to the Company's business; or (viii) any other transaction or
event that, had it occurred after the date of this Agreement, would constitute
a breach of the covenant set forth in Section 4.2(b).
(k) Taxes. Except as set forth on Schedule 3.1(k) of the
Disclosure Letter:
(i)(A) All Tax Returns relating to the Company and each of its
Subsidiaries or the business or assets thereof that were required to be filed
on or before the Closing Date have been duly and timely filed and are correct
and complete in all material respects, (B) all Taxes shown as owing on such Tax
Returns have been paid, and (C) neither the Company nor any of its Subsidiaries
is currently the beneficiary of any extension of time within which to file any
Tax Return which has not been filed.
(ii)(A) All material Taxes that are or may become payable by the
Company or any of its Subsidiaries or chargeable as an Encumbrance upon the
assets thereof as of the Closing Date for which the filing of a Tax Return is
not required have been duly and timely paid, (B) the Company and each of its
Subsidiaries has duly and timely withheld all material Taxes required to be
withheld in connection with the business or assets of such person, and such
withheld Taxes have been either duly and timely paid to the proper governmental
authorities or properly set aside in accounts for such purpose, and (C) the
Company Reports reflect an adequate reserve for all material Taxes payable or
asserted to be payable by the Company or any of its Subsidiaries for all
taxable periods or portions thereof through the date of the most recent
financial statements set forth therein.
(iii) There has been no claim or issue (other than a claim or issue
that has been finally settled) concerning any liability for Taxes of the
Company or any of its Subsidiaries asserted, raised or, to the knowledge of the
Company, threatened by any taxing authority.
(iv) Schedule 3.1(k) of the Disclosure Letter lists all Income Tax
Returns that have been filed with respect to the Company and any of its
Subsidiaries for taxable periods ended on or after January 1, 1992 and that
have not yet been audited or are currently the subject of audit.
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(v) Neither the Company nor any of its Subsidiaries has (A) waived
any statute of limitations, (B) agreed to any extension of the period for
assessment or collection or (C) executed or filed any power of attorney with
respect to Taxes, which waiver, agreement or power of attorney is currently in
force.
(vi)(A)There are no outstanding adjustments under Section 481 of
the Code (or similar or analogous provision of state, local or foreign law) for
Income Tax purposes applicable to the Company or any of its Subsidiaries
required as a result of changes in methods of accounting effected on or before
the Closing Date, and (B) no material elections for Income Tax purposes have
been made by the Company or any of its Subsidiaries that are currently in force
or by which the Company or any of its Subsidiaries is bound.
(vii) Neither the Company nor any of its Subsidiaries (A) is a party
to or bound by or has any obligation under any Tax allocation, sharing,
indemnity or similar agreement or arrangement, or (B) is or has been a member
of any group of companies filing a consolidated, combined or unitary Income
Tax Return.
(l) Employee Benefit Plans. (i) Schedule 3.1(l) of the Disclosure
Letter lists all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option plans, or any other employee benefit
plan, program, agreement, or arrangement, whether written or unwritten and
regardless of whether they are funded or unfunded or U.S. or non-U.S., with,
for the benefit of, or covering employees or former employees of the Company
and its Subsidiaries whether maintained by the Company or its Subsidiaries or
with respect to which the Company or its Subsidiaries have any liability,
including any "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("Company Benefit Plans"). The Company has provided Parent with a true and
correct copy of each of the Company Benefit Plans (or a true and correct
description of any unwritten Company Benefit Plan) and all contracts relating
thereto, or to the funding thereof, and the two most recent annual reports and
actuarial valuations (if applicable) relating to each Company Benefit Plan.
(ii) The Company is not aware that any officer, executive or key
employee or any group of employees of the Company or any of its Subsidiaries
has any plans to terminate his, her or its employment.
(iii) Each Company Benefit Plan and Employment Agreement conforms in
all material respects to, and its administration is in conformity in all
material respects with, all applicable laws. No material liability has been or
is expected to be incurred by the
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Company or any of its Subsidiaries with respect to any Company Benefit Plan and
Employment Agreement except for benefits payable or contributions due under the
terms of such plans or agreements, and full payment has been made of all
amounts that the Company or any of its Subsidiaries is required to have paid as
contributions to each Company Benefit Plan and Employment Agreement. All
Company Benefit Plans intended and Employment Agreements to satisfy applicable
tax qualification requirements or other requirements necessary to secure
favorable tax or other legal treatment comply in all material respects with
such requirements, and adequate accruals for all obligations under the Company
Benefit Plans and Employment Agreements are reflected in the financial
statements of the Company. Neither the Company nor any of its Subsidiaries nor
any of their ERISA Affiliates has ever maintained, contributed to or incurred
or expects to incur any liability under Title IV of ERISA. Except as set forth
on Schedule 3.1(l) of the Disclosure Letter, (A) the execution of, and
performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any benefit plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee and (B) no payment or benefit which will or may be made by the
Company, any of its Subsidiaries or Parent with respect to any employee,
officer or director will constitute an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
(iv) Except as described in the Company Reports or listed on
Schedule 3.1(l) of the Disclosure Letter, neither the Company nor any of its
Subsidiaries maintains or contributes to any plan or arrangement which provides
or has any liability to provide life insurance or medical or other employee
welfare benefits to any employee or former employee upon his or her retirement
or termination of employment, and neither the Company nor any of its
Subsidiaries has ever represented, promised or contracted (whether in written
form or, to the knowledge of the Company, in unwritten form) to any employee or
former employee that such benefits would be provided. None of the Company
Benefit Plans is a Multiemployer Plan or a Single Employer Plan within the
meaning of ERISA.
(m) Labor and Employment Matters. (i) Schedule 3.1(m) of the
Disclosure Letter lists, as of October 15, 1999, each officer and employee of
the Company and any of its Subsidiaries. Not more than 30 additional employees
were hired by the Company and its Subsidiaries between October 15, 1999 and the
date hereof. Except as set forth on Schedule 3.1(m) of the Disclosure Letter,
(i) neither the Company nor any of its Subsidiaries is a party to, or bound by,
any collective bargaining agreement or other Contracts or understanding with a
labor union or labor organization; and (ii) there is no (x) unfair labor
practice, labor dispute (other than routine individual grievances) or labor
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arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, (y) activity or proceeding by a
labor union or representative thereof to organize any employees of the Company
or any of its Subsidiaries, or (z) lockouts, strikes, slowdowns, work stoppages
or threats thereof by or with respect to such employees. The Company and each
of its Subsidiaries is in substantial compliance with all Laws regarding
employment, employment practices, terms and conditions of employment and wages
and hours.
(ii) There are no pending or, to the knowledge of the Company,
threatened claims for indemnification by the Company or any of its subsidiaries
in favor of directors, officers, employees and agents of the Company or any of
its Subsidiaries.
(iii) Except for (a) any benefits to be provided to employees under
any Company Benefit Plan, (b) any benefits to be provided to employees under
any Employment Agreement and (iii) compensation payable in the ordinary course
for services rendered within the payroll period immediately preceding the date
hereof, the Company and its Subsidiaries have no liabilities with respect to
any employees, other than as reflected in the Company Reports or on Schedule
3.1(m) of the Disclosure Letter.
(n) Brokers and Finders. Except for CIBC World Markets Corp.
pursuant to an engagement letter, a true and complete copy of which has
previously been delivered to Parent, no broker, dealer or financial advisor is
entitled to receive from the Company or any of its Subsidiaries any broker's,
finder's or investment banking fee in connection with this Agreement or the
transactions contemplated hereby.
(o) Licenses and Permits. Schedule 3.1(o) of the Disclosure Letter
sets forth a complete and correct list of all licenses, concessions, permits,
certificates of need, approvals and authorizations (collectively, "Permits")
from all Governmental Entities held by the Company and its Subsidiaries. Such
Permits are sufficient to enable the Company and its Subsidiaries to lawfully
conduct their respective businesses as presently conducted in all material
respects. No Permit listed, or required to be listed, on Schedule 3.1(o) of the
Disclosure Letter is subject to revocation, forfeiture or renegotiation by
virtue of any existing circumstances affecting the Company and its Subsidiaries
or by virtue of the execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby. There is no
Litigation pending or, to the knowledge of the Company, threatened to modify or
revoke any Permit, and no Permit is subject to any outstanding order, decree,
judgment, stipulation, or investigation that would be likely to affect such
Permit or the rights of the Company or any of its Subsidiaries thereunder,
except for instances of any of the foregoing matters which, individually or in
the aggregate, would not have a Material Adverse Effect.
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(p) Environmental Matters. Except as set forth on Schedule 3.1(p)
of the Disclosure Letter, and except where the failure of any of the following
to be true and correct would not have a Material Adverse Effect:
(i) The Company and its Subsidiaries are in compliance with all
Environmental Laws and the requirements of any permits issued under such
Environmental Laws with respect to any properties or assets of the
Company or any of its Subsidiaries ("Company Property");
(ii) There are no past, pending or, to the knowledge of the
Company, threatened material Environmental Claims against the Company, any
of its Subsidiaries or any Company Property; and
(iii) There are no facts, circumstances, conditions or occurrences
regarding any Company Property or any property adjoining or in the
vicinity of any Company Property, that could reasonably be anticipated
(i) to form the basis of a material claim under any Environmental Law
against the Company, any of its Subsidiaries or any Company Property or
(ii) to cause such Company Property or assets to be subject to any
restrictions on its ownership, occupancy, use or transferability under
any Environmental Law.
(q) Material Contracts. Except as set forth on Schedule 3.1(q) of
the Disclosure Letter, none of the Company and any of its Subsidiaries is bound
by (a) any agreement, contract or commitment providing for annual payments of
more than $250,000, (b) any agreement, indenture or other instrument which
contains restrictions with respect to payment of dividends or any other
distribution in respect of its capital stock providing for annual payments of
more than $250,000, (c) any agreement, indenture or instrument relating to
indebtedness providing for annual payments of more than $250,000, (d) any
agreement or contract with any Affiliate providing for annual payments of more
than $250,000, (e) any interconnection agreement providing for annual payments
of more than $250,000, (f) any employment, consulting, severance, "change of
control" or other similar agreements, understandings or arrangements, whether
written or unwritten, which cover any employee or former employee of the
Company or any of its Subsidiaries (the "Employment Agreements"). The Company
has provided Parent with a true and correct copy of each of the Employment
Agreements (or a true and complete description of each unwritten Employment
Agreement) (in each case, which may entitle any Person to receive payments from
the Company or any of its Subsidiaries in excess of $100,000 per year) or any
other similar type of contract, (g) any material license, contract or agreement
transferring, providing for or restricting the use of, or settling any claim
with respect to, any Intellectual Property, or (h) any agreement, contract or
commitment limiting the ability of the Company or any of its Subsidiaries to
engage in any line of business or to
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compete with any Person or to otherwise acquire property or conduct business in
any area. Except as otherwise set forth on Schedule 3.1(q) of the Disclosure
Letter, each contract or agreement set forth on Schedule 3.1(q) of the
Disclosure Letter (or required to be set forth in Section 3.1(q) of the
Disclosure Letter) is in full force and effect and there exists no material
default or material event of default or to the knowledge of each of the Company
and each of its Subsidiaries, event, occurrence, condition or act (including
the consummation of the Merger) which, with the giving of notice, the lapse of
time or the happening of any other material event or condition, would become a
default or event of default thereunder.
(r) Assets. Except as set forth in the Company Reports, the
Company and its Subsidiaries own, or otherwise have sufficient and legally
enforceable rights to use, all of the properties and assets (real, personal or
mixed, tangible or intangible), used or held for use in connection with,
necessary for the conduct of, or otherwise material to, the business and
operations of the Company and its Subsidiaries (the "Assets"). The Company and
its Subsidiaries have good, valid and marketable title to, or in the case of
leased property has good and valid leasehold interests in, all Assets that are
material to their respective businesses and operations, including but not
limited to all such Assets reflected in the Company Reports or acquired since
the date most recent thereof (except any that have been disposed of in the
ordinary course of business after the date hereof and in accordance with this
Agreement), in each case free and clear of any Encumbrance, except Permitted
Encumbrances. The Company and its Subsidiaries have maintained all tangible
Assets that are material to their respective businesses and operations in good
repair, working order and operating condition subject only to ordinary wear and
tear, and all such tangible Assets are fully adequate and suitable for the
purposes for which they are presently being used. Schedule 3.1(r) of the
Disclosure Letter sets forth a list as of August 31, 1999 of all tangible
Assets that are material to the business and operations of the Company and its
Subsidiaries and identifies the location of such Assets.
(s) Intellectual Property; Technology. (i) Except as otherwise
indicated on Schedule 3.1(s) of the Disclosure Letter the Company and its
Subsidiaries own the entire right, title and interest in and to the Marks, the
Copyrights and the Patents free and clear of any Encumbrances except for
Permitted Encumbrances. Each item that is indicated as registered on Schedule
3.1(s) of the Disclosure Letter has been duly registered, filed with or issued
by the appropriate authorities in the countries indicated on Schedule 3.1(s) of
the Disclosure Letter and to the knowledge of the Company, all such
registrations, filings and issuances remain in full force and effect. Except as
otherwise indicated on Schedule 3.1(s) of the Disclosure Letter, none of the
Marks, the Copyrights or the Patents are the subject of any pending, or to the
Company's knowledge, threatened opposition, interference, cancellation
proceeding or other legal or governmental proceeding before a registration or
issuing authority in any jurisdiction. Except as otherwise disclosed in
Schedule 3.1(s) of
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the Disclosure Letter, the conduct of the business of the Company and its
Subsidiaries as presently conducted does not infringe, violate, or constitute
misappropriation of any Intellectual Property of any other Person, nor, since
January 1, 1997, has the Company or any of its Subsidiaries received notice to
the contrary from any Person. The Company and its Subsidiaries own or have the
right to use through assignment, lease, license or other agreement all
Intellectual Property necessary for the conduct of the business as presently
conducted. Except as set forth in Schedule 3.1(s) of the Disclosure Letter,
there are no pending, or to the Company's knowledge, threatened material claims
by any Person for infringement of any Intellectual Property or unfair
competition by the Company or any of its Subsidiaries. Except as set forth in
Schedule 3.1(s) of the Disclosure Letter, to the Company's knowledge no Person
is infringing upon the Intellectual Property owned by, assigned to or subject
to assignment of, the Company or any of its Subsidiaries, and the Company and
its Subsidiaries are aware of no facts that would support such a claim. The
consummation of the transaction contemplated hereby will not result in the loss
or impairment of the Company's or any of its Subsidiaries' right to own or use
any of the Intellectual Property necessary to the conduct of the business as
presently conducted (including, but not limited to the Marks, the Copyrights
and the Patents) nor will it require the consent of any governmental authority
or third party.
(ii) The costs to the Company and its Subsidiaries of reprogramming
required to permit the proper functioning in and following the year 2000, of
the (i) computer systems and (ii) equipment containing embedded microchips, in
each case, owned or operated by the Company or any of its Subsidiaries and the
testing of all such systems and equipment (including, without limitation,
reprogramming errors) could, individually or in the aggregate, not reasonably
be expected to have a Material Adverse Effect. Except for the cost of such of
the reprogramming referred to in this Section 3.1(s) as may be necessary, the
computer and management information systems of the Company and its Subsidiaries
are sufficient to permit the Company and its Subsidiaries to conduct its
business without material interruption arising out of any failure to be Year
2000 Compliant and without such conduct resulting in a Material Adverse Effect.
(t) Insurance. All insurance policies maintained by or on behalf
of any the Company or any Subsidiary are in full force and effect, and all
premiums due thereon have been paid. The Company and each Subsidiary has
complied in all material respects with the terms and provisions of such
policies. The Company has delivered to Parent complete and correct copies of
its directors and officers liability insurance policies, which policies are in
full force and effect.
(u) Affiliate Transactions. Except as otherwise described in the
Company's Proxy statement for its 1999 annual meeting of shareholders (the
"1999 Proxy") or on Schedule 3.1(u) of the Disclosure Letter, each agreement,
contract, arrangement, under-
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standing, transfer of assets or liabilities or other commitment or transaction
between the Company or any Subsidiary of the Company, on one hand, and any
Person who is (or, at the time such agreement, contract, arrangement,
understanding, transfer, commitment or transaction was entered into or made,
was) a shareholder, director or employee of the Company or any Subsidiary of
the Company (or other Person controlled, directly or indirectly, by any of the
foregoing), on the other hand (collectively, "Affiliate Transactions"), is on
terms and conditions at least as favorable to the Company (or such Subsidiary,
as the case may be) as would be obtainable by it in a comparable arm's-length
transaction with a Person unrelated to any shareholder, director or employee of
the Company or any of its Subsidiaries. All Affiliate Transactions having
effect or outstanding as of the date hereof that are material to the Company or
any of its Subsidiaries are described in the 1999 Proxy or on Schedule 3.1(u)
of the Disclosure Letter.
(v) Opinion. The board of directors of the Company has received an
opinion of CIBC World Markets Corp. (the "Opinion"), to the effect that, as of
the date of such opinion, the equity ownership of the Company's shareholders in
RV is fair from a financial point of view to the holders of the Company Common
Stock. The Company has been authorized by CIBC World Markets Corp. to permit
the inclusion of the Opinion in its entirety and references thereto, subject to
prior review of, and consent to, such inclusion and references by CIBC World
Markets Corp. and its counsel (such consents not to be unreasonably withheld or
delayed), in the Proxy Statement.
(w) State Statutes. The Board of Directors of the Company has
approved the terms of this Agreement and the Merger, and such approval is
sufficient to render inapplicable the provisions of Part Thirteen of the Texas
Business Corporation Act (the "TBCA") to the extent, if any, that such Section
is applicable to the Merger, this Agreement and the transactions contemplated
hereunder. To the knowledge of the Company (based on consultation with outside
legal counsel), except for the DGCL and the TBCA, no other state takeover
statute or similar statute or regulation applies or purports to apply to the
Merger, this Agreement or the transactions contemplated hereunder.
(x) No Extortion Payments. None of the Company or any of its
Subsidiaries has made, or has agreed to make, any payment in connection with
any Person's scheme or plan to demand money or property in exchange for (i) the
safety of any Person or (ii) the ability of any Person to conduct otherwise
legal business.
(y) No Improper Payments. None of the Company or any of its
Subsidiaries nor any Person acting on behalf of any of them has paid or
delivered, or promised to pay or deliver, directly or indirectly through any
other Person, any monies or anything of value to (i) any person or firm
employed by or acting for or on behalf of any customer or supplier, whether
private or governmental, or (ii) any government official or employee or
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any political party, for the purpose of illegally or improperly inducing or
rewarding any action by such customer, supplier, official, employee or
political party favorable to the Company or any of its Subsidiaries.
(z) No Venezuelan Investments. As of the date hereof, the Company
does not operate any business or have any investment in any person operating
any business in Venezuela.
3.2. Representations and Warranties of Parent. Parent hereby
represents and warrants to the Company as of the date hereof and as of the
Closing Date as follows:
(a) Existence; Good Standing; Corporate Authority. Each of Parent,
RV and Merger Sub, and each member of the Jamtis Group, is (i) a corporation or
limited liability company, as the case may be, duly organized, validly existing
and in good standing (to the extent that "good standing" is a cognizable legal
concept under applicable law) under the laws of its jurisdiction of
incorporation and (ii) is duly licensed or qualified to do business and is in
good standing under the laws of any other state of the United States or any
other jurisdiction in which the character of the properties owned or leased by
it or in which the transaction of its business makes such licensure,
qualification or good standing necessary, except where the failure to be so in
good standing or to be so licensed or qualified, individually or in the
aggregate, would not have a material adverse effect on the business,
operations, results of operations, assets or financial condition of RV or
Merger Sub, or on the ability of Parent, RV or Merger Sub to consummate the
transactions contemplated herein (an "Acquiror Material Adverse Effect"). Each
of RV and Merger Sub, and each member of the Jamtis Group, has the requisite
corporate power and authority to own, operate and lease its properties and
assets and carry on its business. True and correct copies of the Certificate of
Incorporation and Bylaws of each of RV and Merger Sub as of the date hereof are
attached as Exhibit A. The organizational documents of RV, Merger Sub and, as
of the Closing Date, each member of the Jamtis Group, are or will be in full
force and effect.
(b) Authorization, Validity and Effect of Agreements. Each of
Parent, RV and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is
a party, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery by
each of Parent, RV and Merger Sub of this Agreement and the Ancillary
Agreements to which it is a party, the performance of its obligations hereunder
and thereunder and the consummation by it of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of Parent or by the shareholder or shareholders of RV and Merger Sub,
as the case may be, and no other corporate proceedings on the part of Parent,
RV or Merger Sub
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are necessary to authorize this Agreement or the Ancillary Agreements (to which
any of them is a party), to perform the obligations hereunder or thereunder or
to consummate the transactions contemplated hereby or thereby. This Agreement
and, upon execution as contemplated herein, each Ancillary Agreement to which
Parent, RV or Merger Sub is a party, has been duly and validly executed and
delivered by Parent, RV and/or Merger Sub, as the case may be, and (assuming
due execution and delivery of this Agreement and each of the Ancillary
Agreements by each other party hereto and thereto), constitutes the valid and
binding obligation of Parent, RV or Merger Sub, as the case may be, enforceable
against Parent, RV or Merger Sub, as the case may be, in accordance with its
terms.
(c) Compliance with Laws. None of Parent, RV, Merger Sub or any
member of the Jamtis Group is in violation of any Laws applicable to Parent,
RV, Merger Sub or such member, or any of its properties or assets, except for
violations which, individually or in the aggregate, would not have an Acquiror
Material Adverse Effect.
(d) Capitalization. (i) As of the date hereof, the authorized
capital stock of RV consists of 1,000 shares of common stock, par value $.01
per share, and 1,000 shares of common stock are issued and outstanding. As of
the Closing Date, the aggregate number of shares of capital stock of RV shall
be not more than the sum of (i) 80,848,204, plus (ii) the product of (x) such
number of shares of Preferred Stock issued or accrued as paid-in-kind dividends
from November 1, 1999 to the Closing Date, and (y) 2.077. All issued and
outstanding shares of capital stock of RV and of Merger Sub are duly
authorized, validly issued, fully paid, non-assessable and free of pre-emptive
rights. As of the Closing, except for approximately 10% of the aggregate number
of shares of capital stock of RV that will be owned by Promon, in the form of
shares of RV Class A Common Stock, all issued and outstanding shares of capital
stock of RV will be owned, directly or indirectly, by Parent, in the form of
shares of RV Class B Common Stock, all issued and outstanding shares of capital
stock of Merger Sub are owned directly by RV and all issued and outstanding
shares or quota, as the case may be, of each member of the Jamtis Group are
owned indirectly by RV, in each case free and clear of Encumbrances (other than
any Encumbrances created by Promon as to the shares of RV Class A Common Stock
owned by it). None of RV, Merger Sub or any member of the Jamtis Group has any
outstanding bonds, debentures, notes or other similar obligations, instruments
or securities entitling the holders thereof to vote (or which are convertible
into or exercisable for securities having the right to vote) with the
shareholders of RV, Merger Sub or such member on any matter. As of the date
hereof and as of the Closing Date, the amount and ownership of the issued
equity capital of each member of the Jamtis Group are as set forth on Schedule
3.2(d) of the RV Disclosure Letter.
(ii) Except as described in this Agreement or in the Netstream
Acquisition Agreements, or as set forth in the RV Disclosure Letter, there are
no other shares of
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capital stock (or quota, as the case may be) of RV, Merger Sub or any member of
the Jamtis Group, no securities of RV, Merger Sub or any member of the Jamtis
Group convertible or exchangeable for shares of capital stock, voting
securities (or quota, as the case may be) of RV, Merger Sub or any member of
the Jamtis Group, and no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate RV, Merger Sub or any member of the Jamtis Group to issue, transfer or
sell any shares of capital stock of RV, Merger Sub or any member of the Jamtis
Group.
(e) No Violation; Consents. (i) Neither the execution, delivery or
performance by Parent, RV and Merger Sub of this Agreement or any of the
Ancillary Agreements nor the consummation by Parent, RV and Merger Sub of the
transactions contemplated hereby or thereby will: (x) violate, conflict with or
result in a breach of any provisions of the Certificate of Incorporation or
Bylaws of any of Parent, RV, Merger Sub or any member of the Jamtis Group; (y)
violate, conflict with, result in a breach of any provision of, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment or other obligations pursuant
to, result in the creation of any Encumbrance upon any of the properties or
assets of RV, Merger Sub or any member of the Jamtis Group under, or result in
there being declared void, voidable, subject to withdrawal, or without further
binding effect, any of the terms, conditions or provisions of any contract to
which any of RV or Merger Sub is a party, by which any of RV, Merger Sub or any
member of the Jamtis Group or any of their respective properties are bound, or
under which any of RV, Merger Sub or any member of the Jamtis Group or any of
their respective properties are entitled to a benefit, except for any of the
foregoing matters which, individually or in the aggregate, would not have an
Acquiror Material Adverse Effect or a Material Delaying Effect; or (z) violate
any Laws applicable to any of RV, Merger Sub or any member of the Jamtis Group
or any of its assets or properties, except for violations which, individually
or in the aggregate, would not have an Acquiror Material Adverse Effect.
(ii) Other than the filings required under the HSR Act, the
Exchange Act, notifications to the Superintendencia de Valores y Seguros of
Chile and the Superintendencia de Industria y Comercio of Colombia and filings
in connection with the maintenance of qualification to do business in other
jurisdictions required or permitted to be made or obtained by Parent, RV or
Merger Sub, neither the execution, delivery or performance by Parent, RV and
Merger Sub of this Agreement or any of the Ancillary Agreements nor the
consummation by Parent, RV and Merger Sub of the transactions contemplated
hereby or thereby will require any consent, approval or authorization of, or
declaration, filing or registration with, (A) any Governmental Entity,
including any such
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consent, approval, authorization, declaration, filing or registration under any
Foreign Antitrust Laws, (B) any other Law of any foreign jurisdiction, or (C)
any other Person, except for those consents, approvals, authorizations,
declarations, filings or registrations the failure of which to obtain or make,
individually or in the aggregate, would have an Acquiror Material Adverse
Effect or a Material Delaying Effect.
(iii) Neither RV nor any of its Subsidiaries has any liabilities or
obligations, contingent or otherwise, except liabilities and obligations
arising hereunder or under the Netstream Acquisition Agreements and/or, as of
the Closing, liabilities and obligations (a) arising under the Brand License,
the RV Agreement, the Executive Agreement and under any bond tender offer
arrangements being undertaken by RV, if any, and (b) incurred in the ordinary
course of business following the Final Closing under the Netstream Acquisition
Agreements which individually or in the aggregate would not have an Acquiror
Material Adverse Effect.
(f) Netstream Acquisition Agreements. Parent has delivered to the
Company complete and correct copies of the Netstream Acquisition Agreements
(including all exhibits, schedules and other attachments thereto), as executed
and delivered by the parties thereto (or in the form to be executed and
delivered at the closing thereunder). Each of the Netstream Acquisition
Agreements is (or, following execution and delivery, as the case may be, will
be) in full force and effect in accordance with its terms.
(g) Litigation. There is no Litigation claim by a third party
(including a Governmental Entity) pending or, to the knowledge of Parent,
threatened against Parent, RV, Merger Sub or any member of the Jamtis Group,
other than those which, individually or in the aggregate, would not have an
Acquiror Material Adverse Effect. No Governmental Entity has indicated an
intention to conduct any audit, investigation or other review with respect to
RV or Merger Sub.
(h) Proxy Statement. None of the information supplied by Parent
for inclusion in the Proxy Statement, at the respective times filed with the
SEC and distributed to shareholders of the Company, will contain any untrue
statement of a material fact or omit to state any material fact relating to
Parent, RV, Merger Sub or any member of the Jamtis Group required to be stated
therein or necessary in order to make the statements therein relating to
Parent, RV, Merger Sub or any member of the Jamtis Group in light of the
circumstances under which they were made, not misleading.
(i) Brokers and Finders. No actions by Parent, RV or Merger Sub or
by any Person acting on behalf of either of them has given rise to any valid
claim against the Company, RV, Merger Sub or any member of the Jamtis Group for
any broker's, finder's
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or investment banking fee in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE IV
COVENANTS
4.1. No Solicitation. (a) The Company and its Subsidiaries shall,
and shall direct and use reasonable best efforts to cause their respective
officers, directors, employees, representatives and agents to, immediately
cease any discussions or negotiations with any parties other than Parent (or RV
or Merger Sub) that may be ongoing with respect to an Acquisition Proposal. The
Company and its Subsidiaries shall not, and shall not authorize or permit any
of their respective officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected
to lead to, an Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding an Acquisition Proposal; provided, however, that if, at
any time prior to the approval of the Merger by the holders of a majority of
the shares of Company Common Stock, the Board of Directors of the Company
determines in good faith, having received the advice of outside counsel
concerning its fiduciary duties to the Company's shareholders under applicable
law, the Company, in response to an Acquisition Proposal that (A) was
unsolicited or that did not otherwise result from a breach of this Section
4.1(a) (subject to compliance with Sections 4.1(c) and 4.1(d)), and (B)
constitutes a Superior Proposal, may (I) furnish non-public information with
respect to the Company and its Subsidiaries to the person who made such
Acquisition Proposal pursuant to a customary confidentiality agreement and (II)
participate in negotiations regarding such Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any director or officer of the Company
or any of its Subsidiaries or any authorized investment banker, financial
advisor, attorney, accountant or other representative of the Company or any of
its Subsidiaries, acting on behalf of the Company or any of its Subsidiaries,
shall be deemed to be a breach of this Section 4.1(a) by the Company.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, the approval or recommendation by such
Board of Directors or such committee of the Merger unless there is a Superior
Proposal outstanding, (ii) approve or recommend, or propose to approve or
recommend, an Acquisition Proposal unless such Acquisition
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Proposal is a Superior Proposal or (iii) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other
agreement (an "Acquisition Agreement") with respect to an Acquisition Proposal
unless such Acquisition Proposal is a Superior Proposal, and unless, in each
case, such Board of Directors shall have (A) determined in good faith, based on
the advice of outside counsel, that failure to do so would constitute a breach
of its fiduciary duties to the Company's shareholders under applicable law and
(B) delivered a notice of termination to Parent pursuant to Section 6.1(c).
(c) The Company shall promptly (but in any event within one day)
advise Parent orally and in writing of any Acquisition Proposal or any inquiry
delivered to or received by the chief executive officer, any other senior
officer or any director of the Company regarding the making of an Acquisition
Proposal including any request for information, the material terms and
conditions of such request, Acquisition Proposal or inquiry and the identity of
the person making such request, Acquisition Proposal or inquiry. The Company
will, to the extent reasonably practicable, keep Parent fully informed of the
status and details (including amendments or proposed amendments) of any such
request, Acquisition Proposal or inquiry. In addition to the foregoing, the
Company will deliver to Parent a written notice (the "Acquisition Agreement
Notice") not less than five days prior to entering into any Acquisition
Agreement.
(d) Nothing contained in this Section 4.1 shall prohibit the
Company from at any time taking and disclosing to its shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
making any disclosure to the Company's shareholders if, in the good faith
judgment of its Board of Directors, based upon the advice of outside counsel,
failure so to disclose would constitute a breach of its fiduciary duties to the
Company's shareholders under applicable law; provided, however, that neither
the Company nor its Board of Directors nor any committee thereof shall, except
as permitted by Section 4.1(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to this Agreement or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal; and provided,
further, that the taking of a position by the Company pursuant to Rule
14e-2(a)(2) or (3) of the Exchange Act in respect of an Acquisition Proposal
shall not be deemed a withdrawal, a modification or a proposal to do either, of
its position with respect to this Agreement for purposes hereof.
4.2. Conduct of Business. (a) From the date hereof to and including
the Closing Date, except as set forth on Schedule 4.2(a) of the Disclosure
Letter or as otherwise required pursuant to this Agreement, unless Parent has
consented in writing thereto, the Company shall, and shall cause each of its
Subsidiaries to:
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(i) conduct its operations according to its usual, regular
and ordinary course of business in accordance with its current business
plan;
(ii) use its reasonable best efforts to preserve intact its
business organization and goodwill, to maintain in effect all existing
qualifications, licenses, Permits, approvals and other authorizations
referred to in Sections 3.1(a) and 3.1(o), to keep available the services
of its officers and employees and to maintain satisfactory relationships
with customers, suppliers, distributors, brokers, sales agents and all
other persons having business relationships with it;
(iii) promptly notify Parent upon becoming aware of any
material breach of any representation, warranty or covenant contained in
this Agreement or the occurrence of any event that would cause any
representation or warranty of the Company contained in this Agreement no
longer to be true and correct or any covenant of the Company contained in
this Agreement not to be complied with;
(iv) timely file with the SEC, and promptly deliver to
Parent, true and correct copies of all reports, statements or schedules or
other filings required to be filed by the Company under the Securities Act
or Exchange Act with the SEC subsequent to the date of this Agreement; and
(v) deliver, as promptly as reasonably practicable but in any
event within 30 business days after the end of each accounting month,
monthly consolidated financial statements for the Company and its
Subsidiaries for and as of the end of each such month.
(b) From the date hereof to and including the Closing Date, except
as set forth on Schedule 4.2(b) of the Disclosure Letter, unless Parent has
consented in writing thereto, the Company shall not, and shall not permit any
of its Subsidiaries to:
(i) amend its Certificate of Incorporation or By-Laws or
comparable governing instruments;
(ii) except as otherwise provided in this Section 4.2(b),
issue, sell, pledge or otherwise dispose of any shares of its capital
stock or other ownership interest in the Company or any of the
Subsidiaries, or any securities convertible into or exchangeable for any
such shares or ownership interest, or any rights, warrants or options to
acquire or with respect to any such shares of capital stock, ownership
interest, or convertible or exchangeable securities, except (a) issuances
of shares of Company Common Stock in respect of any exercise of Options or
Warrants outstanding on the date hereof and disclosed in the Disclosure
Letter, (b) issuances of
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shares of Company Common Stock in respect of any conversion of the
Company's Series A preferred stock outstanding at the time immediately
prior to such issuance, and (c) issuance of newly created shares of
preferred stock of the Company that are redeemable at the option of the
Company (and the Surviving Corporation or RV, as the case may be) on or,
at the Company's election, at any time after the Closing Date, provided
that the sum of (1) the aggregate redemption price of such newly-created
shares of preferred stock as of the Closing Date, and (2) the aggregate
principal amount of any indebtedness incurred under subclause (b) of
clause (xi) of this Section 4.2, does not exceed US$20,000,000; or
accelerate any right to convert or exchange or acquire any securities of
the Company or any of its Subsidiaries for any such shares or ownership
interest;
(iii) effect any stock split, reverse stock split, stock
dividend, subdivision, reclassification or similar transaction, or
otherwise change its capital structure as it exists on the date hereof;
(iv) grant, confer, award or amend any option, warrant,
convertible security or other right to acquire any shares of its capital
stock or take any action to cause to be exercisable any otherwise
unexercisable option under any Company Stock Plan, provided that this
Section 4.2(b) shall not prohibit or restrict the Company from granting
unvested options to acquire up to 300,000 shares of Company Common Stock
prior to the Closing Date ("Interim Company Options"), provided further,
that no Interim Company Options (i) shall be granted except in the
ordinary course of business to employees of the Company and its
Subsidiaries as of the date hereof and employees of the Company and its
Subsidiaries hired by the Company or such Subsidiaries after the date
hereof, or (ii) shall become vested according to their terms as a result
of the consummation of the Merger and other transactions contemplated
hereby;
(v) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of Common Stock or
other capital stock or ownership interests (other than such payments by a
majority-owned Subsidiary to the Company or another majority-owned
Subsidiary);
(vi) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or the capital stock of any of its
Subsidiaries;
(vii) sell, lease, assign, transfer or otherwise dispose of
(by merger or otherwise) any of its property, business or assets
(including, without limitation, receivables, leasehold interests or
Intellectual Property and including any sale and leaseback transaction)
except for fair value in the ordinary course of business
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provided that the proceeds of such sales do not exceed $50,000 in any
single transaction or $100,000 in the aggregate prior to the Closing Date;
(viii) settle or compromise any pending or threatened
Litigation other than settlements of Litigations which involve solely the
payment of money (without admission of liability) not to exceed $250,000
in any one case or $500,000 in the aggregate;
(ix) make any advance, loan, extension of credit or capital
contribution to, or purchase or acquire (by merger or otherwise) any
stock, bonds, notes, debentures or other securities of, or any assets
constituting a business unit of, or make any other investment in (other
than capital contributions to Subsidiaries of the Company made in
accordance with the Company's current business plan), any person, firm or
entity, except (a) extensions of trade credit and endorsements of
negotiable instruments and other negotiable documents in the ordinary
course of business, (b) investments in cash and cash equivalents, (c)
payroll and travel advances in the ordinary course of business and (d)
investments in majority-owned Subsidiaries;
(x) make any capital expenditures in the aggregate for the
Company and its Subsidiaries in excess of the amounts specified in the
Company's current budget for capital expenditures, a true and complete
copy of which has been delivered to Parent, or otherwise acquire assets
having a value, in the aggregate, in excess of $150,000 not in the
ordinary course of business;
(xi) incur, assume or create any indebtedness for borrowed
money or for the deferred purchase price for property or services or
pursuant to any capital lease or other financing, except (a) indebtedness
incurred in the ordinary course of business consistent with past practice
for working capital purposes pursuant to the Company's existing credit
facilities as disclosed in the Disclosure Letter or equipment financing
facilities referred to in the Company's current budget for capital
expenditures and (b) for the incurrence or creation of such indebtedness
that is prepayable by its terms without penalty or premium in excess of
___% of the proceeds received from the incurrence or creation of such
indebtedness at any time on or after the Closing Date, provided that the
sum of (1) the aggregate principal amount of such indebtedness incurred or
created pursuant to this subclause, and (2) the aggregate redemption price
of all shares of preferred stock issued under clause (ii) of this Section
4.2(b), does not exceed US$20,000,000;
(xii) take any action to assume, guarantee or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person except majority-owned Subsidiaries
of the Company and except for
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obligations in the ordinary course of business consistent with the past
practice of the Company not exceeding $50,000 individually and $150,000 in
the aggregate;
(xiii) make any material Tax election (unless required by
law or unless consistent with prior practice) or settle or compromise any
material Income Tax liability except, in each case, with the express
consent of Parent;
(xiv) waive or amend any term or condition of any
confidentiality or "standstill" agreement to which the Company is a party
and which relates to a business combination with or involving the Company
or the purchase of shares or assets of the Company;
(xv) grant or amend any stock-related or performance awards
except as otherwise permitted herein;
(xvi) enter into or amend any legally binding employment,
severance, retention, change in control, consulting or salary continuation
agreement with any officer, director, employee or former employee of the
Company or any of its Subsidiaries (which would involve, together with all
other such agreements, aggregate payments by the Company or any of its
Subsidiaries the payment by Company or any of its Subsidiaries of more
than $250,000 in the aggregate or grant any increases in compensation or
benefits to employees other than increases to officers and employees in
the ordinary course of business consistent with the past practice of the
Company;
(xvii) adopt, amend or terminate any employee benefit plan,
policy, understanding or arrangement;
(xviii) enter into any agreements that would constitute
Material Contracts; or amend any of the foregoing agreements as exist on
the date hereof other than in the ordinary course of business;
(xix) amend, change or waive (or exempt any Person from the
effect of) the Rights Agreement, except for Parent, RV and Merger Sub in
connection with the transactions contemplated by this Agreement;
(xx) make any material changes in the type or amount of
insurance coverage;
(xxi) except as may be required by law or generally
acceptable accounting principles and with prior written notice to Parent,
change any accounting principles or practices used by the Company or its
Subsidiaries;
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(xxii) effect any material change in the Company's
advertising, services promotion or brand support policies or programs or
commit to any significant new product promotion or advertising campaign
except, in each case, for matters in the ordinary course of business of
the Company;
(xxiii) effect any material change in the Company's billing
practices or sales terms, or cause a material acceleration or delay in the
collection of accounts or notes receivable or the payment of accounts or
notes payable;
(xxiv) waive, relinquish, release or terminate any right or
claim, including any such right or claim under any Material Contract or
permit any rights of material value to use any Intellectual Property to
lapse or be forfeited, in each case, except in the ordinary course of
business consistent with the past practice of the Company;
(xxv) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for
any substantial part of the property of the Company or any Subsidiary, or
make a general assignment for the benefit of creditors, or permit or
suffer to exist the commencement of any bankruptcy, reorganization, debt
arrangement or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution, winding up or liquidation proceeding, in respect
of the Company or any Subsidiary;
(xxvi) acquire, invest in or enter into any arrangement or
contract with any person having operations in Venezuela of a nature
conducted by any of the parties hereto; or
(xxvii) agree in writing or otherwise to take any of the
foregoing actions.
(c) If the Company shall have given notice to Parent of an action as
to which it seeks consent pursuant to section 4.2(b), such notice to describe
the relevant matters in reasonable detail, and Parent shall not have objected
within 15 days, the Company may take the action described in such notice.
4.3. Filings; Other Action. Subject to the terms and conditions
herein provided, the Company and Parent shall: (i) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act with respect to the Merger; (ii) cooperate and consult with one another
in (A) determining which Regulatory Filings are required or, in the case of
Other Antitrust Filings, permitted to be made prior to the Effective Time with,
and which consents, approvals, Permits, authorizations or waivers
(collectively, "Consents") are required or, in the case of Other Antitrust
Consents, permitted to be obtained prior to the Closing Date from Governmental
Entities or other
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Persons in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, (I) all such Regulatory Filings and Consents as relate to Foreign
Antitrust Laws (the "Other Antitrust Filings" and the "Other Antitrust
Consents," respectively; collectively, the "Other Antitrust Filings and
Consents") and (II) all Consents required to transfer to the Company any
Permits or registrations held on behalf of the Company or any of its
Subsidiaries by or in the name of distributors, brokers or sales agents; (B)
preparing all Regulatory Filings and all other filings, submissions and
presentations required or prudent to obtain all Consents, including by
providing to the other party drafts of such material reasonably in advance of
the anticipated filing or submission dates; and (C) timely making all such
Regulatory Filings and timely seeking all such Consents (it being understood
that the parties will make or seek to obtain all Other Antitrust Filings and
Consents, whether mandatory or voluntary); and (iii) use their reasonable best
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement. Each of Parent and
the Company shall use its reasonable best efforts to contest any proceeding
seeking a preliminary injunction or other legal impediment to, and to resolve
any objections as may be asserted by any Governmental Entity with respect to
the Merger under the HSR Act or Foreign Antitrust Laws; provided that the
foregoing shall not require Parent to take any action that could directly or
indirectly (A) impose limitations on the ability of Parent (or any of its
affiliates or Subsidiaries) effectively to acquire, operate or hold, or require
Parent or the Company or any of their respective affiliates or Subsidiaries to
dispose of or hold separate, any portion of their respective assets or business
that (I) is either material to the business of Parent and its Subsidiaries or
material to the business of the Company and its Subsidiaries, or (II) is
reasonably likely to have a Material Adverse Effect, (B) restrict any future
business activity by Parent, the Company or any of their affiliates or
Subsidiaries that (I) is either material to the business of Parent and its
Subsidiaries or material to the business of the Company and its Subsidiaries,
or (II) is reasonably likely to have a Material Adverse Effect, including,
without limitation, requiring the prior consent of any Governmental Entity to
future transactions by Parent, the Company or any of their affiliates or
Subsidiaries, or (C) otherwise adversely affect Parent, the Company or any of
their respective affiliates or Subsidiaries in a manner that (I) is either
material to the business of Parent and its Subsidiaries or material to the
business of the Company and its Subsidiaries, or (II) is reasonably likely to
have a Material Adverse Effect. If, at any time after the Closing Date, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of Parent and the Company shall
take all such necessary action.
4.4. Access to Information; Pre-Closing Review. From the date of
this Agreement to the Closing Date, the Company shall, and shall cause its
Subsidiaries to, (i) give Parent and its authorized representatives full access
during normal business hours
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to all books, records, personnel, research and other consultants, offices and
other facilities and properties of the Company and its Subsidiaries and its
accountants (and shall use its reasonable best efforts to give Parent and such
representatives access to such accountants' work papers, as Parent may
reasonably request), (ii) permit Parent to make such copies and inspections
thereof as Parent may reasonably request and (iii) furnish Parent with such
financial and operating data and other information with respect to the business
and properties of the Company and its Subsidiaries as Parent may from time to
time reasonably request; provided that no investigation or information
furnished pursuant to this Section 4.4 shall affect any representations or
warranties made by the Company herein or the conditions to the obligations of
Parent to consummate the transactions contemplated hereby. The Company
acknowledges that it has been afforded an adequate opportunity to investigate
the properties, assets, liabilities, personnel and records of Netstream. Prior
to the closing under the Netstream Acquisition Agreements, Parent will use its
reasonable best efforts to assist the Company in obtaining any further
information as to Netstream that the Company may reasonably request. From and
after the date of the Final Closing under the Netstream Acquisition Agreements,
Parent shall, and shall cause its Subsidiaries to, (i) give the Company and its
authorized representatives full access during normal business hours to all
books, records, personnel, research and other consultants, offices and other
facilities and properties of Netstream and Netstream's accountants (and shall
use its reasonable best efforts to give the Company and such representatives
access to such accountants' work papers), (ii) permit the Company to make such
copies and inspections thereof as the Company may reasonably request and (iii)
furnish the Company with such financial and operating data and other
information with respect to the business and properties of Netstream as the
Company may from time to time reasonably request.
4.5. Publicity. Except as otherwise required by law, each of the
Company and Parent shall obtain the prior written consent of the other party
(which consent will not be unreasonably withheld or delayed) before issuing any
press release or otherwise making (or proposing publicly to make) any public
statement with respect to the transactions contemplated hereby or by any of the
Ancillary Agreements and in making any filings with any national securities
exchange with respect thereto.
4.6. Further Action. (a) Each party hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
(b) The Company shall not, and cause its Subsidiaries not to, and
Parent shall not, and shall cause RV and Merger Sub not to, take any action
that could reasonably be expected to result in (i) any of its representations
and warranties set forth in this Agreement that are qualified by materiality
becoming untrue, (ii) any of such representations and
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warranties that are not so qualified becoming untrue in any material respect or
(iii) any of the conditions set forth in Article V not being satisfied (subject
to the Company's right to take actions specifically permitted by Section 4.1).
The Company shall use, and the Company shall cause its Subsidiaries to use, and
each of Parent, RV and Merger Sub shall use, their reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using their reasonable efforts to satisfy the conditions contained
in Article V.
(c) The Company and Parent shall confer on a regular and frequent
basis as reasonably requested by either of them. Each of Parent and the Company
shall promptly notify the other in writing of the occurrence of any event that
will or may result in the failure to satisfy any of the conditions to the other
party's obligations specified in Article V. The Company will promptly provide
to Parent (and its counsel) copies of all filings made by the Company with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby and shall promptly advise Parent orally and, if requested
by Parent, in writing of any Material Adverse Effect.
4.7. Insurance; Indemnity. For a period of six years after the
Closing Date, Parent shall cause RV or the Surviving Corporation to maintain
officers' and directors' liability insurance covering the parties who are
currently covered, in their capacities as officers and directors, by the
Company's existing officers' and directors' liability insurance policies (the
"Current Policies") on terms substantially no less advantageous to such parties
than such Current Policies and providing for aggregate coverage of 300% of the
amount covered by the Current Policies.
4.8. Shareholder Approval; Preparation of Proxy Statement. (a)
Subject to the provisions of this Agreement, the Company will (i) duly call,
give notice of, convene and hold a special meeting of its shareholders (the
"Shareholder Meeting") for the purpose of obtaining a vote upon the Merger and
(ii) through its Board of Directors, declare the advisability of the Merger and
recommend to its shareholders that the Company Shareholder Approval be given.
(b) Subject to the provisions of this Agreement, the Company and RV
will prepare and file a preliminary proxy statement (such proxy statement, and
any amendments or supplements thereto, the "Proxy Statement") and a
registration statement in appropriate form (the "Registration Statement") with
the SEC and will use their respective reasonable best efforts to respond to any
comments of the SEC or its staff, to cause the Proxy Statement to be cleared by
the SEC and to have the Registration Statement declared effective under the
Securities Act as soon as practicable after responding to all such comments to
the satisfaction of the staff. Each of the Company and RV will notify
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the other party promptly of its receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement and/or the Registration Statement or for additional
information and will supply the other party with copies of all correspondence
between it or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement, the Registration
Statement or the Merger. The Company agrees to notify RV a reasonable time
prior to any filing or distribution of the Proxy Statement or the Registration
Statement of such filing or distribution. Each of the Company and RV shall give
the other party and its counsel (who shall provide any comments thereon as soon
as practicable) the opportunity to review and approve the Proxy Statement and
the Registration Statement prior to filing with the SEC and shall give the
other party and its counsel (who shall provide any comments thereon as soon as
practicable) the opportunity to review all amendments and supplements to the
Proxy Statement and the Registration Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and RV agrees to use its
reasonable best efforts, after consultation with the other party, to respond
promptly to all such comments of and requests by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
shall mail the Proxy Statement to the shareholders of the Company. If at any
time prior to the Shareholders Meeting there shall occur any event that should
be set forth in an amendment or supplement to the Proxy Statement, the Company
will promptly prepare and mail to its shareholders such an amendment or
supplement. The Company will not mail or distribute any proxy statement or
(except with respect to shares of Company Common Stock reserved for issuance
upon the exercise of Options or Warrants outstanding on the date hereof not
exceeding 100,000 of such shares) registration statement, or any amendment or
supplement thereto, to which RV reasonably objects; provided that RV shall
identify its objections and fully cooperate with the Company to create a
mutually satisfactory Proxy Statement and Registration Statement.
(c) Notwithstanding anything to the contrary in this Agreement,
without the prior written consent of RV, the Company shall neither (i) call a
Shareholder Meeting for the purpose of voting on the Merger, nor (ii) file a
proxy statement or offering document with the SEC or otherwise publish a proxy
statement or offering document, unless and until the Company shall be in
compliance with all reporting requirements applicable to the Company under the
Securities Act and the Exchange Act except such requirements, the failure of
with which to comply, would not, individually or in the aggregate, have a
Material Adverse Effect.
4.9. Certain Tax Matters. (a) Each of Parent, RV, Merger Sub and the
Company intend the Merger to qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code and shall use their best efforts to
cause the Merger to so
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qualify. Each of Parent, RV, Merger Sub and the Company shall take the position
for all purposes that the Merger qualifies as a reorganization under those
Sections of the Code. None of Parent, RV, Merger Sub or the Company shall take
any action that would reasonably be expected to cause the Merger to fail to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
(b) Each of Parent, RV, Merger Sub and the Company shall cooperate
and use their best efforts in obtaining the opinions of Debevoise & Plimpton,
counsel to Parent, RV and Merger Sub, and Baker & McKenzie, counsel to the
Company, described in Sections 5.2(f) and 5.3(g), respectively. In connection
therewith, both the Company, on the one hand, and Parent, RV and Merger Sub, on
the other hand, shall deliver to Debevoise & Plimpton and Baker & McKenzie
representation letters substantially in the form attached hereto as Annex A
(the "Representation Letters").
4.10. Senior Notes. As promptly as practicable following the date
hereof, the Company shall solicit waivers from holders of a requisite majority
or majorities of the Company's outstanding 14% Senior Notes due 2007 (the
"Notes") of the applicability to the transactions contemplated hereby of certain
covenants set forth in the indenture governing the Notes, as identified by
Parent to the Company (such waivers, the "Requisite Waivers"). If requested by
RV, the Company shall prepare and distribute to the holders of the Notes, as
promptly as reasonably practicable following the date on which the Registration
Statement shall have been declared effective, an offer to purchase and consent
solicitation statement, on terms and conditions and in a form satisfactory to RV
(together with all related transmittal and consent forms and other documents
delivered to such holders, the "Tender Offer Statement"), seeking the tender,
and the delivery of an accompanying consent by holders of a requisite majority
or majorities of outstanding principal amount of the Notes ("Requisite
Majority") to the amendments to the indenture constituting the Notes as are
considered necessary or appropriate by RV. RV shall be entitled to participate
in the preparation of the Tender Offer Statement and in any discussions with
holders of Notes relating to the terms of any offer to purchase Notes or
solicitation of consents or waivers. The Company shall not distribute to any
Person the Tender Offer Statement or any written material relating to any offer
to purchase Notes or to the solicitation of any consents or waivers from holders
of the Notes, or make any announcement with respect to the Tender Offer
Statement or any such offer or solicitation, or engage, directly or through
intermediaries, in any discussions with any holder of Notes after the date
hereof, without the prior express approval of RV. Any registration statement, if
any, required in connection with any such offer or solicitation shall be in form
and substance satisfactory to RV, and RV shall be entitled to participate in the
preparation and filing thereof, and the Company shall cooperate in such
preparation and filing as the registrant thereunder. If RV shall have requested
the distribution of a Tender Offer Statement, at the Closing (provided that the
Requisite Majority has been
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obtained) the Company shall execute and deliver to the trustee under the
indenture relating to the Notes a supplemental indenture in the form specified
in, and otherwise in accordance with, such Tender Offer Statement. On or prior
to the settlement date of any tender offer, Parent shall, and shall cause RV
to, provide financing as necessary to enable the Company to pay for tendered
Notes, in a manner not inconsistent with the terms of the Tender Offer
Statement. The Company shall be responsible for all out-of-pocket expenses
incurred by it in connection with the making of any offers to purchase Notes or
solicitation as contemplated in this Section, provided that RV shall pay and
reimburse the Company for all out-of-pocket fees and expenses of outside
advisers actually incurred by the Company prior to the Closing if this
Agreement is terminated in accordance with Section 6.1(b)(i).
4.11. Ancillary Agreements. At or prior to the Closing, and subject
to the fulfillment or waiver of all other conditions to Closing, each of
Parent, RV and the Company shall execute and deliver the Ancillary Agreements
to which it is a party.
4.12. Netstream Purchase Price Adjustment. If the amount Jamtis pays
to purchase the Netstream Shares is reduced pursuant to the Netstream
Acquisition Agreements, Parent shall, or shall cause its affiliates to, make a
cash capital contribution to RV in the amount of such reduction prior to the
Closing.
4.13. Conduct of Business of RV and Netstream. (a) From the date
hereof to and including the date of the "Final Closing" (as such term is
defined in the Netstream Acquisition Agreements), Parent, as soon as reasonably
practicable, shall consult in good faith with the Company concerning (i) any
approval or waiver by Parent or Jamtis with respect to actions by or concerning
Netstream that are restricted under Section 7.1(a) of the Netstream Master
Agreement and (ii) designating Nancy Parent (or an affiliate of Nancy Parent)
as a preferred supplier to Netstream. Such consultation shall include meetings
between the parties as reasonably necessary.
(b) From the date hereof to and including the Closing Date, except
as set forth in Schedule 4.13(b) of the RV Disclosure Letter or as otherwise
required pursuant to this Agreement, unless the Company has consented in
writing thereto, RV shall, and shall cause each of its Subsidiaries to:
(i) use its reasonable best efforts to preserve intact its
business organization and goodwill, to maintain in effect all existing
qualifications, licenses, permits, approvals and other authorizations, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with customers, suppliers, distributors,
brokers, sales agents and all other persons having business relationships
with it; and
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(ii) promptly notify the Company upon becoming aware of any
material breach of any representation, warranty or covenant contained in
this Agreement or the occurrence of any event that would cause any
representation or warranty of Parent relating to RV or any of its
Subsidiaries no longer to be true and correct;
(c) From the date hereof to and including the Closing Date, except
as contemplated hereby or as set forth in Schedule 4.13(c) of the RV Disclosure
Letter, unless the Company has consented in writing thereto, RV shall not, and
shall not permit any of its Subsidiaries to (and Parent shall not, and/or shall
not cause RV and its Subsidiaries to):
(i) amend its Certificate of Incorporation or By-Laws or
comparable governing instruments;
(ii) issue, sell, pledge or otherwise dispose of any shares
of its capital stock or other ownership interest in RV or any of the
Subsidiaries, or any securities convertible into or exchangeable for any
such shares or ownership interest, or any rights, warrants or options to
acquire or with respect to any such shares of capital stock, ownership
interest, or convertible or exchangeable securities, except (a) issuances
related to the merger of Jamtis with a wholly-owned subsidiary of RV, (b)
issuances related to the contributions to the capital of RV contemplated
hereby, and (c) following the closing under the Netstream Acquisition
Agreements and prior to the Closing, issuance or granting of unvested
options to acquire up to 625,000 shares of RV Class A Common Stock
("Interim RV Options") to officers and employees of Netstream, provided
that no Interim RV Options shall become vested according to their terms as
a result of the consummation of the Merger and the other transactions
contemplated hereby and by the Netstream Acquisition Agreements;
(iii) effect any stock split, reverse stock split, stock
dividend, subdivision, reclassification or similar transaction, or
otherwise change its capital structure as it exists on the date hereof,
except as required in order to achieve an appropriate number of shares to
effect the share exchange contemplated in the Merger;
(iv) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of capital stock
or ownership interests (other than such payments by a wholly-owned
Subsidiary of RV to RV or to another such wholly-owned Subsidiary);
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(v) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or the capital stock of any of its
Subsidiaries;
(vi) sell, lease, assign, transfer or otherwise dispose of
(by merger or otherwise) any of its property, business or assets
(including, without limitation, receivables, leasehold interests or
Intellectual Property and including any sale and leaseback transaction)
except for fair value in the ordinary course of business provided that the
proceeds of such sales do not exceed $50,000 in any single transaction or
$100,000 in the aggregate prior to the Closing Date;
(vii) settle or compromise any pending or threatened
Litigation other than settlements of Litigations which involve solely the
payment of money (without admission of liability) not to exceed $50,000 in
any one case or $100,000 in the aggregate;
(viii) make any advance, loan, extension of credit or
capital contribution to, or purchase or acquire (by merger or otherwise)
any stock, bonds, notes, debentures or other securities of, or any assets
constituting a business unit of, or make any other investment in, any
person, firm or entity, except (a) extensions of trade credit and
endorsements of negotiable instruments and other negotiable documents in
the ordinary course of business, (b) investments in cash and cash
equivalents, (c) payroll and travel advances in the ordinary course of
business and (d) investments in majority-owned Subsidiaries;
(ix) incur, assume or create any indebtedness for borrowed
money or for the deferred purchase price for property or services or
pursuant to any capital lease or other financing, except indebtedness
incurred in the ordinary course of business for working capital or capital
expenditures;
(x) waive, relinquish, release or terminate any right or
claim, including any such right or claim under any Material Contract or
permit any rights of material value to use any Intellectual Property to
lapse or be forfeited, in each case, except in the ordinary course of
business;
(xi) apply for, consent to, or acquiesce in, the appointment
of a trustee, receiver, sequestrator or other custodian for any
substantial part of the property of RV or any Subsidiary, or make a
general assignment for the benefit of creditors, or permit or suffer to
exist the commencement of any bankruptcy, reorganization, debt arrangement
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of RV or any
Subsidiary;
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(xii) amend the Netstream Acquisition Agreements in any material
respect;
(xiii) agree in writing or otherwise to take any of the
foregoing actions.
(d) If Parent or RV shall have given notice to the Company of an
action as to which it seeks consent pursuant to Section 4.13(c), such notice to
describe the relevant matters in reasonable detail, and the Company shall not
have objected within 15 days, RV and its Subsidiaries (and Parent, if
applicable) may take the action described in such notice.
4.14. RV Public Shares. Parent shall not take, or cause its
affiliates to take, any action in the twelve-month period following the
Effective Time to increase above 80% Parent's direct and indirect percentage
interest in the capital stock of RV, without the approval of all of the
Disinterested Directors of RV.
4.15. Credit Facility. RV and Parent shall enter into a Credit
Facility containing terms and conditions in accordance with those in the term
sheet attached hereto as Exhibit F.
ARTICLE V
CONDITIONS
5.1. Conditions to Each Party's Obligations. The respective
obligation of each party to consummate the transactions contemplated hereby
shall be subject to the satisfaction or, where permissible, waiver, on or prior
to the Closing Date, of the following conditions:
(a) The waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated.
(b) None of the parties shall be subject to any order, judgment,
injunction, decree or ruling, or other action of a court or other Governmental
Entity of competent jurisdiction restraining, enjoining or otherwise
prohibiting the Merger or any other transactions contemplated by this
Agreement; provided that each of the parties shall have used its reasonable
best efforts to appeal as promptly as practicable any such order, judgment,
injunction, decree, ruling or other action.
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(c) The Company Shareholder Approval shall have been obtained in
accordance with the Texas Business Corporation Act and the Company's
Certificate of Incorporation and By-laws.
(d) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(e) All Regulatory Filings and Consents (including, without
limitation, the Other Antitrust Filings and Consents) which are necessary for
the consummation of the Merger shall have been made or obtained, or any waiting
period (whether requisite or voluntary) under any Foreign Antitrust Laws shall
have expired, in each case, to the extent that the failure to make or obtain
such Regulatory Filings or Consents or of the waiting period to have expired,
in the aggregate, is reasonably likely, individually or in the aggregate, to
have a Material Delaying Effect (all such Consents, Regulatory Filings and the
lapse of all such waiting periods being referred to as the "Requisite
Regulatory Approvals"), and all such Requisite Regulatory Approvals shall be in
full force and effect. There shall not be any statute, law, rule or regulation
that makes consummation of the transactions contemplated hereby illegal or
prohibited.
(f) The Company shall have received the Requisite Waivers, and, if
Parent shall have requested the Company to prepare and distribute a Tender
Offer Statement, the holders of a Requisite Majority shall have tendered the
Notes held by them, and the Company shall have received written notice of the
approval of a Requisite Majority for the amendments and/or waivers described in
the final version of such Tender Offer Statement distributed to holders of
Notes, and, with respect to any Notes which remain outstanding, the Trustee
with respect to the Notes shall have executed and delivered to the Company a
supplemental indenture acceptable in form and substance to Parent.
(g) RV shall have acquired, directly or indirectly, the Netstream
Shares free and clear of any Encumbrances other than any Encumbrances created
pursuant to this Agreement.
5.2. Additional Conditions to Obligations of Parent, RV and Merger
Sub. The obligations of Parent, RV and Merger Sub to consummate the
transactions contemplated hereby shall be subject to the satisfaction or, where
permissible, waiver, on or prior to the Closing Date, of the following
conditions:
(a) (i) The representations and warranties made by the Company in
this Agreement shall be true and correct in all respects as of the date hereof,
and shall be true and correct in all respects as of the Closing Date as if made
as of the Closing Date (other
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than representations and warranties made as of a specified date), except where
the failure to be so true and correct (without giving effect to any materiality
qualifications or thresholds contained in such representations and warranties),
individually and in the aggregate, would not have a Material Adverse Effect,
(ii) the Company shall not have breached or failed to comply in any material
respect with any of its obligations under this Agreement or any of the
Ancillary Agreements to which it is a party, provided that the Company shall
have a 15 day period in which to cure breaches that are reasonably likely to be
curable, and (iii) the Company shall have delivered to Parent a certificate
dated the Closing Date and signed by the Company's President or a Vice
President to the effect set forth above in this Section 5.2(a)(i).
(b) Each Ancillary Agreement shall have been executed and delivered
by each party thereto other than Parent, RV or Merger Sub and shall be in full
force and effect, in accordance with its terms.
(c) There shall not have been issued, delivered, sold or granted any
shares of Common Stock pursuant to the Rights Agreement.
(d) The Executive Agreement shall be in full force and effect in
accordance with its terms.
(e) All directors of the Company whose resignations shall have been
requested by Parent not less than five days prior to the Closing Date shall
have submitted their resignations or been removed from office effective as of
the Closing Date.
(f) Parent, RV and Merger Sub shall have received an opinion of
Debevoise & Plimpton, counsel to Parent, RV and Merger Sub, or other counsel of
national reputation, dated on or about the date of the mailing to the Company
shareholders of the Proxy Statement, which opinion shall be reconfirmed as of
the Effective Time, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that RV, Merger Sub and the Company
will each be a party to that reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, such counsel may require and
rely upon the Representation Letters.
(g) FirstCom Colombia SA shall have duly completed a fusion impropia
as provided in Schedule 5.2(g) (or such other corporate transaction as is
approved by Parent) and shall have received all requisite governmental
approvals with respect to the transfer or assumption of all material licenses
and concessions held by FirstCom Colombia SA as of the date such fusion
impropia is effective, and Parent shall have received from Baker &
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McKenzie an opinion with regard to the status of FirstCom Colombia in
substantially the form previously delivered to the Company.
(h) Parent shall have received such evidence as reasonably requested
that the Company has good and valid title to the shares owned by it of all of
its Subsidiaries.
(i) The Federal Communications Commission shall have given any
approval required in connection with the change of control of the Company.
5.3. Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated hereby
are subject to the satisfaction or, where permissible, waiver, on or prior to
the Closing Date, of the following conditions:
(a) (i) The representations and warranties made by Parent in this
Agreement shall be true and correct in all respects as of the date hereof, and
shall be true and correct in all respects as of the Closing Date as if made as
of the Closing Date (other than representations and warranties made as of a
specified date), except where the failure to be so true and correct (without
giving effect to any materiality qualifications or thresholds contained in such
representations and warranties), individually and in the aggregate, would not
have a Material Adverse Effect, (ii) none of Parent, RV or Merger Sub shall
have breached or failed to comply in any material respect with any of its
obligations under this Agreement to which it is a party, or any of the
Ancillary Agreements to which it is a party, provided that Parent, RV and
Merger Sub shall have a 15 day period in which to cure breaches that are
reasonably likely to be curable, and (iii) Parent shall have delivered to the
Company a certificate dated the Closing Date and signed by an authorized
officer of Parent to the effect set forth above in this Section 5.3(a).
(b) Each Ancillary Agreement shall have been executed and delivered
by each party thereto other than the Company and shall be in full force and
effect, in accordance with its terms.
(c) Parent shall have delivered a certificate to the Company
certifying as to the amount of any reduction, if any, in the purchase price
paid by Jamtis under the Netstream Acquisition Agreements, and the shareholders
of RV shall have contributed to the capital of RV an aggregate of not less than
$70,000,000 plus any additional amount required by Section 4.12, as equity in
cash.
(d) The RV Class A Common Stock shall have been accepted for listing
by a national securities exchange.
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(e) Parent shall have caused to be duly elected as members of the
board of directors of RV (i) the Chief Executive Officer of the Company, (ii)
if requested by Promon, one "Disinterested Director" (as defined in the
Articles of Incorporation of RV) nominated by Promon, and (iii) two or, if
Promon shall not have nominated any Disinterested Director, three Disinterested
Directors proposed by Parent and agreed by the Company, and each of such
Disinterested Directors shall have agreed to serve in such capacity.
(f) The shareholders of RV shall have duly adopted the Amended and
Restated Certificate of Incorporation and Amended and Restated By-Laws of RV in
the form attached as Exhibit C, and the board of directors of RV shall have
duly adopted (i) a Board Policy in the form of Exhibit B and (ii) if any shares
of Series A preferred stock of the Company are outstanding, a Certificate of
Designation substantially in the form of Exhibit G.
(g) The Company shall have received an opinion of Baker & McKenzie,
counsel to the Company, or other counsel of national reputation, dated on or
about the date of the mailing to the Company shareholders of the Proxy
Statement, which opinion shall be reconfirmed as of the Effective Time, to the
effect that, on the basis of the facts, representations and assumptions set
forth in such opinion, the Merger will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that RV, Merger Sub and the Company will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, such counsel may require and rely upon the Representation
Letters.
ARTICLE VI
TERMINATION
6.1. Termination. This Agreement may be terminated at any time prior
to the Closing Date, notwithstanding approval thereof by the shareholders of
the Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company by written notice if:
(i) the Closing Date shall not have occurred on or before
April 30, 2000 (provided that the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this
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Agreement has been the cause of or resulted in the failure of the Closing
Date to occur on or before such date); or
(ii) there shall be any statute, law, rule or regulation
that makes consummation of the transactions contemplated hereby illegal or
prohibited or if any court or other Governmental Entity of competent
jurisdiction shall have issued an order, judgment, decree or ruling, or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, judgment, injunction, decree, ruling or other
action shall have become final and non-appealable, provided that the party
terminating this Agreement has complied with the provisions of the
penultimate sentence of Section 4.3;
(c) by the Company by written notice if:
(i) the Company shall have entered into or agreed to enter
into an Acquisition Agreement, provided that the Company shall have
delivered an Acquisition Agreement Notice in accordance with Section
4.1(c) and paid the Termination Amount and Parent Expenses as provided in
Section 7.7(b);
(ii) the Final Closing under the Netstream Acquisition
Agreements shall have failed to occur, or shall be incapable of occurring,
prior to April 30, 2000 in either case as a result of a breach of any
covenant of Parent or any of its affiliates thereunder; or
(iii) a "Material Adverse Effect", as defined in the
Netstream Master Agreement, shall have occurred with respect to Netstream.
(d) by Parent by written notice if:
(i) Any Person, other than Parent, RV, Merger Sub and any
other Person that would be included with the Parent in a "group" within
the meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended, shall have acquired beneficial ownership of 20% or more of the
outstanding shares of Company Common Stock;
(ii) Since the date hereof, there shall have occurred any
event, change, effect or development that, individually or in the
aggregate, would have a Material Adverse Effect, provided that such a
notice from Parent with respect to this subparagraph (ii) must be given
not later than 15 days after any notice from the Company to Parent that
such an event, change, effect or development has occurred, such notice to
describe the same in reasonable detail;
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(iii) The Company shall have entered into an Acquisition
Agreement or the Board of Directors of the Company shall have (a)
withdrawn, modified or failed to maintain its recommendation to the
shareholders of the Company to approve the Merger in any manner adverse to
the ability of Merger Sub and Parent to complete the Merger hereunder, (b)
recommended an Acquisition Proposal or received from a financial advisor
to the Company of nationally recognized standing a fairness opinion with
respect to an Acquisition Proposal that indicates such Acquisition
Proposal is a Superior Proposal, or (c) authorized the execution of an
agreement in principle or a definitive agreement relating to an
Acquisition Proposal with a Person other than Parent; or
(iv) The Shareholder Approval shall not have been obtained
at the Shareholder Meeting (including any postponement or adjournment
thereof).
6.2. Effect of Termination. If this Agreement is terminated pursuant
to Section 6.1 hereof, this Agreement, except for the provisions of Section 6
and Article VII, shall terminate, without any liability on the part of any party
or its directors, officers or shareholders. Nothing herein shall relieve any
party to this Agreement from any liability for breach of this Agreement or
prejudice the ability of the non-breaching party to seek damages from any other
party for any breach of this Agreement, including without limitation, attorneys'
fees and the right to pursue any remedy at law or in equity. Notwithstanding
anything to the contrary in the foregoing, no party hereto shall be entitled to
bring any action, suit or claim under this Agreement for damages against any
other party hereto unless the amount of such damages exceeds $500,000 (provided
that, if the damages of the claiming party are found to have, or are agreed as
having, exceeded such amount on a cumulative basis, the full amount of such
damages will be recoverable).
ARTICLE VII
GENERAL PROVISIONS
7.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any document delivered
pursuant to this Agreement shall survive the Effective Time.
7.2. Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the respective
Boards of Directors of the Company and Parent at any time before or after
approval of the Merger by the shareholders of the Company but, after any such
shareholder approval, no amendment shall be made which adversely affects the
rights of the Company's shareholders hereunder without
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the approval of such shareholders owning a majority of the outstanding shares
of Company Common Stock. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties.
7.3. Extension; Waiver. At any time prior to the Closing Date,
either party, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein by any
other applicable party or in any document, certificate or writing delivered
pursuant hereto by any other applicable party or (iii) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the part
of any party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
7.4. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
<TABLE>
<CAPTION>
If to Parent, RV or Merger Sub: If to the Company:
<S> <C>
AT&T Corp. FirstCom Corporation
295 North Maple Avenue 220 Alhambra Circle, Suite 910
Basking Ridge, NJ 07920 Coral Gables, FL 33134
Telephone: (908) 221-4057 Telephone: (305) 448-1422
Facsimile: (908) 221-4408 Facsimile: (305) 448-2636
Attention: Gary A. Swenson Attention: General Counsel
General Attorney
<CAPTION>
With a copy (which copy shall not constitute With a copy (which copy shall
notice) to: not constitute notice) to:
<S> <C>
Debevoise & Plimpton Baker & McKenzie
875 Third Avenue 1200 Brickell Avenue
New York, New York 10022 Miami, FL 33131
Telephone: (212) 909-6000 Telephone: (305) 789-8985
Facsimile: (212) 909-6836 Facsimile: (305) 789-8953
Attention: Paul H. Wilson, Jr. Attention: Andrew Hulsh
</TABLE>
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or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
7.5. Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Parent may assign
its rights hereunder to an affiliate but nothing shall relieve the assignor
from its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective heirs, successors, executors, administrators
and assigns any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
7.6. Entire Agreement. This Agreement, the Disclosure Letter, the
Ancillary Agreements and any other documents delivered by the parties in
connection herewith or therewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto.
7.7. Fees and Expenses. (a) Except as expressly provided otherwise
herein, whether or not the transactions contemplated hereby are consummated,
all costs and expenses incurred in connection with the transactions
contemplated hereby shall be paid by the party incurring such expenses provided
that any such costs and expenses incurred by RV or Merger Sub shall be paid, or
shall be reimbursed to RV or Merger Sub, as the case may be, by Parent.
(b) If this Agreement is terminated pursuant to Section 6.1(c)(i) or
any of clauses (i) and (iii) of Section 6.1(d), the Company shall pay to Parent
as promptly as practicable in same-day funds an aggregate amount equal to the
sum of (i) $10,000,000 (the "Termination Amount") and (ii) the out-of-pocket
expenses of Parent and its affiliates incurred in connection with or arising
out of this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby (including, without limitation, amounts paid or
payable to investment bankers (if any), information agents, lending banks, fees
and expenses of counsel, accountants and consultants and printing and mailing
expenses, regardless of when such expenses are incurred) (the "Parent
Expenses"), provided that the maximum amount of Parent Expenses payable shall
be $1,000,000.
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(c) If this Agreement is terminated pursuant to Section 6.1(c)(ii),
Parent shall pay to the Company the out-of-pocket expenses of the Company and
its affiliates incurred in connection with or arising out of this Agreement,
the Ancillary Agreements and the transactions contemplated hereby and thereby
(including, without limitation, any amounts paid or payable to investment
bankers, information agents, lending banks, fees and expenses of counsel,
accountants and consultants and printing and mailing expenses, regardless of
when such expenses are incurred) (the "Company Expenses,") provided that the
maximum amount of Company Expenses payable shall be $1,000,000.
(d) If the Company fails to pay promptly any amounts owing pursuant
to Section 7.7(b) when due, the Company shall in addition thereto pay to
Parent, or if Parent fails to pay promptly any amounts owing pursuant to
Section 7.7(c) when due, Parent shall in addition thereto pay to the Company,
in each case, all costs and expenses (including, pursuant to Section 7.7(b),
fees and disbursements of counsel) incurred in collecting such amounts,
together with interest on such amounts (or any unpaid portion thereof) from the
date such payment was required to be made until the date such payment is
received by Parent or the Company, as the case may be, at the prime rate of The
Chase Manhattan Bank as in effect from time to time during such period.
7.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its rules of conflict of laws. Each of the Company and Parent hereby
irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America located in the State of New York (the "New York Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the New York Courts and agrees not to plead or claim in any New
York Court that such litigation brought therein has been brought in an
inconvenient forum.
7.9. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
7.10. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." As used in this Agreement, the words "Subsidiary,"
"affiliate" and "associate" shall have the meanings ascribed thereto in Rule
12b-2 under the
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Exchange Act. For purposes of this Agreement, one party shall be considered
"wholly owned" by another party if all of the shares of its outstanding capital
stock, other than directors' qualifying shares, are beneficially owned by such
other party.
7.11. Investigations. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
7.12. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
7.13. Enforcement of Agreement. (a) The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any New York Court,
this being in addition to any other remedy to which they are entitled at law or
in equity.
(b) The prevailing party in any judicial action shall be entitled to
receive from the other party reimbursement for the prevailing party's
reasonable attorneys' fees and disbursements, and court costs.
7.14. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
51
<PAGE> 253
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
AT&T CORP.
By: /s/ John A. Haigh
----------------------------------------
Name: John A. Haigh
Title: Vice President
KIRI INC.
By: /s/ Alfredo DiBlasio
----------------------------------------
Name: Alfredo DiBlasio
Title: President
FRANTIS, INC.
By: /s/ Alfredo DiBlasio
----------------------------------------
Name: Alfredo DiBlasio
Title: President
FIRSTCOM CORPORATION
By: /s/ Patricio E. Northland
----------------------------------------
Name: Patricio E. Northland
Title: Chairman, President and CEO
<PAGE> 254
SCHEDULE A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 255
SCHEDULE A
DEFINITIONS
1. Defined Terms. The following capitalized terms, when used in this
Agreement, shall have the following respective meanings:
"Acquisition Proposal" means any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 10% or more of
the assets of the Company or any of its Subsidiaries or any shares of any class
of outstanding equity securities of the Company or any of its Subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 10% or more of any class of equity securities of the
Company or any of its Subsidiaries or any merger, consolidation, business
combination, sale of substantially all the assets, joint venture, management or
operating agreement, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
"Ancillary Agreements" means the Voting Agreement, the RV Agreement
(in the form of Exhibit E), the Brand License, the Employment Agreements and
the Credit Facility Agreement between Parent and RV (based on the terms set
forth in Exhibit F).
"Brand License" means the Service Mark License Agreement between
Parent and RV, in the form of Exhibit D).
"Copyrights" shall mean all material copyrights, whether registered or
unregistered, owned by, assigned to or subject to assignment to the Company or
any of its Subsidiaries anywhere in the world.
"Disclosure Letter" means the letter dated as of the date hereof
delivered by the Company to Parent and identified as such and initialed by the
parties to this Agreement.
"Environmental Laws" means laws relating to the protection of human
health or the environment
"ERISA Affiliate" means any person (as defined in Section 3(9) of
ERISA) that is or has been a member of any group of persons described in
Section 414(b), (c), (m) or (o) of the Code, including Company or any one of
its Subsidiaries.
<PAGE> 256
"Executive Agreement" means the Employment Agreement dated as of
November 1, 1999, between RV FirstCom and Patricio E. Northland, including the
exhibits thereto.
"Income Tax" means any Tax computed in whole or in part based on or by
reference to net income and any alternative, minimum, accumulated earnings or
personal holding company Tax (including all interest and penalties thereon and
additions thereto).
"Income Tax Return" means any return, report, declaration, form, claim
for refund or information return or statement relating to Income Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
"Intellectual Property" means the United States and foreign
trademarks, service marks, trade names, trade dress, domain names, copyrights,
and similar rights, including registrations and applications to register or
renew the registration of any of the foregoing, the United States and foreign
letters patent and patent applications, inventions, processes, designs,
formulae, trade secrets, know-how, ideas, research and development, technical
data, copyrightable works, engineering notebooks, confidential information,
Software, firmware, Internet Web sites, mask works and other semiconductor chip
rights and applications, registrations and renewals thereof, and all similar
intellectual property rights (including moral rights), all rights to sue for
and remedies against past, present and future infringements of any or all of
the foregoing and rights of priority and protection of interests therein under
the Laws of any jurisdiction, tangible embodiments of any of the foregoing (in
any medium including electronic media), and licenses of any of the foregoing.
"Jamtis Group" means, collectively, Jamtis, Inc., Jamtis LLC, Atlantis
Holdings do Brasil Ltda. and Atlantis do Brasil Ltda..
"Marks" shall mean all registrations for trademarks, service marks and
domain names and all pending applications for such registrations owned by,
assigned to or subject to assignment to the Company or any of its Subsidiaries
anywhere in the world and all material unregistered trademarks, trade names,
service makers, brand names, and business names.
"Netstream Master Agreement" means the Master Agreement, dated as of
August 20, 1999, between Jamtis and the individuals listed on Schedule 4.8(b)
attached thereto.
"Patents" shall mean all patents and patent applications owned by,
assigned to or subject to assignment to the Company or any of its Subsidiaries
anywhere in the world.
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<PAGE> 257
"Permitted Encumbrances" means (a) Encumbrances reserved against or
reflected in the Company Reports, to the extent reserved or reflected or
described in the notes to any balance sheet set forth therein, (b) Encumbrances
for Taxes not yet due and payable or which are being contested in good faith
and by appropriate proceedings if adequate reserves with respect thereto are
maintained on the Company's books in accordance with GAAP, (c) those
Encumbrances set forth in Section 3.1(r) of the Disclosure Schedule and (d)
those Encumbrances that, individually and in the aggregate with all other
Permitted Encumbrances, do not and will not materially interfere with the use
of the properties or assets of the Company and its Subsidiaries taken as a
whole as currently used, or otherwise have or result in a Material Adverse
Effect.
"RV Disclosure Letter" means the letter dated as of the date hereof
delivered by RV to the Company and identified as such and initialed by the
parties to this Agreement.
"Superior Proposal" means any bona fide proposal made by a third party
to acquire, directly or indirectly, for consideration consisting of cash and/or
securities, 50% or more of the voting power of the common stock of, or all or
substantially all the assets of, the Company and its Subsidiaries and otherwise
on terms which the Board of Directors determines in good faith (after receiving
the advice of a financial advisor of nationally recognized standing (which
advice shall be disclosed in reasonable detail to Parent)) to be more favorable
to the Company's shareholders than the Merger and for which financing, to the
extent necessary with respect to such proposal, is then committed or which, in
the good faith judgment of the Board of Directors, is reasonably capable of
being obtained by such third party.
"Tax" means any federal, state, local or foreign income, alternative,
minimum, accumulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, value added,
transfer, registration, stamp, premium, excise, customs duties, severance,
environmental (including taxes under section 59A of the Code), real property,
personal property, ad valorem, occupancy, license, occupation, employment,
payroll, social security, disability, unemployment, workers' compensation,
withholding, estimated or other similar tax, duty, fee, assessment or other
governmental charge or deficiencies thereof (including all interest and
penalties thereon and additions thereto).
"Tax Return" means any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Year 2000 Compliant" means that software, hardware and equipment (x)
correctly perform date data century recognition, and calculations that
accommodate
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<PAGE> 258
same century and multi-century formulas and date values; (y) operate or are
expected to operate on a basis comparable to their current operation during and
after calendar year 2000 A.D., including but not limited to leap years; and (z)
shall not end abnormally or provide invalid or incorrect results as a result of
date data which represents or references different centuries or more than one
century.
2. Other Defined Terms. The following capitalized terms, when used in
this Agreement without definition, shall have the meanings set forth in the
Sections of this Agreement indicated below:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"1999 Proxy" Section 3.1(u)
"Acquiror Material Adverse Effect" Section 3.2(a)
"Acquisition Agreement" Section 4.1(b)
"Acquisition Agreement Notice" Section 4.1(c)
"affiliate" Section 7.10
"Affiliate Transactions" Section 3.1(u)
"Agreement" First Paragraph
"Assets" Section 3.1(r)
"associate" Section 7.10
"Assumed Award" Section 2.3(a)
"Certificate of Merger" Section 1.3
"Certificates" Section 2.2(b)
"Closing" Section 1.2
"Closing Date" Section 1.2
"Code" Recitals
"Company" First Paragraph
"Company Benefit Plans" Section 3.1(l)
"Company Common Stock" Section 2.1(a)
"Company Expenses" Section 7.7(c)
"Company Property" Section 3.1(p)
"Company Reports" Section 3.1(g)
"Company Rights" Section 3.1(d)
"Company Shareholder Approval" Section 3.1(h)
"Company Stock Option" Section 2.3(a)
</TABLE>
iv
<PAGE> 259
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"Company Stock Plans" Section 3.1(d)
"Consents" Section 4.3
"Consent Solicitation Statement" Section 4.10
"Contract" or "Contracts" Section 3.1(f)
"Current Policies" Section 4.7
"Effective Time" Section 1.3
"Employment Agreements" Section 3.1(l)
"Encumbrances" Section 3.1(e)
"ERISA" Section 3.1(l)
"excess parachute payment" Section 3.1(l)
"Excess Shares Trust" Section 2.2(e)
"Exchange Act" Section 3.1(f)
"Exchange Agent" Section 2.2(a)
"Exchange Fund" Section 2.2(a)
"Fairness Opinion" Section 3.1(v)
"Foreign Antitrust Laws" Section 3.1(f)
"Governmental Entity" Section 3.1(c)
"HSR Act" Section 3.1(f)
"Interim RV Options" Section 4.13(c)
"Jamtis" Recitals
"Laws" Section 3.1(c)
"Litigation" Section 3.1(i)
"Material Adverse Effect" Section 3.1(a)
"Material Contracts" Section 3.1(q)
"Material Delaying Effect" Section 3.1(f)
"Merger" Recitals
"Merger Sub" First Paragraph
"Netstream Acquisition Agreements" Recitals
"Netstream Shares" Recitals
"New York Courts" Section 7.8
"Notes" Section 4.10
"Option" or "Options" Section 3.1(d)
"Other Antitrust Consents" Section 4.3
</TABLE>
v
<PAGE> 260
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
"Other Antitrust Filings" Section 4.3
"Other Antitrust Filings and Consents" Section 5.3
"Parent" First Paragraph
"Parent Expenses" Section 7.7(b)
"Permits" Section 3.1(o)
"Person" Section 3.1(e)
"Preferred Stock" Section 2.1(b)
"Proxy Statement" Section 4.8(b)
"Registration Statement" Section 4.8(b)
"Regulatory Filings" Section 3.1(f)
"Representation Letters" Section 4.9(b)
"Requisite Majority" Section 4.10
"Requisite Regulatory Approvals" Section 5.1(e)
"Rights Agreement" Section 3.1(d)
"RV" First paragraph
"RV Class A Common Stock" Section 2.1(a)
"RV Class B Common Stock" Section 2.1(b)
"RV Preferred Stock" Section 2.1(b)
"SEC" Section 3.1(g)
"Securities Act" Section 3.1(g)
"Shareholder Meeting" Section 4.8(a)
"Subsidiary" Section 7.10
"Surviving Corporation" Section 1.1
"TBCA" Section 3.1(w)
"Termination Amount" Section 7.7(b)
"Voting Agreement" Recitals
"Warrants" Section 3.1(d)
</TABLE>
vi
<PAGE> 261
EXHIBIT A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 262
State of Delaware PAGE 1
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "KIRI INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF
OCTOBER, A.D. 1999, AT 12:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
3108376 8100 [SEAL] /s/ Edward J. Freel
-----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0023372
991432556 DATE: 10-13-99
<PAGE> 263
CERTIFICATE OF INCORPORATION
OF
KIRI INC.
ARTICLE I
NAME OF CORPORATION
The name of the corporation is Kiri Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The Corporation's registered office in the State of Delaware is at
1209 Orange Street, City of Wilmington, County of New Castle, Wilmington,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSE
The nature of the business of the Corporation and its purpose is to
engage in any lawful act or activity for which corporations may be engaged
under the General Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED STOCK
The aggregate number of shares of stock that the Corporation shall
have authority to issue is 1,000 shares of Common Stock, par value $.01 per
share (the "Common Stock").
1
<PAGE> 264
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Shannon Conaty, Esq.
c/o Debevoise & Plimpton
875 Third Avenue
New York, NY 10021
ARTICLE VI
MANAGEMENT OF THE CORPORATION
The following provisions are inserted for the management of the
business, for the conduct of the affairs of the Corporation and for the purpose
of creating, defining, limiting and regulating the powers of the Corporation
and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be
altered from time to time in the manner provided in the By-Laws, and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors
may be filled, and directors may be removed, as provided in the
By-Laws.
(b) The election of directors may be conducted in any manner approved by
the stockholders at the time when the election is held and need not
be by written ballot.
(c) All corporate powers and authority of the Corporation (except as at
the time otherwise provided by law, by this Certificate of
Incorporation or by the By-Laws) shall be vested in and exercised by
the Board of Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the
By-Laws of the Corporation, except to the extent that the By-Laws or
this Certificate of Incorporation otherwise provide.
(e) No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his or her
fiduciary duty as a
2
<PAGE> 265
director, provided that nothing contained in this Article shall
eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the General Corporation Law of the State
of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein
conferred upon stockholders or directors are granted subject to this
reservation.
IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, do make and file this
Certificate, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set my hand this 13th day of October, 1999.
/s/ Shannon Conaty
------------------
Shannon Conaty
3
<PAGE> 266
===============================================================================
KIRI INC.
BY-LAWS
As Adopted on October 14, 1999
===============================================================================
<PAGE> 267
KIRI INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
ARTICLE I
STOCKHOLDERS....................................................................................1
Section 1.01. Annual Meetings..................................................................1
Section 1.02. Special Meetings.................................................................1
Section 1.03. Notice of Meetings; Waiver.......................................................1
Section 1.04. Quorum...........................................................................2
Section 1.05. Voting...........................................................................2
Section 1.06. Voting by Ballot.................................................................2
Section 1.07. Adjournment......................................................................2
Section 1.08. Proxies..........................................................................2
Section 1.09. Organization; Procedure..........................................................3
Section 1.10. Consent of Stockholders in Lieu of Meeting.......................................3
ARTICLE II
BOARD OF DIRECTORS..............................................................................4
Section 2.01. General Powers...................................................................4
Section 2.02. Number and Term of Office........................................................4
Section 2.03. Election of Directors............................................................4
Section 2.04. Annual and Regular Meetings......................................................4
Section 2.05. Special Meetings; Notice.........................................................4
Section 2.06. Quorum; Voting...................................................................5
Section 2.07. Adjournment......................................................................5
Section 2.08. Action Without a Meeting.........................................................5
Section 2.09. Regulations; Manner of Acting....................................................5
Section 2.10. Action by Telephonic Communications..............................................5
Section 2.11. Resignations.....................................................................5
Section 2.12. Removal of Directors.............................................................5
Section 2.13. Vacancies and Newly Created Directorships........................................6
Section 2.14. Compensation.....................................................................6
Section 2.15. Reliance on Accounts and Reports, etc............................................6
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES........................................................6
Section 3.01. How Constituted..................................................................6
Section 3.02. Powers...........................................................................6
Section 3.03. Proceedings......................................................................7
</TABLE>
i
<PAGE> 268
<TABLE>
<S> <C> <C>
Section 3.04. Quorum and Manner of Acting......................................................7
Section 3.05. Action by Telephonic Communications..............................................8
Section 3.06. Absent or Disqualified Members...................................................8
Section 3.07. Resignations.....................................................................8
Section 3.08. Removal..........................................................................8
Section 3.09. Vacancies........................................................................8
ARTICLE IV
OFFICERS........................................................................................8
Section 4.01. Number...........................................................................8
Section 4.02. Election.........................................................................8
Section 4.03. Salaries.........................................................................8
Section 4.04. Removal and Resignation; Vacancies...............................................9
Section 4.05. Authority and Duties of Officers.................................................9
Section 4.06. The President....................................................................9
Section 4.07. The Secretary....................................................................9
Section 4.08. The Treasurer...................................................................10
Section 4.09. Additional Officers.............................................................11
Section 4.10. Security........................................................................11
ARTICLE V
CAPITAL STOCK..................................................................................11
Section 5.01. Certificates of Stock, Uncertificated Shares....................................11
Section 5.02. Signatures; Facsimile...........................................................12
Section 5.03. Lost, Stolen or Destroyed Certificates..........................................12
Section 5.04. Transfer of Stock...............................................................12
Section 5.05. Record Date.....................................................................12
Section 5.06. Registered Stockholders.........................................................13
Section 5.07. Transfer Agent and Registrar....................................................13
ARTICLE VI
INDEMNIFICATION................................................................................13
Section 6.01. Nature of Indemnity.............................................................13
Section 6.02. Successful Defense..............................................................14
Section 6.03. Determination That Indemnification Is Proper....................................14
Section 6.04. Advance Payment of Expenses.....................................................15
Section 6.05. Procedure for Indemnification of Directors and Officers.........................15
Section 6.06. Survival; Preservation of Other Rights..........................................16
Section 6.07. Insurance.......................................................................16
Section 6.08. Severability....................................................................16
ARTICLE VII
OFFICES........................................................................................17
Section 7.01. Registered Office...............................................................17
Section 7.02. Other Offices....................................................................17
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VIII
GENERAL PROVISIONS.............................................................................17
Section 8.01. Dividends.......................................................................17
Section 8.02. Reserves........................................................................17
Section 8.03. Execution of Instruments........................................................17
Section 8.04. Corporate Indebtedness..........................................................18
Section 8.05. Deposits........................................................................18
Section 8.06. Checks..........................................................................18
Section 8.07. Sale, Transfer, etc. of Securities..............................................18
Section 8.08. Voting as Stockholder...........................................................18
Section 8.09. Fiscal Year.....................................................................18
Section 8.10. Seal............................................................................19
Section 8.11. Books and Records; Inspection...................................................19
ARTICLE IX
AMENDMENT OF BY-LAWS...........................................................................19
Section 9.01. Amendment.......................................................................19
ARTICLE X
CONSTRUCTION...................................................................................19
Section 10.01. Construction...................................................................19
</TABLE>
iii
<PAGE> 270
Kiri Inc.
KIRI INC.
BY-LAWS
As adopted on October 14, 1999
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. Subject to Section 1.12 of these
By-Laws, the annual meeting of the stockholders of the Corporation for the
election of directors and for the transaction of such other business as
properly may come before such meeting shall be held at such place, either
within or without the State of Delaware, and at 9:00 a.m. local time on the
fifteenth of May (or, if such day is a legal holiday, then on the next
succeeding business day), or at such other date and hour, as may be fixed from
time to time by resolution of the Board of Directors and set forth in the
notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the
stockholders may be called at any time by the President (or, in the event of
his or her absence or disability, by any Vice President), or by the Board of
Directors. A special meeting shall be called by the President (or, in the event
of his or her absence or disability, by any Vice President), or by the
Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within twenty days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or without the State
of Delaware, as shall be specified in the respective notices or waivers of
notice thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
or her address as it appears on the record of stockholders of the Corporation,
or, if he or she shall have filed with the Secretary of the Corporation a
written request that notices to him or her be mailed to some other address,
then directed to him or her at such other address. Such further notice shall be
given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the
<PAGE> 271
Kiri Inc.
stockholders need be specified in a written waiver of notice. The attendance of
any stockholder at a meeting of stockholders shall constitute a waiver of
notice of such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 1.04. Quorum. Except as otherwise required by law or by
the Certificate of Incorporation, the presence in person or by proxy of the
holders of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these
By-Laws, a record date has been fixed, every holder of record of shares
entitled to vote at a meeting of stockholders shall be entitled to one vote for
each share outstanding in his or her name on the books of the Corporation at
the close of business on such record date. If no record date has been fixed,
then every holder of record of shares entitled to vote at a meeting of
stockholders shall be entitled to one vote for each share of stock standing in
his or her name on the books of the Corporation at the close of business on the
day next preceding the day on which notice of the meeting is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. Except as otherwise required by law or by the
Certificate of Incorporation or by these By-Laws, the vote of a majority of the
shares represented in person or by proxy at any meeting at which a quorum is
present shall be sufficient for the transaction of any business at such
meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need
be taken by written ballot unless otherwise required by law. Any vote which
need not be taken by ballot may be conducted in any manner approved by the
meeting.
Section 1.07. Adjournment. If a quorum is not present at any
meeting of the stockholders, the stockholders present in person or by proxy
shall have the power to adjourn any such meeting from time to time until a
quorum is present. Notice of any adjourned meeting of the stockholders of the
Corporation need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if
the adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of
these By-Laws, a notice of the adjourned meeting, conforming to the
requirements of Section 1.03 of these By-Laws, shall be given to each
stockholder of record entitled to vote at such meeting. At any adjourned
meeting at which a quorum is present, any business may be transacted that might
have been transacted on the original date of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any
meeting of the stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person or persons to
vote at any such meeting and express such consent or dissent for him or her by
proxy. A stockholder may authorize a valid proxy by executing a written
instrument signed by such stockholder, or by causing his or her signature to be
affixed to such writing by any reasonable means including, but not limited to,
by facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated
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Kiri Inc.
as the holder of the proxy, a proxy solicitation firm or a like authorized
agent. No such proxy shall be voted or acted upon after the expiration of three
years from the date of such proxy, unless such proxy provides for a longer
period. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where applicable law provides that a proxy
shall be irrevocable. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by filing another duly executed
proxy bearing a later date with the Secretary. Proxies by telegram, cablegram
or other electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President or, in the event of
his or her absence or disability, a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The Secretary, or in the event
of his or her absence or disability, the Assistant Secretary, if any, or if
there be no Assistant Secretary, in the absence of the Secretary, an appointee
of the presiding officer, shall act as Secretary of the meeting. The order of
business and all other matters of procedure at every meeting of stockholders
may be determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted (but not less than the minimum
number of votes otherwise prescribed by law) and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
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ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided
by law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation.
Section 2.02. Number and Term of Office. The number of Directors
constituting the entire Board of Directors shall be two, which number may be
modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one. Each Director (whenever
elected) shall hold office until his or her successor has been duly elected and
qualified, or until his or her earlier death, resignation or removal.
Section 2.03. Election of Directors. Except as otherwise provided
in Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at
each annual meeting of the stockholders. If the annual meeting for the election
of Directors is not held on the date designated therefor, the Directors shall
cause the meeting to be held as soon thereafter as convenient. At each meeting
of the stockholders for the election of Directors, provided a quorum is
present, the Directors shall be elected by a plurality of the votes validly
cast in such election.
Section 2.04. Annual and Regular Meetings. The annual meeting of
the Board of Directors for the purpose of electing officers and for the
transaction of such other business as may come before the meeting shall be held
as soon as possible following adjournment of the annual meeting of the
stockholders at the place of such annual meeting of the stockholders. Notice of
such annual meeting of the Board of Directors need not be given. The Board of
Directors from time to time may by resolution provide for the holding of
regular meetings and fix the place (which may be within or without the State of
Delaware) and the date and hour of such meetings. Notice of regular meetings
need not be given, provided, however, that if the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action shall
be mailed promptly, or sent by telegram, radio or cable, to each Director who
shall not have been present at the meeting at which such action was taken,
addressed to him or her at his or her usual place of business, or shall be
delivered to him or her personally. Notice of such action need not be given to
any Director who attends the first regular meeting after such action is taken
without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting.
Section 2.05. Special Meetings; Notice. Special meetings of the
Board of Directors shall be held whenever called by the President or, in the
event of his or her absence or disability, by any Vice President, at such place
(within or without the State of Delaware), date and hour as may be specified in
the respective notices or waivers of notice of such meetings. Special meetings
of the Board of Directors may be called on twenty-four hours' notice, if notice
is given to each Director personally or by telephone or
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telegram, or on five days' notice, if notice is mailed to each Director,
addressed to him or her at his or her usual place of business. Notice of any
special meeting need not be given to any Director who attends such meeting
without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be
transacted thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 2.07. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Certificate of Incorporation and these
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.11. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be removed at
any time, either for or without cause, upon the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the stockholders
entitled to vote for the election of the Director so removed. If such
stockholders do not fill such vacancy at such meeting (or in the
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written instrument effecting such removal, if such removal was effected by
consent without a meeting), such vacancy may be filled in the manner provided
in Section 2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and
such vacancies and newly created directorships may be filled by a majority of
the Directors then in office, although less than a quorum. A Director elected
to fill a vacancy or a newly created directorship shall hold office until his
or her successor has been elected and qualified or until his or her earlier
death, resignation or removal. Any such vacancy or newly created directorship
may also be filled at any time by vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each
Director shall be entitled to receive as compensation for his or her services
as such shall be fixed from time to time by resolution of the Board of
Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A Director,
or a member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors may
designate one or more Committees, including an Executive Committee, each such
Committee to consist of such number of Directors as from time to time may be
fixed by the Board of Directors. The Board of Directors may designate one or
more Directors as alternate members of any such Committee, who may replace any
absent or disqualified member or members at any meeting of such Committee.
Thereafter, members (and alternate members, if any) of each such Committee may
be designated at the annual meeting of the Board of Directors. Any such
Committee may be abolished or re-designated from time to time by the Board of
Directors. Each member (and each alternate member) of any such Committee
(whether designated at an annual meeting of the Board of Directors or to fill a
vacancy or otherwise) shall hold office until his or her successor shall have
been designated or until he or she shall cease to be a Director, or until his
or her earlier death, resignation or removal.
Section 3.02. Powers. During the intervals between the meetings of
the Board of Directors, the Executive Committee, except as otherwise provided
in this section, shall have and may exercise all the powers and authority of
the Board of Directors
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in the management of the property, affairs and business of the Corporation,
including the power to declare dividends and to authorize the issuance of
stock. Each such other Committee, except as otherwise provided in this section,
shall have and may exercise such powers of the Board of Directors as may be
provided by resolution or resolutions of the Board of Directors. Neither the
Executive Committee nor any such other Committee shall have the power or
authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution,
any distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes
of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any
series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 3.03. Proceedings. Each such Committee may fix its own
rules of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine
from time to time. Each such Committee shall keep minutes of its proceedings
and shall report such proceedings to the Board of Directors at the meeting of
the Board of Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings
of any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute
a quorum for the transaction of business. The act of the majority of the
members present at any meeting at which a quorum is present shall be the act of
such Committee. Any action required or permitted to be taken at any meeting of
any such Committee may be taken without a meeting, if all members of such
Committee shall consent to such action in writing and such writing or writings
are filed with the minutes of the proceedings of the Committee. The members of
any such
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Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence or
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate member)
of any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of
any Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or
without cause, by resolution adopted by a majority of the whole Board of
Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors also may elect one or more Assistant
Secretaries and Assistant Treasurers in such numbers as the Board of Directors
may determine. Any number of offices may be held by the same person. No officer
need be a Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the Board
of Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his or her successor has
been elected and qualified, or until his or her earlier death, resignation or
removal.
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Section 4.03. Salaries. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may
be removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers of
the Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law.
Section 4.06. The President. The President shall preside at all
meetings of the stockholders and directors at which he or she is present, shall
be the chief executive officer and the chief operating officer of the
Corporation, shall have general control and supervision of the policies and
operations of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He or she shall manage and
administer the Corporation's business and affairs and shall also perform all
duties and exercise all powers usually pertaining to the office of a chief
executive officer and a chief operating officer of a corporation. He or she
shall have the authority to sign, in the name and on behalf of the Corporation,
checks, orders, contracts, leases, notes, drafts and other documents and
instruments in connection with the business of the Corporation, and together
with the Secretary or an Assistant Secretary, conveyances of real estate and
other documents and instruments to which the seal of the Corporation is
affixed. He or she shall have the authority to cause the employment or
appointment of such employees and agents of the Corporation as the conduct of
the business of the Corporation may require, to fix their compensation, and to
remove or suspend any employee or agent elected or appointed by the President
or the Board of Directors. The President shall perform such other duties and
have such other powers as the Board of Directors or the Chairman may from time
to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the
following powers and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-Laws and as required by
law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy
of such resolution to the members of such Committee.
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(d) He or she shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof)
to be affixed to all certificates representing shares of the
Corporation prior to the issuance thereof and to all instruments the
execution of which on behalf of the Corporation under its seal shall
have been duly authorized in accordance with these By-Laws, and when
so affixed he or she may attest the same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required
by law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of
the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the addresses of the holders of
record of such shares, the number of shares held by each holder and
the date as of which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall
have been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident to
the office of secretary and such other duties as may be specified in
these By-Laws or as may be assigned to him or her from time to time by
the Board of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the chief
financial officer of the Corporation and shall have the following powers and
duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable effects of
the Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or
other depositaries as shall be selected in accordance with Section
8.05 of these By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys
disbursed.
(d) He or she shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition
of the Corporation and
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of all his or her transactions as Treasurer, and render a full
financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require from
all officers or agents of the Corporation reports or statements giving
such information as he or she may desire with respect to any and all
financial transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(g) He or she shall perform, in general, all duties incident to
the office of treasurer and such other duties as may be specified in
these By-Laws or as may be assigned to him or her from time to time by
the Board of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer
or agent appointed by him or her, for or without cause.
Section 4.10. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his or her duties, in such amount and of such character
as may be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares. The
shares of the Corporation shall be represented by certificates, provided that
the Board of Directors may provide by resolution or resolutions that some or
all of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until each certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock in the Corporation represented by certificates
and upon request every holder of uncertificated shares shall be entitled to
have a certificate signed by, or in the name of the Corporation, by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be
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in such form as the Board of Directors may determine, to the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on the
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General
Corporation Law of the State of Delaware. Subject to the provisions of the
Certificate of Incorporation and these By-Laws, the Board of Directors may
prescribe such additional rules and regulations as it may deem appropriate
relating to the issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is
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adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so ex pressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors
may appoint one or more transfer agents and one or more registrars, and may
require all certificates representing shares to bear the signature of any such
transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or
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investigative, by reason of the fact that he or she is or was or has agreed to
become a director or officer of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a director or officer, of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
and may indemnify any person who was or is a party or is threatened to be made
a party to such an action, suit or proceeding by reason of the fact that he or
she is or was or has agreed to become an employee or agent of the Corporation,
or is or was serving or has agreed to serve at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall
be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit,
and (2) no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Notwithstanding the foregoing, but subject to Section
6.05 of these By-Laws, the Corporation shall not be obligated to indemnify a
director or officer of the Corporation in respect of a Proceeding (or part
thereof) instituted by such director or officer, unless such Proceeding (or
part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present or
former director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 6.01 of these By-Laws or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made
by the Corporation only upon a determination that indemnification of such
person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 6.01
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Kiri Inc.
of these By-Laws. Any indemnification of a present or former employee or agent
of the Corporation under Section 6.01 of these By-Laws (unless ordered by a
court) may be made by the Corporation upon a determination that indemnification
of the employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Section 6.01 of these
By-Laws. Any such determination shall be made, with respect to a person who is
a director or officer at the time of such determination (1) by a majority vote
of the Directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a present director or officer in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents may be
so paid upon such terms and conditions, if any, as the Corporation deems
appropriate. The Corporation, or in respect of a present director or officer
the Board of Directors, may authorize the Corporation's counsel to represent
such present or former director, officer, employee or agent in any action, suit
or proceeding, whether or not the Corporation is a party to such action, suit
or proceeding.
Section 6.05. Procedure for Indemnification of Directors and
Officers. Any indemnification of a director, officer, employee or agent of the
Corporation under Sections 6.01 and 6.02 of these By-Laws, or advance of costs,
charges and expenses to such person under Section 6.04 of these By-Laws, shall
be made promptly, and in any event within thirty days, upon the written request
of such person. If a determination by the Corporation that such person is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within thirty days, the right to indemnification or advances as
granted by this Article shall be enforceable by such person in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce
a claim for the advance of costs, charges and expenses under Section 6.04 of
these By-Laws where the required undertaking, if any, has been received by or
tendered to the Corporation) that the claimant has not met the standard of
conduct set forth in Section 6.01 of these By-Laws, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in
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Kiri Inc.
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in
any such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
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Kiri Inc.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices
or places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of
law and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the Director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from
which dividends might properly be declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any
such reserve.
Section 8.03. Execution of Instruments. The President, any Vice
President, the Secretary or the Treasurer may enter into any contract or
execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors or the President may authorize any other
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the
17
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Kiri Inc.
Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted
on behalf of the Corporation, and no evidence of indebtedness shall be issued
in its name, unless authorized by the Board of Directors or the President. Such
authorization may be general or confined to specific instances. Loans so
authorized may be effected at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board of Directors or the President shall authorize. When so authorized by
the Board of Directors or the President, any part of or all the properties,
including contract rights, assets, business or good will of the Corporation,
whether then owned or thereafter acquired, may be mortgaged, pledged,
hypothecated or conveyed or assigned in trust as security for the payment of
such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other
depositaries as may be determined by the Board of Directors or the President,
or by such officers or agents as may be authorized by the Board of Directors or
the President to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or the
President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
authorized by the Board of Directors or by the President, any Vice President,
the Secretary or the Treasurer or any other officers designated by the Board of
Directors or the President may sell, transfer, endorse, and assign any shares
of stock, bonds or other securities owned by or held in the name of the
Corporation, and may make, execute and deliver in the name of the Corporation,
under its corporate seal, any instruments that may be appropriate to effect any
such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined
by resolution of the Board of Directors, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and to act, vote (or execute proxies to vote) and exercise in person or
by proxy all other rights, powers and privileges incident to the ownership of
such stock. Such officers acting on behalf of the Corporation shall have full
power and authority to execute any instrument expressing consent to or dissent
from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation
shall commence on the first day of January of each year (except for the
Corporation's first fiscal
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Kiri Inc.
year which shall commence on the date of incorporation) and shall terminate in
each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular
in form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to the provisions of the
Certificate of Incorporation, these By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors
at any special or regular meeting of the Board if, in the case of such
special meeting only, notice of such amendment, alteration or repeal
is contained in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in
the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice
of such meeting.
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict between
the provisions of these By-Laws as in effect from time to time and the
provisions of the Certificate of Incorporation of the Corporation as in effect
from time to time, the provisions of such Certificate of Incorporation shall be
controlling.
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PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "FRANTIS, INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF
OCTOBER, A.D. 1999, AT 12:30 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
3108374 8100
AUTHENTICATION: 0023378
991432541
DATE: 10-13-99
<PAGE> 290
CERTIFICATE OF INCORPORATION
OF
FRANTIS, INC.
ARTICLE I
NAME OF CORPORATION
The name of the corporation is Frantis, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The Corporation's registered office in the State of Delaware is at
1209 Orange Street, City of Wilmington, County of New Castle, Wilmington,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSE
The nature of the business of the Corporation and its purpose is to
engage in any lawful act or activity for which corporations may be engaged
under the General Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED STOCK
The aggregate number of shares of stock that the Corporation shall
have authority to issue is 1,000 shares of Common Stock, par value $.01 per
share (the "Common Stock").
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ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Shannon Conaty, Esq.
c/o Debevoise & Plimpton
875 Third Avenue
New York, NY 10021
ARTICLE VI
MANAGEMENT OF THE CORPORATION
The following provisions are inserted for the management of the
business, for the conduct of the affairs of the Corporation and for the purpose
of creating, defining, limiting and regulating the powers of the Corporation
and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may be
altered from time to time in the manner provided in the By-Laws, and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors
may be filled, and directors may be removed, as provided in the
By-Laws.
(b) The election of directors may be conducted in any manner approved by
the stockholders at the time when the election is held and need not
be by written ballot.
(c) All corporate powers and authority of the Corporation (except as at
the time otherwise provided by law, by this Certificate of
Incorporation or by the By-Laws) shall be vested in and exercised by
the Board of Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the
By-Laws of the Corporation, except to the extent that the By-Laws or
this Certificate of Incorporation otherwise provide.
(e) No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his or her
fiduciary duty as a
2
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director, provided that nothing contained in this Article shall
eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the General Corporation Law of the State
of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein
conferred upon stockholders or directors are granted subject to this
reservation.
IN WITNESS WHEREOF, I, THE UNDERSIGNED, being the incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, do make and file this
Certificate, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set my hand this 13th day of October, 1999.
/s/ Shannon Conaty
---------------------
Shannon Conaty
3
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==============================================================================
FRANTIS, INC.
BY-LAWS
As Adopted on October 14, 1999
==============================================================================
<PAGE> 294
FRANTIS, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I
STOCKHOLDERS..........................................................................1
Section 1.01. Annual Meetings........................................................1
Section 1.02. Special Meetings.......................................................1
Section 1.03. Notice of Meetings; Waiver.............................................1
Section 1.04. Quorum.................................................................2
Section 1.05. Voting.................................................................2
Section 1.06. Voting by Ballot.......................................................2
Section 1.07. Adjournment............................................................2
Section 1.08. Proxies................................................................2
Section 1.09. Organization; Procedure................................................3
Section 1.10. Consent of Stockholders in Lieu of Meeting.............................3
ARTICLE II
BOARD OF DIRECTORS....................................................................4
Section 2.01. General Powers.........................................................4
Section 2.02. Number and Term of Office..............................................4
Section 2.03. Election of Directors..................................................4
Section 2.04. Annual and Regular Meetings............................................4
Section 2.05. Special Meetings; Notice...............................................4
Section 2.06. Quorum; Voting.........................................................5
Section 2.07. Adjournment............................................................5
Section 2.08. Action Without a Meeting...............................................5
Section 2.09. Regulations; Manner of Acting..........................................5
Section 2.10. Action by Telephonic Communications....................................5
Section 2.11. Resignations...........................................................5
Section 2.12. Removal of Directors...................................................5
Section 2.13. Vacancies and Newly Created Directorships..............................6
Section 2.14. Compensation...........................................................6
Section 2.15. Reliance on Accounts and Reports, etc..................................6
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES..............................................6
Section 3.01. How Constituted........................................................6
Section 3.02. Powers.................................................................6
Section 3.03. Proceedings............................................................7
</TABLE>
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<TABLE>
<S> <C>
Section 3.04. Quorum and Manner of Acting............................................7
Section 3.05. Action by Telephonic Communications....................................8
Section 3.06. Absent or Disqualified Members.........................................8
Section 3.07. Resignations...........................................................8
Section 3.08. Removal................................................................8
Section 3.09. Vacancies..............................................................8
ARTICLE IV
OFFICERS..............................................................................8
Section 4.01. Number.................................................................8
Section 4.02. Election...............................................................8
Section 4.03. Salaries...............................................................8
Section 4.04. Removal and Resignation; Vacancies.....................................9
Section 4.05. Authority and Duties of Officers.......................................9
Section 4.06. The President..........................................................9
Section 4.07. The Secretary..........................................................9
Section 4.08. The Treasurer.........................................................10
Section 4.09. Additional Officers...................................................11
Section 4.10. Security..............................................................11
ARTICLE V
CAPITAL STOCK........................................................................11
Section 5.01. Certificates of Stock, Uncertificated Shares..........................11
Section 5.02. Signatures; Facsimile.................................................12
Section 5.03. Lost, Stolen or Destroyed Certificates................................12
Section 5.04. Transfer of Stock.....................................................12
Section 5.05. Record Date...........................................................12
Section 5.06. Registered Stockholders...............................................13
Section 5.07. Transfer Agent and Registrar..........................................13
ARTICLE VI
INDEMNIFICATION......................................................................13
Section 6.01. Nature of Indemnity...................................................13
Section 6.02. Successful Defense....................................................14
Section 6.03. Determination That Indemnification Is Proper..........................14
Section 6.04. Advance Payment of Expenses...........................................15
Section 6.05. Procedure for Indemnification of Directors and Officers...............15
Section 6.06. Survival; Preservation of Other Rights................................16
Section 6.07. Insurance.............................................................16
Section 6.08. Severability..........................................................16
ARTICLE VII
OFFICES..............................................................................17
Section 7.01. Registered Office.....................................................17
Section 7.02. Other Offices..........................................................17
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII
GENERAL PROVISIONS...................................................................17
Section 8.01. Dividends.............................................................17
Section 8.02. Reserves..............................................................17
Section 8.03. Execution of Instruments..............................................17
Section 8.04. Corporate Indebtedness................................................18
Section 8.05. Deposits..............................................................18
Section 8.06. Checks................................................................18
Section 8.07. Sale, Transfer, etc. of Securities....................................18
Section 8.08. Voting as Stockholder.................................................18
Section 8.09. Fiscal Year...........................................................18
Section 8.10. Seal..................................................................19
Section 8.11. Books and Records; Inspection.........................................19
ARTICLE IX
AMENDMENT OF BY-LAWS.................................................................19
Section 9.01. Amendment.............................................................19
ARTICLE X
CONSTRUCTION.........................................................................19
Section 10.01. Construction.........................................................19
</TABLE>
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Frantis, Inc.
FRANTIS, INC.
BY-LAWS
As adopted on October 14, 1999
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. Subject to Section 1.12 of
these By-Laws, the annual meeting of the stockholders of the Corporation for the
election of directors and for the transaction of such other business as
properly may come before such meeting shall be held at such place, either
within or without the State of Delaware, and at 9:00 a.m. local time on the
fifteenth of May (or, if such day is a legal holiday, then on the next
succeeding business day), or at such other date and hour, as may be fixed from
time to time by resolution of the Board of Directors and set forth in the
notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the
stockholders may be called at any time by the President (or, in the event of
his or her absence or disability, by any Vice President), or by the Board of
Directors. A special meeting shall be called by the President (or, in the event
of his or her absence or disability, by any Vice President), or by the
Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within twenty days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or without the State
of Delaware, as shall be specified in the respective notices or waivers of
notice thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or
any Assistant Secretary shall cause written notice of the place, date and hour
of each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
or her address as it appears on the record of stockholders of the Corporation,
or, if he or she shall have filed with the Secretary of the Corporation a
written request that notices to him or her be mailed to some other address,
then directed to him or her at such other address. Such further notice shall
be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the
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Frantis, Inc.
stockholders need be specified in a written waiver of notice. The attendance of
any stockholder at a meeting of stockholders shall constitute a waiver of
notice of such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 1.04. Quorum. Except as otherwise required by law or
by the Certificate of Incorporation, the presence in person or by proxy of the
holders of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these
By-Laws, a record date has been fixed, every holder of record of shares
entitled to vote at a meeting of stockholders shall be entitled to one vote for
each share outstanding in his or her name on the books of the Corporation at
the close of business on such record date. If no record date has been fixed,
then every holder of record of shares entitled to vote at a meeting of
stockholders shall be entitled to one vote for each share of stock standing in
his or her name on the books of the Corporation at the close of business on the
day next preceding the day on which notice of the meeting is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. Except as otherwise required by law or by the
Certificate of Incorporation or by these By-Laws, the vote of a majority of the
shares represented in person or by proxy at any meeting at which a quorum is
present shall be sufficient for the transaction of any business at such
meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders
need be taken by written ballot unless otherwise required by law. Any vote
which need not be taken by ballot may be conducted in any manner approved by
the meeting.
Section 1.07. Adjournment. If a quorum is not present at any
meeting of the stockholders, the stockholders present in person or by proxy
shall have the power to adjourn any such meeting from time to time until a
quorum is present. Notice of any adjourned meeting of the stockholders of the
Corporation need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if
the adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of
these By-Laws, a notice of the adjourned meeting, conforming to the
requirements of Section 1.03 of these By-Laws, shall be given to each
stockholder of record entitled to vote at such meeting. At any adjourned
meeting at which a quorum is present, any business may be transacted that might
have been transacted on the original date of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at
any meeting of the stockholders or to express consent to or dissent from
corporate action in writing without a meeting may authorize another person or
persons to vote at any such meeting and express such consent or dissent for him
or her by proxy. A stockholder may authorize a valid proxy by executing a
written instrument signed by such stockholder, or by causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature, or by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
to the person designated
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as the holder of the proxy, a proxy solicitation firm or a like authorized
agent. No such proxy shall be voted or acted upon after the expiration of three
years from the date of such proxy, unless such proxy provides for a longer
period. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where applicable law provides that a proxy
shall be irrevocable. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by filing another duly executed
proxy bearing a later date with the Secretary. Proxies by telegram, cablegram
or other electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President or, in the event of
his or her absence or disability, a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The Secretary, or in the event
of his or her absence or disability, the Assistant Secretary, if any, or if
there be no Assistant Secretary, in the absence of the Secretary, an appointee
of the presiding officer, shall act as Secretary of the meeting. The order of
business and all other matters of procedure at every meeting of stockholders
may be determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To
the fullest extent permitted by law, whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted (but not less than the minimum
number of votes otherwise prescribed by law) and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by law to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
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ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be
provided by law, by the Certificate of Incorporation or by these By-Laws, the
property, affairs and business of the Corporation shall be managed by or under
the direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation.
Section 2.02. Number and Term of Office. The number of
Directors constituting the entire Board of Directors shall be two, which number
may be modified from time to time by resolution of the Board of Directors, but
in no event shall the number of Directors be less than one. Each Director
(whenever elected) shall hold office until his or her successor has been duly
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 2.03. Election of Directors. Except as otherwise
provided in Sections 2.12 and 2.13 of these By-Laws, the Directors shall be
elected at each annual meeting of the stockholders. If the annual meeting for
the election of Directors is not held on the date designated therefor, the
Directors shall cause the meeting to be held as soon thereafter as convenient.
At each meeting of the stockholders for the election of Directors, provided a
quorum is present, the Directors shall be elected by a plurality of the votes
validly cast in such election.
Section 2.04. Annual and Regular Meetings. The annual meeting
of the Board of Directors for the purpose of electing officers and for the
transaction of such other business as may come before the meeting shall be held
as soon as possible following adjournment of the annual meeting of the
stockholders at the place of such annual meeting of the stockholders. Notice of
such annual meeting of the Board of Directors need not be given. The Board of
Directors from time to time may by resolution provide for the holding of
regular meetings and fix the place (which may be within or without the State of
Delaware) and the date and hour of such meetings. Notice of regular meetings
need not be given, provided, however, that if the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action shall
be mailed promptly, or sent by telegram, radio or cable, to each Director who
shall not have been present at the meeting at which such action was taken,
addressed to him or her at his or her usual place of business, or shall be
delivered to him or her personally. Notice of such action need not be given to
any Director who attends the first regular meeting after such action is taken
without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting.
Section 2.05. Special Meetings; Notice. Special meetings of
the Board of Directors shall be held whenever called by the President or, in
the event of his or her absence or disability, by any Vice President, at such
place (within or without the State of Delaware), date and hour as may be
specified in the respective notices or waivers of notice of such meetings.
Special meetings of the Board of Directors may be called on twenty-four hours'
notice, if notice is given to each Director personally or by telephone or
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telegram, or on five days' notice, if notice is mailed to each Director,
addressed to him or her at his or her usual place of business. Notice of any
special meeting need not be given to any Director who attends such meeting
without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be
transacted thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 2.07. Adjournment. A majority of the Directors
present, whether or not a quorum is present, may adjourn any meeting of the
Board of Directors to another time or place. No notice need be given of any
adjourned meeting unless the time and place of the adjourned meeting are not
announced at the time of adjournment, in which case notice conforming to the
requirements of Section 2.05 of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Certificate of Incorporation and these
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of
the Board of Directors may participate in a meeting of the Board of Directors
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.11. Resignations. Any Director may resign at any
time by delivering a written notice of resignation, signed by such Director, to
the President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be
removed at any time, either for or without cause, upon the affirmative vote of
the holders of a majority of the outstanding shares of stock of the Corporation
entitled to vote for the election of such Director. Any vacancy in the Board of
Directors caused by any such removal may be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed. If
such stockholders do not fill such vacancy at such meeting (or in the
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written instrument effecting such removal, if such removal was effected by
consent without a meeting), such vacancy may be filled in the manner provided
in Section 2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If
any vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and
such vacancies and newly created directorships may be filled by a majority of
the Directors then in office, although less than a quorum. A Director elected
to fill a vacancy or a newly created directorship shall hold office until his
or her successor has been elected and qualified or until his or her earlier
death, resignation or removal. Any such vacancy or newly created directorship
may also be filled at any time by vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each
Director shall be entitled to receive as compensation for his or her services
as such shall be fixed from time to time by resolution of the Board of
Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A
Director, or a member of any Committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying
in good faith upon the records of the Corporation and upon information,
opinions, reports or statements presented to the Corporation by any of the
Corporation's officers or employees, or Committees designated by the Board of
Directors, or by any other person as to the matters the member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors may
designate one or more Committees, including an Executive Committee, each such
Committee to consist of such number of Directors as from time to time may be
fixed by the Board of Directors. The Board of Directors may designate one or
more Directors as alternate members of any such Committee, who may replace any
absent or disqualified member or members at any meeting of such Committee.
Thereafter, members (and alternate members, if any) of each such Committee may
be designated at the annual meeting of the Board of Directors. Any such
Committee may be abolished or re-designated from time to time by the Board of
Directors. Each member (and each alternate member) of any such Committee
(whether designated at an annual meeting of the Board of Directors or to fill a
vacancy or otherwise) shall hold office until his or her successor shall have
been designated or until he or she shall cease to be a Director, or until his
or her earlier death, resignation or removal.
Section 3.02. Powers. During the intervals between the
meetings of the Board of Directors, the Executive Committee, except as
otherwise provided in this section, shall have and may exercise all the powers
and authority of the Board of Directors
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in the management of the property, affairs and business of the Corporation,
including the power to declare dividends and to authorize the issuance of
stock. Each such other Committee, except as otherwise provided in this section,
shall have and may exercise such powers of the Board of Directors as may be
provided by resolution or resolutions of the Board of Directors. Neither the
Executive Committee nor any such other Committee shall have the power or
authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution,
any distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes
of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any
series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
Section 3.03. Proceedings. Each such Committee may fix its
own rules of procedure and may meet at such place (within or without the State
of Delaware), at such time and upon such notice, if any, as it shall determine
from time to time. Each such Committee shall keep minutes of its proceedings
and shall report such proceedings to the Board of Directors at the meeting of
the Board of Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings
of any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute
a quorum for the transaction of business. The act of the majority of the
members present at any meeting at which a quorum is present shall be the act of
such Committee. Any action required or permitted to be taken at any meeting of
any such Committee may be taken without a meeting, if all members of such
Committee shall consent to such action in writing and such writing or writings
are filed with the minutes of the proceedings of the Committee. The members of
any such
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Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. Action by Telephonic Communications. Members of
any Committee designated by the Board of Directors may participate in a meeting
of such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence
or disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate
member) of any Committee may resign at any time by delivering a written notice
of resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member)
of any Committee may be removed from his or her position as a member (or
alternate member, as the case may be) of such Committee at any time, either for
or without cause, by resolution adopted by a majority of the whole Board of
Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall
be chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors also may elect one or more Assistant
Secretaries and Assistant Treasurers in such numbers as the Board of Directors
may determine. Any number of offices may be held by the same person. No officer
need be a Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the
Board of Directors, the officers of the Corporation shall be elected by the
Board of Directors at the annual meeting of the Board of Directors, and shall
be elected to hold office until the next succeeding annual meeting of the Board
of Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his or her successor has
been elected and qualified, or until his or her earlier death, resignation or
removal.
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Section 4.03. Salaries. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer
may be removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers
of the Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law.
Section 4.06. The President. The President shall preside at
all meetings of the stockholders and directors at which he or she is present,
shall be the chief executive officer and the chief operating officer of the
Corporation, shall have general control and supervision of the policies and
operations of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He or she shall manage and
administer the Corporation's business and affairs and shall also perform all
duties and exercise all powers usually pertaining to the office of a chief
executive officer and a chief operating officer of a corporation. He or she
shall have the authority to sign, in the name and on behalf of the Corporation,
checks, orders, contracts, leases, notes, drafts and other documents and
instruments in connection with the business of the Corporation, and together
with the Secretary or an Assistant Secretary, conveyances of real estate and
other documents and instruments to which the seal of the Corporation is
affixed. He or she shall have the authority to cause the employment or
appointment of such employees and agents of the Corporation as the conduct of
the business of the Corporation may require, to fix their compensation, and to
remove or suspend any employee or agent elected or appointed by the President
or the Board of Directors. The President shall perform such other duties and
have such other powers as the Board of Directors or the Chairman may from time
to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the
following powers and duties:
(a) He or she shall keep or cause to be kept a record of all
the proceedings of the meetings of the stockholders and of the Board
of Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-Laws and as required by
law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy
of such resolution to the members of such Committee.
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(d) He or she shall be the custodian of the records and of
the seal of the Corporation and cause such seal (or a facsimile
thereof) to be affixed to all certificates representing shares of the
Corporation prior to the issuance thereof and to all instruments the
execution of which on behalf of the Corporation under its seal shall
have been duly authorized in accordance with these By-Laws, and when
so affixed he or she may attest the same.
(e) He or she shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and
ledgers of the Corporation and shall cause the stock and transfer
books to be kept in such manner as to show at any time the number of
shares of stock of the Corporation of each class issued and
outstanding, the names (alphabetically arranged) and the addresses of
the holders of record of such shares, the number of shares held by
each holder and the date as of which each became such holder of
record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall
have been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident
to the office of secretary and such other duties as may be specified
in these By-Laws or as may be assigned to him or her from time to time
by the Board of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the
chief financial officer of the Corporation and shall have the following powers
and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable
effects of the Corporation to be deposited in the name and to the
credit of the Corporation in such banks or trust companies or with
such bankers or other depositaries as shall be selected in accordance
with Section 8.05 of these By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys
disbursed.
(d) He or she shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition
of the Corporation and
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of all his or her transactions as Treasurer, and render a full
financial report at the annual meeting of the stockholders, if called
upon to do so.
(e) He or she shall be empowered from time to time to require
from all officers or agents of the Corporation reports or statements
giving such information as he or she may desire with respect to any
and all financial transactions of the Corporation.
(f) He or she may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(g) He or she shall perform, in general, all duties incident
to the office of treasurer and such other duties as may be specified
in these By-Laws or as may be assigned to him or her from time to time
by the Board of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer
or agent appointed by him or her, for or without cause.
Section 4.10. Security. The Board of Directors may require
any officer, agent or employee of the Corporation to provide security for the
faithful performance of his or her duties, in such amount and of such character
as may be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.
The shares of the Corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until each certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock in the Corporation represented by certificates
and upon request every holder of uncertificated shares shall be entitled to
have a certificate signed by, or in the name of the Corporation, by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. Such certificate shall be
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in such form as the Board of Directors may determine, to the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures
on the certificate referred to in Section 5.01 of these By-Laws may be a
facsimile, engraved or printed, to the extent permitted by law. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares, duly endorsed or accompanied by appropriate evidence of succession,
assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books. Within a reasonable time after the
transfer of uncertificated stock, the Corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a)
of the General Corporation Law of the State of Delaware. Subject to the
provisions of the Certificate of Incorporation and these By-Laws, the Board of
Directors may prescribe such additional rules and regulations as it may deem
appropriate relating to the issue, transfer and registration of shares of the
Corporation.
Section 5.05. Record Date. In order to determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted by the Board of Directors, and which shall
not be more than sixty nor less than ten days before the date of such meeting.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is
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adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender
of a certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so ex pressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of
Directors may appoint one or more transfer agents and one or more registrars,
and may require all certificates representing shares to bear the signature of
any such transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or
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investigative, by reason of the fact that he or she is or was or has agreed to
become a director or officer of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a director or officer, of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
and may indemnify any person who was or is a party or is threatened to be made
a party to such an action, suit or proceeding by reason of the fact that he or
she is or was or has agreed to become an employee or agent of the Corporation,
or is or was serving or has agreed to serve at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall
be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit,
and (2) no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Notwithstanding the foregoing, but subject to Section
6.05 of these By-Laws, the Corporation shall not be obligated to indemnify a
director or officer of the Corporation in respect of a Proceeding (or part
thereof) instituted by such director or officer, unless such Proceeding (or
part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a
present or former director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 6.01 of these By-Laws or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 6.03. Determination That Indemnification Is Proper.
Any indemnification of a present or former director or officer of the
Corporation under Section 6.01 of these By-Laws (unless ordered by a court)
shall be made by the Corporation only upon a determination that indemnification
of such person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 6.01
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of these By-Laws. Any indemnification of a present or former employee or agent
of the Corporation under Section 6.01 of these By-Laws (unless ordered by a
court) may be made by the Corporation upon a determination that indemnification
of the employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Section 6.01 of these
By-Laws. Any such determination shall be made, with respect to a person who is
a director or officer at the time of such determination (1) by a majority vote
of the Directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses
(including attorneys' fees) incurred by a present director or officer in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation as authorized in this Article. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the Corporation deems
appropriate. The Corporation, or in respect of a present director or officer
the Board of Directors, may authorize the Corporation's counsel to represent
such present or former director, officer, employee or agent in any action, suit
or proceeding, whether or not the Corporation is a party to such action, suit
or proceeding.
Section 6.05. Procedure for Indemnification of Directors and
Officers. Any indemnification of a director, officer, employee or agent of the
Corporation under Sections 6.01 and 6.02 of these By-Laws, or advance of costs,
charges and expenses to such person under Section 6.04 of these By-Laws, shall
be made promptly, and in any event within thirty days, upon the written request
of such person. If a determination by the Corporation that such person is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within thirty days, the right to indemnification or advances as
granted by this Article shall be enforceable by such person in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce
a claim for the advance of costs, charges and expenses under Section 6.04 of
these By-Laws where the required undertaking, if any, has been received by or
tendered to the Corporation) that the claimant has not met the standard of
conduct set forth in Section 6.01 of these By-Laws, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in
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Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in
any such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 6.07. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was or has agreed to
become a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her or on his or her behalf
in any such capacity, or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article, provided that such insurance is
available on acceptable terms, which determination shall be made by a vote of a
majority of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director
or officer and may indemnify each employee or agent of the Corporation as to
costs, charges and expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action
by or in the right of the Corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.
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ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain
offices or places of business at such other locations within or without the
State of Delaware as the Board of Directors may from time to time determine or
as the business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions
of law and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any
Committee designated by the Board of Directors shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by
any of its officers or employees, or Committees of the Board of Directors, or
by any other person as to matters the Director reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation, as to the value and
amount of the assets, liabilities and/or net profits of the Corporation, or any
other facts pertinent to the existence and amount of surplus or other funds
from which dividends might properly be declared and paid.
Section 8.02. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any
such reserve.
Section 8.03. Execution of Instruments. The President, any
Vice President, the Secretary or the Treasurer may enter into any contract or
execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors or the President may authorize any other
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the
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Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be
contracted on behalf of the Corporation, and no evidence of indebtedness shall
be issued in its name, unless authorized by the Board of Directors or the
President. Such authorization may be general or confined to specific instances.
Loans so authorized may be effected at any time for the Corporation from any
bank, trust company or other institution, or from any firm, corporation or
individual. All bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or the President shall authorize. When
so authorized by the Board of Directors or the President, any part of or all
the properties, including contract rights, assets, business or good will of the
Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other
depositaries as may be determined by the Board of Directors or the President,
or by such officers or agents as may be authorized by the Board of Directors or
the President to make such determination.
Section 8.06. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
agent or agents of the Corporation, and in such manner, as the Board of
Directors or the President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the
extent authorized by the Board of Directors or by the President, any Vice
President, the Secretary or the Treasurer or any other officers designated by
the Board of Directors or the President may sell, transfer, endorse, and assign
any shares of stock, bonds or other securities owned by or held in the name of
the Corporation, and may make, execute and deliver in the name of the
Corporation, under its corporate seal, any instruments that may be appropriate
to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise
determined by resolution of the Board of Directors, the President or any Vice
President shall have full power and authority on behalf of the Corporation to
attend any meeting of stockholders of any corporation in which the Corporation
may hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation
shall have full power and authority to execute any instrument expressing
consent to or dissent from any action of any such corporation without a
meeting. The Board of Directors may by resolution from time to time confer such
power and authority upon any other person or persons.
Section 8.09. Fiscal Year. The fiscal year of the
Corporation shall commence on the first day of January of each year (except for
the Corporation's first fiscal
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year which shall commence on the date of incorporation) and shall terminate in
each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the
extent otherwise required by law, the books and records of the Corporation
shall be kept at such place or places within or without the State of Delaware
as may be determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 9.01. Amendment. Subject to the provisions of the
Certificate of Incorporation, these By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting; or
(b) at any regular or special meeting of the stockholders if,
in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice
of such meeting.
ARTICLE X
CONSTRUCTION
Section 10.01. Construction. In the event of any conflict
between the provisions of these By-Laws as in effect from time to time and the
provisions of the Certificate of Incorporation of the Corporation as in effect
from time to time, the provisions of such Certificate of Incorporation shall be
controlling.
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EXHIBIT B TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 317
Exhibit B to the
Merger Agreement
Regional Vehicle ("RV") Board Policy
Corporate Opportunities. AT&T Corp. and its non-RV affiliates
(an "AT&T Entity") and persons affiliated with them shall only be required to
make a corporate opportunity available to RV if the corporate opportunity:
-- directly relates to the Territory (as defined in the Regional
Vehicle Agreement, between AT&T Corp. and RV (a form of which is
attached to the Agreement and Plan of Merger, dated November 1,
1999, among AT&T Corp., Kiri Inc., Frantis Inc. and FirstCom
Corporation)(the "Regional Vehicle Agreement")),
-- directly relates to the provision of RV Services (as defined in
the Regional Vehicle Agreement),
-- can, in the good faith judgment of AT&T Corp., be financed by the
RV without issuance of additional debt or equity to an AT&T Entity,
and
-- has been presented to (1) an RV officer or director who is not an
employee, officer or director of an AT&T Entity, (2) an RV officer
or director, who is also an employee (but not an officer or
director) of an AT&T Entity, (3) an RV officer or director, who is
also an officer or director of an AT&T Entity specifically in his
capacity as an officer of director of the RV or (4) a senior AT&T
employee specifically for consideration by the RV.
AT&T may consider all other opportunities as the province of AT&T
Entities. The AT&T Entities will be free to pursue, or to direct to other
Persons, corporate opportunities presented to the RV pursuant to this Board
Policy, which the RV determines not to pursue.
This Board Policy may not be amended except with the approval of a
majority of the Disinterested Directors (as such term is defined in the Bylaws
of RV).
<PAGE> 318
EXHIBIT C-1 TO AGREEMENT
AND PLAN OF MERGER
<PAGE> 319
Exhibit C-1 to Agreement
and Plan of Merger
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
KIRI INC.
-------------
ARTICLE FIRST
Name of Corporation
The name of the corporation is AT&T Latin America, Inc. (the "Corporation").
ARTICLE SECOND
Registered Office and Registered Agent
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE THIRD
Purpose
The purpose of the Corporation is to engage in the business of
providing telecommunications services and related or incidental activities in
the Territory. "Territory" means Antigua and Barbuda, Argentina, Bahamas,
Barbados, Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic,
Ecuador, Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint Lucia,
Saint Vincent and the Grenadines, Suriname, St. Kitts and Nevis, Trinidad and
Tobago, Uruguay and Venezuela.
<PAGE> 320
ARTICLE FOURTH
Capital Stock
A. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 450,000,000 shares consisting
of: (1) 300,000,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), (2) 150,000,000 shares of Class B Common Stock,
par value $.01 per share (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Common Stock") and (3) 10,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). Except as
otherwise provided herein, the number of authorized shares of Class A Common
Stock, Class B Common Stock or Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding or reserved for
issuance upon reclassification or conversion of the Class B Common Stock or any
series of Preferred Stock, or upon the exercise of outstanding options,
warrants or other instruments or securities outstanding from time to time that
are convertible into, or exchangeable for Common Stock or Preferred Stock) by
the affirmative vote of a majority of the combined voting power of outstanding
shares of capital stock of the Corporation entitled to vote thereon, voting as
a single class irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of the State of Delaware (or any successor provision
thereto). This paragraph A of Article FOURTH shall not in any way limit the
provisions of Section 242(b)(1) of the General Corporation Law of the State of
Delaware other than with respect to the elimination of any class vote that
would otherwise be required pursuant to Section 242(b)(2).
B. The Board of Directors shall have the full authority permitted by
law, at any time and from time to time, to provide for the issuance of shares
of Preferred Stock in one or more series and to determine by resolution or
resolutions the following provisions, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions, of the shares of any such series
of Preferred Stock:
(1) the designation of such series (which may be by distinguishing
number, letter or title), the number of shares to constitute such series
(which number the Board of Directors may thereafter increase or decrease
(but not below the number of shares thereof then outstanding) and the
stated or liquidation value thereof, if different from the par value
thereof;
(2) whether the shares of such series shall have voting rights in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be full or limited;
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(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of any other class of capital stock or any other series of
Preferred Stock;
(4) whether the shares of such series shall be subject to redemption
at the election of the Corporation or the holders of such series, or upon
the occurrence of a specified event and, if so, the times, prices and
other terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be
redeemed and the securities or other property payable on such redemption,
if any;
(5) the amount or amounts payable on, if any, and the preferences,
if any, of shares of such series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement or
other corporate purposes and the terms and provisions relative to the
operation thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class of capital stock or any other
series of Preferred Stock or any other securities (whether or not issued
by the Corporation) and, if so, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends
or the making of other distributions on, or upon the purchase, redemption
or other acquisition by the Corporation of, the Common Stock or shares of
any other class of capital stock or any other series of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
stock, including additional shares of any other series of Preferred Stock
or of any other class of capital stock;
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(10) the ranking (be it pari passu, junior or senior) of each series
vis-a-vis any other class of capital stock or series of Preferred Stock
as to the payment of dividends, the distribution of assets and all other
matters; and
(11) any other powers, preferences and relative, participating,
optional or other special rights, and any qualifications, limitations or
restrictions of such series of Preferred Stock, insofar as they are not
inconsistent with the provisions of this Certificate of Incorporation, to
the full extent permitted in accordance with the General Corporation Law
of the State of Delaware.
C. The powers, preferences and relative, participating, optional or
other special rights, if any, of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series of Preferred Stock at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
D. Subject to the other provisions of this Article FOURTH and
actions taken by the Board of Directors pursuant to this Article FOURTH:
(1) The holders of shares of Class A Common Stock and Class B Common
Stock shall be entitled to receive such dividends or other distributions
payable in cash, capital stock or otherwise, when, as and if declared by
the Board of Directors at any time or from time to time, out of funds
legally available for the payment thereof, and shall share equally on a
per share basis in all such dividends or other distributions. No dividend
or other distribution may be declared or paid on any share of Class A
Common Stock unless a like dividend or other distribution is
simultaneously declared or paid, as the case may be, on each share of
Class B Common Stock, nor shall any dividend or other distribution be
declared or paid on any share of Class B Common Stock unless a like
dividend or other distribution is simultaneously declared or paid, as the
case may be, on each share of Class A Common Stock, in each case without
preference or priority of any kind; provided, however, that if a dividend
or other distribution payable in shares of any class of Common Stock or
in rights, options, warrants or other securities convertible into or
exchangeable or exercisable for shares of Common Stock shall be declared
with respect to the Common Stock, the dividend or other distribution
payable to holders of Class A Common Stock shall be payable in shares of
Class A Common Stock or in rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Class A
Common Stock, as the case may be, and the dividend or other distribution
payable to holders of Class B Common Stock shall be payable in shares of
Class A Common Stock or in rights,
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options, warrants or other securities convertible into or exchangeable or
exercisable for shares of Class A Common Stock, as the case may be.
Neither the shares of Class A Common Stock nor the shares of Class B
Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in
the same proportion for each class of Common Stock.
(2) Except as may be designated by the Board of Directors with
respect to any Preferred Stock issued by the Corporation, the voting
power of the Corporation shall be exclusively vested in the Common Stock.
(3) Holders of Preferred Stock and holders of Common Stock shall not
have any preemptive, preferential or other right to subscribe for or
purchase or acquire any shares of any class or series of capital stock or
any other securities of the Corporation, whether now or hereafter
authorized, and whether or not convertible into, or evidencing or
carrying the right to purchase, shares of any class or series of capital
stock or any other securities now or hereafter authorized and whether the
same shall be issued for cash, services or property, or by way of
dividend or otherwise, other than such right, if any, as the Board of
Directors in its discretion from time to time may determine. If the Board
of Directors shall offer to the holders of the Preferred Stock or the
holders of the Common Stock, or any of them, any such shares or other
securities of the Corporation, such offer shall not in any way constitute
a waiver or release of the right of the Board of Directors subsequently
to dispose of other portions of said shares or securities without so
offering the same to said holders.
(4) The shares of Preferred Stock may be issued for such
consideration and for such corporate purposes as the Board of Directors
may from time to time determine.
(5) The powers, preferences and relative, participating, optional or
other special rights, if any, and any qualifications, limitations or
restrictions with respect to Class A Common Stock and Class B Common
Stock shall be in all respects identical, except as otherwise required by
law or expressly provided in this Certificate of Incorporation.
(6) With respect to all matters upon which holders of Common Stock
are entitled to vote or to which holders of Common Stock are entitled to
give consent, except as may be provided in this Certificate of
Incorporation or by applicable law, every holder of Class A Common Stock
shall be entitled to cast thereon one vote in person or by proxy for each
share of Class A Common Stock standing in such holder's name on the
transfer books of the Corporation, and every holder of Class B Common
Stock shall be entitled to cast thereon ten votes in person or by proxy
for each share
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of Class B Common Stock standing in such holder's name on the transfer
books of the Corporation. Except as otherwise required by law or as
otherwise provided in this Certificate of Incorporation, the holders of
Class A Common Stock and Class B Common Stock shall vote together as a
single class, subject to any voting rights which may be granted to
holders of any outstanding Preferred Stock, on all matters submitted to a
vote of stockholders of the Corporation.
E. In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, and subject to
the rights of the holders of any series of Preferred Stock, the net assets of
the Corporation available for distribution to stockholders of the Corporation
shall be distributed pro rata to the holders of Common Stock in accordance with
their respective rights and interests and shares of Class B Common Stock shall
rank pari passu with shares of Class A Common Stock as to such distribution.
For purposes of this paragraph E of Article FOURTH, the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of capital stock,
securities or other consideration) of all or substantially all the assets of
the Corporation or a consolidation, merger or other restructuring of the
corporation with or into one or more other corporations or other entities
(whether or not the Corporation is the corporation surviving such
consolidation, merger or other restructuring) shall not be deemed to be a
liquidation, dissolution or winding up of the affairs of the Corporation.
F. (1) Each share of Class B Common Stock is convertible while held
by the Original Class B Holder (as defined below), at the option of the holder
thereof and in the manner described below, into one share of Class A Common
Stock, subject to adjustment as provided in paragraph F(1)(b) of this Article
FOURTH and subject to the conditions and limitations described below:
(a) In order to voluntarily convert shares of Class B Common Stock
into shares of Class A Common Stock pursuant to this paragraph F(l) of
Article FOURTH, the holder thereof shall deliver to the office of the
Secretary of the Corporation (or at such additional place or places as
may from time to time be designated by the Secretary of the Corporation)
(the "Office of the Corporation") (i) the certificate or certificates
representing the shares of Class B Common Stock to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer and,
if required by paragraph F(9) of this Article FOURTH, by any required tax
transfer stamps and (ii) written notice (the "Conversion Notice") to the
Corporation that such holder elects to convert such shares of Class B
Common Stock into shares of Class A Common Stock and stating the name and
address in which each certificate representing shares of Class A Common
Stock issued upon such conversion is to be issued. To the extent
permitted by law, such voluntary conversion shall be deemed to have been
effected at the close of business on the date when such delivery is made
to
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the Office of the Corporation of the certificate representing the shares
to be converted together with the Conversion Notice, and the person
exercising such voluntary conversion shall be treated for all purposes as
the holder of the number of shares of Class A Common Stock issuable upon
such voluntary conversion at such time; provided, however, that, subject
to paragraph F(6) of this Article FOURTH, such holder shall be entitled
to receive, when paid, any dividends or other distributions declared on
Class B Common Stock with a record date preceding the time of such
voluntary conversion and unpaid as of the time of such voluntary
conversion. Following a voluntary conversion, the Corporation shall
promptly issue and deliver, or cause to be issued and delivered, a
certificate or certificates representing the number of fully paid and
nonassessable shares of Class A Common Stock into which the shares of
Class B Common Stock formerly represented by such certificate has been
converted at the address set forth in the Conversion Notice.
(b) If there occurs any capital reorganization or any
reclassification of the capital stock of the Corporation (other than a
reclassification, subdivision or combination described in paragraph D(l)
of this Article FOURTH or pursuant to a merger, consolidation or other
restructuring referred to in paragraph G of this Article FOURTH), each
share of Class B Common Stock shall thereafter be convertible into, in
lieu of one share of Class A Common Stock, the same kind and amount of
securities or other assets, or both, that were issuable or distributable
to the holders of shares of outstanding Class A Common Stock upon such
reorganization or reclassification with respect to that number of shares
of Class A Common Stock into which such share of Class B Common Stock
would have been converted had such share of Class B Common Stock been
converted into Class A Common Stock immediately prior to such
reorganization or reclassification.
The "Original Class B Holder" shall mean AT&T Corp., a New York
corporation (including any successor thereof) or any one or more persons or
entities, other than the Corporation, in which AT&T Corp. beneficially owns,
directly or indirectly, 50 percent or more of the outstanding voting stock,
voting power or similar voting interests ("AT&T Parties").
(2) Except as otherwise provided in this paragraph F(2) of Article
FOURTH, upon the sale or other transfer (whether by merger, operation of law or
otherwise) by a stockholder of the Corporation of shares of Class B Common
Stock such that any person or persons, other than the Original Class B Holder,
shall have beneficial ownership thereof, including pursuant to any private
placement or public sale of such shares (including a public offering registered
under the Securities Act of 1933, as amended, and/or a sale pursuant to Rule
144 or Rule 144A under the Securities Act of 1933, as amended, or any similar
rule then in force), such shares shall automatically convert into an
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equal number of shares of Class A Common Stock without any further action on
the part of the Corporation or any other person, and the certificates
representing such shares of Class B Common Stock shall thereafter be deemed to
represent shares of Class A Common Stock. For purposes of this paragraph F of
Article FOURTH, (i) "beneficial ownership" shall mean control, directly or
indirectly, through record ownership or any contract, arrangement,
understanding, relationship or otherwise, of the voting power (which includes
the power to vote or to direct the voting of such shares, except where such
power arises solely from a revocable proxy or consent given in response to a
proxy or consent solicitation) of such Class B Common Stock, (ii) a "person"
shall mean a corporation, trust, limited liability company, association,
partnership, joint venture, organization, business, individual, government (or
subdivision thereof), governmental agency or other legal entity and (iii) the
term "transfer" shall not include a bona fide unforeclosed pledge.
Immediately upon any automatic conversion of shares of Class B
Common Stock into shares of Class A Common Stock pursuant to this Article
FOURTH, the rights of the holders of such converted shares of Class B Common
Stock as such shall cease and such holders shall be treated for all purposes as
having become holders of the shares of Class A Common Stock issuable upon such
conversion; provided, however, that, subject to paragraph F(6) of this Article
FOURTH, such holders shall be entitled to receive, when paid, any dividends or
other distributions declared on Class B Common Stock with a record date
preceding the time of such automatic conversion and unpaid as of the time of
such automatic conversion.
As promptly as practicable on or after the date of any conversion of
shares of Class B Common Stock into shares of Class A Common Stock pursuant to
this Article FOURTH, upon the delivery to the Corporation of a certificate
formerly representing shares of Class B Common Stock, the Corporation shall
issue and deliver or cause to be delivered, to or upon the written order of the
holder of the surrendered certificate formerly representing shares of Class B
Common Stock, a certificate or certificates representing the number of fully
paid and nonassessable shares of Class A Common stock into which the shares of
Class B Common Stock formerly represented by such certificate have been
converted in accordance herewith.
(3) Holders of shares of Class B Common Stock may (A) sell or
otherwise dispose of or transfer any or all of such shares held by them,
respectively, only in connection with a transfer which meets the qualifications
of paragraph F(4) of this Article FOURTH, and under no other circumstances, or
(B) convert any or all of such shares into shares of Class A Common Stock, as
provided in paragraph F(1) of this Article FOURTH, for the purpose of effecting
the sale or disposition of such shares of Class A Common Stock to any person.
No person other than the Original Class B Holder (including any
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transferees or successive transferees who receive shares of Class B Common
Stock in connection with a transfer which meets the qualifications set forth in
paragraph F(4) of this Article FOURTH), shall by virtue of the acquisition of a
certificate for shares of Class B Common Stock have the status of an owner or
holder of shares of Class B Common Stock or be recognized as such by the
Corporation or be otherwise entitled to enjoy for such person's own benefit the
special rights and powers of a holder of shares of Class B Common Stock.
(4) Shares of Class B Common Stock shall be transferred on the books
of the Corporation, and a new certificate or certificates issued therefor, upon
presentation for transfer at the Office of the Corporation of the certificate
for such shares, in proper form for transfer and accompanied by all requisite
stock transfer tax stamps, only if such certificate when so presented shall
also be accompanied by an affidavit from AT&T Corp. stating that such
certificate is being presented to effect a transfer by one AT&T Party of such
shares to another AT&T Party.
Each affidavit of AT&T Corp. furnished pursuant to paragraph F(4) of
this Article FOURTH shall be verified by an officer of AT&T Corp. as of a date
not earlier than five days prior to the date of delivery thereof.
If a holder of shares of Class B Common Stock shall present a
certificate for such shares, endorsed by said holder for transfer or
accompanied by an instrument of transfer signed by said holder, to a person who
receives such shares in connection with a transfer which does not meet the
qualifications set forth in paragraph F(4) of this Article FOURTH, then such
shares shall automatically convert into an equal number of shares of Class A
Common Stock in accordance with paragraph F(2) of this Article FOURTH.
If the Board of Directors (or any committee of the Board of
Directors or officer of the Corporation, designated for such purpose by the
Board of Directors) shall determine, upon the basis of facts not disclosed in
any affidavit or other document accompanying the certificate for shares of
Class B Common Stock when presented for transfer, that such shares of Class B
Common Stock have been registered in violation of the provisions of paragraph
F(4) of this Article FOURTH, or shall determine that a person is enjoying for
such person's own benefit the special rights and powers of shares of Class B
Common Stock in violation of such provisions, then the Corporation shall take
such action at law or in equity as is appropriate under the circumstances. A
bona fide unforeclosed pledge of shares of Class B Common Stock shall not be
deemed to violate such provisions; provided that such shares shall not be voted
by or registered in the name of the pledgee.
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(5) Each certificate for shares of Class B Common Stock shall bear a
legend on the face thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate
may not be transferred to any person in connection with a transfer that
does not meet the qualifications set forth in paragraph F(4) of Article
FOURTH of the Restated Certificate of Incorporation, as amended, of this
corporation. Any person who receives such shares in connection with a
transfer which does not meet the qualifications prescribed by paragraph
F(4) of Article FOURTH is not entitled to own or to be registered as the
holder of such shares of Class B Common Stock, and such shares of Class B
Common Stock shall automatically convert into an equal number of shares
of Class A Common Stock. Each holder of this certificate, by accepting
the same, accepts and agrees to all of the foregoing."
(6) If (i) any dividend or other distribution has been declared with
respect to shares of Class B Common Stock which will be converted into shares
of Class A Common Stock pursuant to the provisions of this paragraph F of
Article FOURTH, (ii) the record date or payment date therefor will be
subsequent to such conversion and (iii) such dividend or other distribution was
declared prior to such conversion, then such dividend or other distribution
shall be deemed to have been declared, and shall be payable, with respect to
the shares of Class A Common Stock into which such shares of Class B Common
Stock shall have been converted (without duplication), and any such dividend or
other distribution which shall have been declared on such shares payable in
shares of Class B Common Stock or rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Class B Common
Stock, shall be deemed to have been declared, and shall be payable, in
corresponding shares of Class A Common Stock or rights, options, warrants or
other securities convertible into or exchangeable or exercisable for shares of
Class A Common Stock, as the case may be.
(7) The Corporation shall not reissue or resell any shares of Class
B Common Stock which shall have been converted into shares of Class A Common
Stock pursuant to or as permitted by the provisions of this paragraph F of
Article FOURTH, or any shares of Class B Common Stock which shall have been
acquired by the Corporation in any other manner. The Corporation shall, from
time to time, as determined by the Board of Directors, take such appropriate
action as may be necessary to retire such shares and to reduce the authorized
amount of Class B Common Stock accordingly.
The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued shares of Class A
Common Stock and its issued Class A Common Stock held in its treasury, solely
for the purpose of effecting any conversion of Class B Common Stock pursuant to
this Article FOURTH, the full
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number of shares of Class A Common Stock then issuable or deliverable upon any
such conversion of all of the then outstanding shares of Class B Common Stock.
All shares of Class A Common Stock issued upon any conversion of Class B Common
Stock pursuant to this Article FOURTH shall be duly and validly issued, fully
paid and nonassessable. The Corporation shall take all such actions as it deems
necessary or appropriate to ensure that all such shares of Class A Common Stock
may be so issued without violation of any applicable law or governmental
regulation or any requirements of any securities exchange upon which shares of
Class A Common Stock may be listed.
(8) In connection with any transfer or conversion of any capital
stock of the Corporation pursuant to or as permitted by the provisions of this
paragraph F of Article FOURTH, or in connection with the making of any
determination referred to in this paragraph F of Article FOURTH:
(a) the Corporation shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the
Corporation responsible for making such transfer or determination or
issuing Class A Common Stock pursuant to such conversion has substantial
reason to believe, or unless the Board of Directors (or a committee of
the Board of Directors designated for the purpose) determines that there
is substantial reason to believe, that any affidavit or other document is
incomplete or incorrect in a material respect or that an investigation
would disclose facts indicating that such conversion was in violation of
paragraph F(4) of this Article FOURTH, in either of which events the
Corporation shall (i) make or cause to be made such investigation as it
may deem necessary or desirable in the circumstances and (ii) have a
reasonable time to complete such investigation; and
(b) neither the Corporation nor any director, officer, employee or
agent of the Corporation shall be liable in any manner for any action
taken or omitted to be taken in good faith.
(9) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Class A Common Stock upon any conversion of shares of Class B Common
Stock pursuant hereto; provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any registration of
transfer involved in the issue or delivery of shares of Class A Common Stock in
a name other than that of the registered holder of the shares of Class B Common
Stock to be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid.
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G. In the event of a merger, consolidation or other restructuring of
the Corporation with or into one or more entities (whether or not the
Corporation is the surviving entity), the holders of Class A Common Stock and
Class B Common Stock shall be entitled to receive the same per share
consideration.
H. The Corporation shall not be entitled to issue additional shares
of Class B Common Stock, or issue rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of Class B Common
Stock, except that the Corporation may make an offer to all holders of Common
Stock of rights to purchase additional shares of the class of Common Stock
already held by such holders; provided, however, that the holders of each share
of Class A Common Stock and Class B Common Stock shall be entitled to purchase
the same number of additional shares or rights, options, warrants or other
securities convertible into or exchangeable or exercisable for additional
shares, and on the same terms as the holders of each share of such other class
of capital stock. Class A Common Stock and Class B Common Stock will be treated
equally with respect to any offer made by the Corporation to all of the holders
of Common Stock of rights, options, warrants or other securities convertible
into or exchangeable or exercisable for shares of any other capital stock of
the Corporation.
ARTICLE FIFTH
Board of Directors
A. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number
of directors of the Corporation shall initially be fixed at nine.
B. Unless and except to the extent that the Bylaws so require, the
election of directors of the Corporation need not be by written ballot.
C. A stockholder may raise business or make nominations for the
election of directors at a stockholders' meeting only by complying with all of
the provisions of the Bylaws specifying the manner and extent to which advance
notice shall be given of and any other procedures regarding (i) the submission
of proposals to be considered at any meeting of stockholders or (ii)
nominations for the election of directors to be held at any such meeting.
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ARTICLE SIXTH
Amendments
A. The Corporation reserves the right to adopt, repeal, alter or
amend any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware and this Certificate
of Incorporation, and all rights, preferences and privileges conferred on
stockholders, directors, officers, employees, agents and other persons in this
Certificate of Incorporation, if any, are granted subject to this reservation.
B. Except where the Board of Directors is permitted by law or by
this Certificate of Incorporation to act without any action by the stockholders
and except as otherwise provided by law or as otherwise provided in this
Certificate of Incorporation, and subject to any voting rights granted to
holders of any outstanding shares of Preferred Stock, provisions of this
Certificate of Incorporation shall not be adopted, repealed, altered or
amended, in whole or in part, without the approval of a majority of the
combined voting power of the outstanding shares of capital stock of the
Corporation entitled to vote thereon, voting as a single class; provided,
however, that with respect to any proposed amendment of this Certificate of
Incorporation which would alter or change the relative powers, preferences or
participating, optional or other special rights of the shares of Class A Common
Stock or Class B Common Stock so as to affect them adversely, the approval of a
majority of the combined voting power of the outstanding shares of capital
stock of the Corporation entitled to be voted by the holders of all of the
shares so adversely affected by the proposed amendment, voting separately as a
class, shall be obtained in addition to the affirmative vote of a majority of
the combined voting power of the outstanding shares of capital stock of the
Corporation entitled to vote thereon, voting as a single class, as hereinbefore
provided. Any increase or decrease (but not below the number of shares thereof
then outstanding ox reserved for issuance upon conversion of the Class B Common
Stock or any series of Preferred Stock) in the authorized number of shares of
any class or classes of capital stock of the corporation or creation,
authorization or issuance of any rights, options, warrants or other securities
convertible into or exchangeable or exercisable for shares of any such class or
classes of capital stock shall be deemed not to affect adversely the powers,
preferences or special rights of the shares of Class A Common Stock or Class B
Common Stock.
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ARTICLE SEVENTH
Limitation on Director Liability
A. To the fullest extent permitted by the General Corporation Law of
the State of Delaware as it now exists and as it may hereafter be amended, no
director shall be personally liable to the corporation or any of its
stockholders for monetary damages for breach of any fiduciary or other duty as
a director.
B. The rights and authority conferred in this Article EIGHTH shall
not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
C. Neither the amendment, alteration or repeal of this Article
EIGHTH, nor the adoption of any provision inconsistent with this Article
EIGHTH, shall adversely affect any right or protection of a director of the
Corporation existing at the time of such amendment, alteration or repeal with
respect to acts or omissions occurring prior to such amendment, alteration,
repeal or adoption.
ARTICLE EIGHTH
Amendments to By-laws by the Board of Directors
In furtherance of, and not in limitation of, the powers conferred by
law, and subject to the provisions of the By-laws relating to amendments
thereto, the Board of Directors is expressly authorized and empowered to:
(1) adopt any By-laws a majority of the entire Board of Directors
may deem necessary or desirable in connection with the conduct of the
affairs of the Corporation, including provisions governing the conduct
of, and the matters which may properly be brought before, meetings of the
stockholders and provisions specifying the manner and extent to which
advance notice shall be given of and any other procedures regarding (i)
the submission of proposals to be considered at any such meeting or (ii)
nominations for the election of directors to be held at any such meeting;
and
(2) repeal, alter or amend the By-laws by the affirmative vote of a
majority of the entire Board of Directors.
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EXHIBIT C-2 TO AGREEMENT
AND PLAN OF MERGER
<PAGE> 334
Exhibit C-2 to Agreement
and Plan of Merger
================================================================================
KIRI INC.
AMENDMENT AND RESTATEMENT OF BY-LAWS
As Adopted on _______________
================================================================================
<PAGE> 335
KIRI INC.
AMENDMENT AND RESTATEMENT OF BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I
STOCKHOLDERS...............................................................................................1
Section 1.01. Annual Meetings.............................................................................1
Section 1.02. Special Meetings............................................................................1
Section 1.03. Notice of Meetings; Waiver..................................................................1
Section 1.04. Quorum .....................................................................................2
Section 1.05. Voting .....................................................................................2
Section 1.06. Voting by Ballot............................................................................3
Section 1.07. Adjournment.................................................................................3
Section 1.08. Proxies.....................................................................................3
Section 1.09. Organization; Procedure.....................................................................4
Section 1.10. Shareholder Action..........................................................................4
ARTICLE II
BOARD OF DIRECTORS...........................................................................................4
Section 2.01. General Powers................................................................................4
Section 2.02. Number and Term of Office.....................................................................4
Section 2.03. Election of Directors; Chair..................................................................5
Section 2.04. Annual and Regular Meetings...................................................................5
Section 2.05. Special Meetings; Notice......................................................................5
Section 2.06. Quorum; Voting................................................................................5
Section 2.07. Adjournment...................................................................................6
Section 2.08. Action Without a Meeting......................................................................6
Section 2.09. Regulations; Manner of Acting.................................................................6
Section 2.10. Action by Telephonic Communications...........................................................6
Section 2.11. Resignations..................................................................................6
Section 2.12. Removal of Directors..........................................................................6
Section 2.13. Vacancies and Newly Created Directorships.....................................................7
Section 2.14. Compensation..................................................................................7
</TABLE>
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<TABLE>
<S> <C>
Section 2.15. Reliance on Accounts and Reports, etc.........................................................7
ARTICLE III
COMMITTEES...................................................................................................7
Section 3.01. How Constituted...............................................................................7
Section 3.02. Powers .......................................................................................8
Section 3.03. Proceedings...................................................................................8
Section 3.04. Quorum and Manner of Acting...................................................................9
Section 3.05. Action by Telephonic Communications...........................................................9
Section 3.06. Absent or Disqualified Members................................................................9
Section 3.07. Resignations..................................................................................9
Section 3.08. Removal.......................................................................................9
Section 3.09. Vacancies.....................................................................................9
ARTICLE IV
OFFICERS....................................................................................................10
Section 4.01. Number ......................................................................................10
Section 4.02. Election.....................................................................................10
Section 4.03. Salaries.....................................................................................10
Section 4.04. Removal and Resignation; Vacancies...........................................................10
Section 4.05. Authority and Duties of Officers.............................................................10
Section 4.06. The President................................................................................10
Section 4.07. The Secretary................................................................................11
Section 4.08. The Treasurer................................................................................12
Section 4.09. Additional Officers..........................................................................13
Section 4.10. Security.....................................................................................13
ARTICLE V
CAPITAL STOCK...............................................................................................13
Section 5.01. Certificates of Stock, Uncertificated Shares.................................................13
Section 5.02. Signatures; Facsimile........................................................................14
Section 5.03. Lost, Stolen or Destroyed Certificates.......................................................14
Section 5.04. Transfer of Stock............................................................................14
Section 5.05. Record Date..................................................................................14
Section 5.06. Registered Stockholders......................................................................15
Section 5.07. Transfer Agent and Registrar.................................................................15
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI
INDEMNIFICATION.............................................................................................16
Section 6.01. Nature of Indemnity..........................................................................16
Section 6.02. Successful Defense...........................................................................17
Section 6.03. Determination That Indemnification Is Proper.................................................17
Section 6.04. Advance Payment of Expenses..................................................................17
Section 6.05. Procedure for Indemnification of Directors and Officers......................................18
Section 6.06. Survival; Preservation of Other Rights.......................................................18
Section 6.07. Insurance....................................................................................19
Section 6.08. Severability.................................................................................19
ARTICLE VII
OFFICES.....................................................................................................19
Section 7.01. Registered Office............................................................................19
Section 7.02. Other Offices................................................................................19
ARTICLE VIII
GENERAL PROVISIONS..........................................................................................20
Section 8.01. Dividends....................................................................................20
Section 8.02. Reserves.....................................................................................20
Section 8.03. Execution of Instruments.....................................................................20
Section 8.04. Corporate Indebtedness.......................................................................20
Section 8.05. Deposits.....................................................................................21
Section 8.06. Checks ......................................................................................21
Section 8.07. Sale, Transfer, etc. of Securities...........................................................21
Section 8.08. Voting as Stockholder........................................................................21
Section 8.09. Fiscal Year..................................................................................22
Section 8.10. Seal ......................................................................................22
Section 8.11. Books and Records; Inspection................................................................22
Section 9.02. Affiliated Party Transactions................................................................22
ARTICLE X
AMENDMENT OF BY-LAWS........................................................................................23
Section 10.01. Amendment...................................................................................23
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI
CONSTRUCTION................................................................................................24
Section 11.01. Construction................................................................................24
</TABLE>
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Kiri Inc.
KIRI INC.
BY-LAWS
As adopted on [______ ___, _____]
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as properly may come before such meeting
shall be held at such place, either within or outside the State of Delaware, and
at 9:00 a.m. local time on the fifteenth of May (or, if such day is a legal
holiday, then on the next succeeding business day), or at such other date and
hour, as may be fixed from time to time by resolution of the Board of Directors
and set forth in the notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the
stockholders may be called at any time by the President (or, in the event of his
or her absence or disability, by any Vice President), or by the Board of
Directors. A special meeting shall be called by the President (or, in the event
of his or her absence or disability, by any Vice President), or by the
Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than a majority of the
outstanding shares of the Corporation at the time entitled to vote at any
meeting of the stockholders. If such officers or the Board of Directors shall
fail to call such meeting within twenty days after receipt of such request, any
stockholder executing such request may call such meeting. Such special meetings
of the stockholders shall be held at such places, within or outside the State of
Delaware, as shall be specified in the respective notices or waivers of notice
thereof.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the Secretary of the Corporation a written
request that notices to him
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or her be mailed to some other address, then directed to him or her at such
other address. Such further notice shall be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 1.04. Quorum. Except as otherwise required by law or
by the Certificate of Incorporation, the presence in person or by proxy of the
holders of record of one-third of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. For purposes of calculating pursuant to this Section 1.04 the number of
shares entitled to vote at a meeting of stockholders, each share of Class A
Common Stock and Class B Common Stock shall be counted equally.
Section 1.05. Voting. If, pursuant to Section 5.05 of these
By-Laws, a record date has been fixed, (a) every holder of record of a share of
Class A Common Stock entitled to vote at a meeting of stockholders shall be
entitled to one vote for each such share outstanding in his or her name on the
books of the Corporation at the close of business on such record date and (b)
every holder of record of a share of Class B Common Stock entitled to vote at a
meeting of stockholders shall be entitled to ten votes for each such share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then (x) every
holder of record of a share of Class A Common Stock entitled to vote at a
meeting of stockholders shall be entitled to one vote for each such share of
stock standing in his or her name on the books of the Corporation at the close
of business on the day next preceding the day on which notice of the meeting is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (y) every holder of record of
a share of Class B Common Stock entitled to vote at a meeting of stockholders
shall be entitled to ten votes for each such share of stock standing in his or
her name on the books of the Corporation at the close of business on the day
next preceding the day on which notice of the meeting is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. Except as otherwise required by law or by the Certificate of
Incorporation or by these By-Laws, a majority of the votes of shares represented
in person or by proxy at any meeting at which a quorum is present shall be
sufficient for the transaction of any business at such meeting.
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Section 1.06. Voting by Ballot. No vote of the stockholders
need be taken by written ballot unless otherwise required by law. Any vote which
need not be taken by ballot may be conducted in any manner approved by the
meeting.
Section 1.07. Adjournment. If a quorum is not present at any
meeting of the stockholders, the stockholders present in person or by proxy
shall have the power to adjourn any such meeting from time to time until a
quorum is present. Notice of any adjourned meeting of the stockholders of the
Corporation need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of these
By-Laws, a notice of the adjourned meeting, conforming to the requirements of
Section 1.03 of these By-Laws, shall be given to each stockholder of record
entitled to vote at such meeting. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted on the
original date of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any
meeting of the stockholders may authorize another person or persons to vote at
any such meeting for him or her by proxy. A stockholder may authorize a valid
proxy by executing a written instrument signed by such stockholder, or by
causing his or her signature to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile signature, or by transmitting
or authorizing the transmission of a telegram, cablegram or other means of
electronic transmission to the person designated as the holder of the proxy, a
proxy solicitation firm or a like authorized agent. No such proxy shall be voted
or acted upon after the expiration of three years from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary. Proxies by
telegram, cablegram or other electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of a
writing or transmission created pursuant to this section may be substituted or
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
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Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President or, in the event of
his or her absence or disability, a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The Secretary, or in the event
of his or her absence or disability, the Assistant Secretary, if any, or if
there be no Assistant Secretary, in the absence of the Secretary, an appointee
of the presiding officer, shall act as Secretary of the meeting. The order of
business and all other matters of procedure at every meeting of stockholders may
be determined by such presiding officer.
Section 1.10. Shareholder Action. Any action required or
permitted to be taken under law by the stockholders of the Corporation shall be
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be
provided by law, by the Certificate of Incorporation or by these By-Laws, the
property, affairs and business of the Corporation shall be managed by or under
the direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation.
Section 2.02. Number and Term of Office. The number of
Directors constituting the entire Board of Directors shall be nine. The total
number of Directors constituting the entire Board of Directors shall include
three Disinterested Directors, which number may be modified from time to time by
resolution of the Board of Directors (which resolution shall have been approved
by (i) all of the Disinterested Directors, if the total number of Disinterested
Directors then in office shall be four or less, or (ii) not less than 80% of the
Disinterested Directors, if the total number of Disinterested Directors then in
office shall be more than four), but in no event shall the number of
Disinterested Directors be less than one. "Disinterested Directors" shall mean
the directors of the Corporation who are not officers or employees of either
AT&T Corp., a New York corporation ("AT&T") or any of its affiliates or the
Corporation, or directors of AT&T or any of its affiliates. Each Director
(whenever elected) shall hold office until his or her successor has been duly
elected and qualified, or until his or her earlier death, resignation or
removal. "Affiliate" shall have the meaning set forth in Rule 12b-2 under the
Securities Exchange Act of 1934.
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Section 2.03. Election of Directors; Chair. Except as
otherwise provided in Sections 2.12 and 2.13 of these By-Laws, the Directors
shall be elected at each annual meeting of the stockholders. If the annual
meeting for the election of Directors is not held on the date designated
therefor, the Directors shall cause the meeting to be held as soon thereafter as
convenient. At each meeting of the stockholders for the election of Directors,
provided a quorum is present, the Directors shall be elected by a plurality of
the votes validly cast in such election.
Section 2.04. Annual and Regular Meetings. The annual meeting
of the Board of Directors for the purpose of electing officers and for the
transaction of such other business as may come before the meeting shall be held
as soon as possible following adjournment of the annual meeting of the
stockholders at the place of such annual meeting of the stockholders. Notice of
such annual meeting of the Board of Directors need not be given. The Board of
Directors from time to time may by resolution provide for the holding of regular
meetings and fix the place (which may be within or outside the State of
Delaware) and the date and hour of such meetings. Notice of regular meetings
need not be given, provided, however, that if the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action shall
be mailed promptly, or sent by telegram, radio or cable, to each Director who
shall not have been present at the meeting at which such action was taken,
addressed to him or her at his or her usual place of business, or shall be
delivered to him or her personally. Notice of such action need not be given to
any Director who attends the first regular meeting after such action is taken
without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting.
Section 2.05. Special Meetings; Notice. Special meetings of
the Board of Directors shall be held whenever called by (i) the President or, in
the event of his or her absence or disability, by any Vice President, or (ii)
any three Directors, at such place (within or outside the State of Delaware),
date and hour as may be specified in the respective notices or waivers of notice
of such meetings. Special meetings of the Board of Directors may be called on
twenty-four hours' notice, if notice is given to each Director personally or by
telephone or telegram, or on five days' notice, if notice is mailed to each
Director, addressed to him or her at his or her usual place of business. Notice
of any special meeting need not be given to any Director who attends such
meeting without protesting the lack of notice to him or her, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be transacted
thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a
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quorum for the transaction of business. Except as otherwise required by law, the
vote of a majority of the entire Board of Directors shall be required for an act
of the Board of Directors.
Section 2.07. Adjournment. A majority of the Directors
present, whether or not a quorum is present, may adjourn any meeting of the
Board of Directors to another time or place. No notice need be given of any
adjourned meeting unless the time and place of the adjourned meeting are not
announced at the time of adjournment, in which case notice conforming to the
requirements of Section 2.05 of these By-Laws shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Certificate of Incorporation and these
By-Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of
the Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.11. Resignations. Any Director may resign at any
time by delivering a written notice of resignation, signed by such Director, to
the President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be
removed at any time, either for or without cause, upon the affirmative vote of
the holders of a majority of the outstanding shares of stock of the Corporation
entitled to vote for the election of such Director. Any vacancy in the Board of
Directors caused by any such removal may be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed. If
such stockholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
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without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If
any vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
Directors then in office, although less than a quorum. A Director elected to
fill a vacancy or a newly created directorship shall hold office until his or
her successor has been elected and qualified or until his or her earlier death,
resignation or removal. Any such vacancy or newly created directorship may also
be filled at any time by vote of the stockholders.
Section 2.14. Compensation. The amount, if any, which each
Director shall be entitled to receive as compensation for his or her services as
such shall be fixed from time to time by resolution of the Board of Directors.
Section 2.15. Reliance on Accounts and Reports, etc. A
Director, or a member of any Committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Corporation and upon information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or Committees designated by the Board of Directors, or by
any other person as to the matters the member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation.
ARTICLE III
COMMITTEES
Section 3.01. How Constituted. The Board of Directors may
designate one or more Committees, including an Audit Committee, Nominating
Committee, and Compensation Committee, each such Committee to consist of such
number of Directors as from time to time may be fixed by the Board of Directors.
The Board of Directors may designate one or more Directors as alternate members
of any such Committee, who may replace any absent or disqualified member or
members at any meeting of such Committee. Thereafter, members (and alternate
members, if any) of each such Committee may be designated at the annual meeting
of the Board of Directors. Any such Committee may be abolished or re-designated
from time to time by the Board of Directors. Each member (and each alternate
member) of any such Committee (whether designated at an annual
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meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold
office until his or her successor shall have been designated or until he or she
shall cease to be a Director, or until his or her earlier death, resignation or
removal.
Section 3.02. Powers. Each such Committee, except as
otherwise provided in this section, shall have and may exercise such powers of
the Board of Directors as may be provided by resolution or resolutions of the
Board of Directors. No Committee shall have the power or authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution,
any distribution of assets of the Corporation or the conversion into,
or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes
of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any
series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; and
(e) to amend the By-Laws of the Corporation.
Any Committee may be granted by the Board of Directors the power to authorize
the seal of the Corporation to be affixed to any or all papers which may require
it.
Section 3.03. Proceedings. Each such Committee may fix its own
rules of procedure and may meet at such place (within or outside the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceedings.
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Section 3.04. Quorum and Manner of Acting. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings of
any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute a
quorum for the transaction of business. The act of the majority of the members
present at any meeting at which a quorum is present shall be the act of such
Committee. Any action required or permitted to be taken at any meeting of any
such Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing and such writing or writings are filed
with the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. Action by Telephonic Communications. Members of
any Committee designated by the Board of Directors may participate in a meeting
of such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence
or disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate
member) of any Committee may resign at any time by delivering a written notice
of resignation, signed by such member, to the Chairman or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member)
of any Committee may be removed from his or her position as a member (or
alternate member, as the case may be) of such Committee at any time, either for
or without cause, by resolution adopted by a majority of the whole Board of
Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
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ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors also may elect one or more Assistant
Secretaries and Assistant Treasurers in such numbers as the Board of Directors
may determine. Any number of offices may be held by the same person. No officer
need be a Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the
Board of Directors, the officers of the Corporation shall be elected by the
Board of Directors at the annual meeting of the Board of Directors, and shall be
elected to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 4.03. Salaries. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer
may be removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the President. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors.
Section 4.05. Authority and Duties of Officers. The officers
of the Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these By-Laws, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law.
Section 4.06. The President. The President shall preside at
all meetings of the stockholders at which he or she is present, shall be the
chief executive officer and the chief operating officer of the Corporation,
shall have general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He or she shall manage and administer the
Corporation's business and affairs and shall also perform all duties and
exercise all powers usually pertaining to the office of a chief executive
officer and a chief operating
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officer of a corporation. He or she shall have the authority to sign, in the
name and on behalf of the Corporation, checks, orders, contracts, leases, notes,
drafts and other documents and instruments in connection with the business of
the Corporation, and together with the Secretary or an Assistant Secretary,
conveyances of real estate and other documents and instruments to which the seal
of the Corporation is affixed. He or she shall have the authority to cause the
employment or appointment of such employees and agents of the Corporation as the
conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President or the Board of Directors. The President shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 4.07. The Secretary. The Secretary shall have the
following powers and duties:
(a) He or she shall keep or cause to be kept a record of all
the proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in
accordance with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution of the Board of Directors, he or she shall furnish a copy of
such resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-Laws, and when so affixed he or
she may attest the same.
(e) He or she shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers
of the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (alphabetically arranged) and the
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addresses of the holders of record of such shares, the number of shares
held by each holder and the date as of which each became such holder of
record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or an Assistant Secretary shall have signed) certificates
representing shares of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident
to the office of secretary and such other duties as may be specified in
these By-Laws or as may be assigned to him or her from time to time by
the Board of Directors, or the President.
Section 4.08. The Treasurer. The Treasurer shall be the
chief financial officer of the Corporation and shall have the following powers
and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable
effects of the Corporation to be deposited in the name and to the
credit of the Corporation in such banks or trust companies or with such
bankers or other depositaries as shall be selected in accordance with
Section 8.05 of these By-Laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.06 of
these By-Laws) upon the authorized depositaries of the Corporation and
cause to be taken and preserved proper vouchers for all moneys
disbursed.
(d) He or she shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition
of the Corporation and of all his or her transactions as Treasurer, and
render a full financial report at the annual meeting of the
stockholders, if called upon to do so.
(e) He or she shall be empowered from time to time to require
from all officers or agents of the Corporation reports or statements
giving such information as he or she may desire with respect to any and
all financial transactions of the Corporation.
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(f) He or she may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation the issuance of which shall have
been authorized by the Board of Directors.
(g) He or she shall perform, in general, all duties incident
to the office of treasurer and such other duties as may be specified in
these By-Laws or as may be assigned to him or her from time to time by
the Board of Directors, or the President.
Section 4.09. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause.
Section 4.10. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to provide security for the
faithful performance of his or her duties, in such amount and of such character
as may be determined from time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock, Uncertificated Shares.
The shares of the Corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation, by the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be
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in such form as the Board of Directors may determine, to the extent consistent
with applicable law, the Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on
the certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares, duly endorsed or accompanied by appropriate evidence of succession,
assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books. Within a reasonable time after the
transfer of uncertificated stock, the Corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a)
of the General Corporation Law of the State of Delaware. Subject to the
provisions of the Certificate of Incorporation and these By-Laws, the Board of
Directors may prescribe such additional rules and regulations as it may deem
appropriate relating to the issue, transfer and registration of shares of the
Corporation.
Section 5.05. Record Date. In order to determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted by the Board of Directors, and which shall not
be more than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
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however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender
of a certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so ex pressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of
Directors may appoint one or more transfer agents and one or more registrars,
and may require all certificates representing shares to bear the signature of
any such transfer agents or registrars.
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ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was or has agreed to become a director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director or officer, of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, and may indemnify any person who was or
is a party or is threatened to be made a party to such an action, suit or
proceeding by reason of the fact that he or she is or was or has agreed to
become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding had no reasonable cause to
believe his or her conduct was unlawful; except that in the case of an action or
suit by or in the right of the Corporation to procure a judgment in its favor
(1) such indemnification shall be limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (2) no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding the foregoing,
but subject to Section 6.05 of these By-Laws, the Corporation shall not be
obligated to indemnify a director or officer of the Corporation in respect of a
Proceeding (or part thereof) instituted by such director or officer, unless such
Proceeding (or part thereof) has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the
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Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present
or former director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 6.01 of these By-Laws or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 6.03. Determination That Indemnification Is Proper.
Any indemnification of a present or former director or officer of the
Corporation under Section 6.01 of these By-Laws (unless ordered by a court)
shall be made by the Corporation only upon a determination that indemnification
of such person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 6.01 of these By-Laws. Any
indemnification of a present or former employee or agent of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) may be made by
the Corporation upon a determination that indemnification of the employee or
agent is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Section 6.01 of these By-Laws. Any such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination (1) by a majority vote of the
Directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a present director or officer in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the Corporation deems appropriate.
The Corporation, or in respect of a present director or officer the Board of
Directors, may authorize the Corporation's counsel to represent such present or
former director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
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Section 6.05. Procedure for Indemnification of Directors and
Officers. Any indemnification of a director, officer, employee or agent of the
Corporation under Sections 6.01 and 6.02 of these By-Laws, or advance of costs,
charges and expenses to such person under Section 6.04 of these By-Laws, shall
be made promptly, and in any event within thirty days, upon the written request
of such person. If a determination by the Corporation that such person is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by such person in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a claim
for the advance of costs, charges and expenses under Section 6.04 of these
By-Laws where the required undertaking, if any, has been received by or tendered
to the Corporation) that the claimant has not met the standard of conduct set
forth in Section 6.01 of these By-Laws, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors or any committee thereof, its independent legal counsel,
and its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law,
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agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director or
officer and may indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain
offices or places of business at such other locations within or outside the
State of Delaware as the Board of Directors may from time to time determine or
as the business of the Corporation may require.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions
of law and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any
Committee designated by the Board of Directors shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of its officers or employees, or Committees of the Board of Directors, or by any
other person as to matters the Director reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid.
Section 8.02. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.
Section 8.03. Execution of Instruments. The President, any
Vice President, the Secretary or the Treasurer may enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation.
The Board of Directors or the President may authorize any other officer or agent
to enter into any contract or execute and deliver any instrument in the name and
on behalf of the Corporation. Any such authorization may be general or limited
to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be
contracted on behalf of the Corporation, and no evidence of indebtedness shall
be issued in its name, unless authorized by the Board of Directors or the
President. Such authorization may be general or confined to specific instances.
Loans so authorized may be effected at any time
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Kiri Inc.
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
President shall authorize. When so authorized by the Board of Directors or the
President, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by the Board of Directors or the President, or by such
officers or agents as may be authorized by the Board of Directors or the
President to make such determination.
Section 8.06. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
agent or agents of the Corporation, and in such manner, as the Board of
Directors or the President from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the
extent authorized by the Board of Directors or by the President, any Vice
President, the Secretary or the Treasurer or any other officers designated by
the Board of Directors or the President may sell, transfer, endorse, and assign
any shares of stock, bonds or other securities owned by or held in the name of
the Corporation, and may make, execute and deliver in the name of the
Corporation, under its corporate seal, any instruments that may be appropriate
to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise
determined by resolution of the Board of Directors, the President or any Vice
President shall have full power and authority on behalf of the Corporation to
attend any meeting of stockholders of any corporation in which the Corporation
may hold stock, and to act, vote (or execute proxies to vote) and exercise in
person or by proxy all other rights, powers and privileges incident to the
ownership of such stock. Such officers acting on behalf of the Corporation shall
have full power and authority to execute any instrument expressing consent to or
dissent from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
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Section 8.09. Fiscal Year. The fiscal year of the Corporation
shall commence on the first day of January of each year (except for the
Corporation's first fiscal year which shall commence on the date of
incorporation) and shall terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the
extent otherwise required by law, the books and records of the Corporation shall
be kept at such place or places within or outside the State of Delaware as may
be determined from time to time by the Board of Directors.
ARTICLE IX
CERTAIN TRANSACTIONS
Section 9.01. General. The provisions of this Article IX are
in addition to, and not in limitation of, the provisions of the Delaware General
Corporation Law and the provisions of the Certificate of Incorporation of the
Corporation. Any contract or business relation which does not comply with
procedures set forth in this Article IX shall not by reason thereof be deemed
void or voidable or to result in any breach of any fiduciary duty to, or duty of
loyalty to, or failure to act in good faith or in the best interests of, the
Corporation, or to result in the derivation of any improper personal benefit,
but shall be governed by the remaining provisions of the Certificate of
Incorporation of the Corporation, these Bylaws, the Delaware General Corporation
Law and other applicable law.
Section 9.02. Affiliated Party Transactions. No contract,
agreement, arrangement or transaction between AT&T or its affiliates (other than
the Corporation and any controlled affiliate thereof) (an "AT&T Entity") and the
Corporation, including amendments, modifications or terminations thereof, shall
be void or voidable solely because any directors or officers of an AT&T Entity
are present at or participate in the meeting of the Board of Directors or
committee thereof which authorizes such contract, agreement, arrangement,
transaction, amendment, modification or termination (each a "Transaction") or
solely because his or their votes are counted for such purpose, provided that:
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Kiri Inc.
(a) the material facts as to the Transaction are disclosed or
known to the Board of Directors of the Corporation or any relevant committee
thereof, the Board of Directors or such committee approves it and such approval
includes a majority of the Disinterested Directors of the Corporation;
(b) the Transaction is approved by a majority of the
outstanding shares of the Corporation entitled to vote thereon not owned by an
AT&T Entity, voting together as a single class;
(c) the Transaction is effected in accordance with
arrangements, standards or guidelines that were approved as set forth in (a) or
(b) above; or
(d) the transaction is fair to the Corporation at the time it
is entered into.
Directors of the Corporation who are not Disinterested Directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee thereof that authorizes or approves any such Transaction or
any such guidelines. Shares of the Corporation owned by an AT&T Entity may be
counted in determining the presence of a quorum at a meeting of stockholders
that authorizes or approves any such Transaction or any such guidelines. No vote
cast or other action taken by any person who is an officer, director or other
representative of AT&T, which vote is cast or action is taken by such person in
his capacity as a director of the Corporation, shall constitute an action of, or
the exercise of a right by, or a consent of, AT&T for the purpose of any such
Transaction.
ARTICLE X
AMENDMENT OF BY-LAWS
Section 10.01. Amendment. These By-Laws may be amended,
altered or repealed:
(a) by resolution adopted by a majority of the entire Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment, alteration
or repeal is contained in the notice or waiver of notice of such
meeting (provided that any such resolution amending Section 2.02 or
Article IX of these By-laws shall have been approved by (i) all of the
Disinterested Directors, if the total number of Disinterested Directors
then in office shall be four or less, or (ii) not less than 80% of the
Disinterested Directors,
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Kiri Inc.
if the total number of Disinterested Directors then in office shall be
more than four); or
(b) at any regular or special meeting of the stockholders if,
in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting (provided that any such resolution amending Section 2.02
or Article IX of these By-laws shall have been approved by a majority
of the votes attaching to the outstanding shares of Class A Common
Stock, voting as a class).
ARTICLE XI
CONSTRUCTION
Section 11.01. Construction. In the event of any conflict
between the provisions of these By-Laws as in effect from time to time and the
provisions of the Certificate of Incorporation of the Corporation as in effect
from time to time, the provisions of such Certificate of Incorporation shall be
controlling.
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EXHIBIT D TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 364
Exhibit D
SERVICE MARK LICENSE AGREEMENT
SERVICE MARK LICENSE AGREEMENT dated as of __________________, by and
between AT&T CORP., a New York corporation ("Licensor"), and KIRI INC., a
Delaware corporation ("Licensee").
WHEREAS, Licensor has, for many years, used the service marks AT&T and
AT&T with a fanciful globe design, as identified in Schedule A attached hereto
(the "Licensed Master Service Marks"), all in connection with
telecommunications services; and
WHEREAS, Licensee wishes to use the Licensed Master Service Marks, and
the Licensed Trade Dress in the Licensed Territory as defined herein in
connection with the marketing and provision of certain services; and
WHEREAS, Licensee also wishes to use the service mark "It's all within
your reach" and certain foreign equivalents thereof that are owned by Licensor
and may wish to use certain other service marks which are or will be owned by
Licensor in connection with the Licensed Services; and
WHEREAS, Licensor is willing to license and allow Licensee to use the
Licensed Marks under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
"Affiliate": Of a party shall mean an entity which is under common
control with, controls, or is controlled by, such party.
"Bankruptcy": With respect to a Person shall mean the filing by such
Person of a voluntary petition, or by a third party with respect to such
Person, requesting liquidation,
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Exhibit D
dissolution, reorganization, suspension, rearrangement or re-adjustment, in any
form, of its debts under the laws of the United States (or corresponding
provisions of future laws), the laws of the Licensed Territory, or any other
bankruptcy or insolvency law, or such Person's consenting to or acquiescing in
any such petition, the making by such Person of any assignment for the benefit
of its creditors or the admission by such Person in writing of its inability to
pay its debts as they mature, an application for the appointment of a receiver
for the assets of such Person, or an involuntary petition seeking liquidation,
dissolution, reorganization, suspension, rearrangement or readjustment of its
debts or similar relief under any bankruptcy or insolvency law.
"Claim": As defined in Section 20.1 hereof.
"Claimant": As defined in Section 20.2 hereof.
"Communications Director": The individual described in Section 8.5.
"Corporate Brand": As defined in Section 5.3(d) hereof.
"Corporate Brand Efforts": As defined in Section 5.3(d) hereof.
"Effective Date": As defined in Section 23.12 hereof.
"Exclusive Services": As defined in Schedule F hereto.
"Final Cure Period": As defined in Section 9 hereof.
"Graphic Standards Manual": As defined in Schedule D hereto.
"Gross Service Revenue": Revenues received by Licensee and its
sublicensees for the Licensed Services, before any deductions or offsets.
"Including": The terms "including" and "such as" are illustrative and not
limitative.
"Initial Cure Period": As defined in Section 9 hereof.
2
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Exhibit D
"Licensed Ancillary Service Marks": Service marks that may be developed
for each of the Licensed Services by Licensor or by Licensee that become
Licensed Ancillary Service Marks pursuant to Section 2.2, and any additional
marks that are added to this Agreement pursuant to Section 4.3 and which shall
be owned by Licensor and licensed to Licensee pursuant to this Agreement (and
as such service marks may be modified or supplemented as contemplated by
Section 4.2 or Section 4.3), as set forth in Schedule C1, as it may be amended
from time to time. Registrations and applications covering the Licensed
Ancillary Service Marks in the Licensed Territory include those set forth in
Schedule C2 of this Agreement. The listing of goods or services in the
specification of any of these registrations or applications which are outside
the scope of services licensed under this Agreement shall not be construed as
inclusion of such goods or services in the license granted by this Agreement.
It is understood that the only services licensed under this Agreement are as
expressly set forth in this Agreement.
"Licensed Marks": Collectively, the Licensed Master Service Marks,
Licensed Ancillary Service Marks, and Licensed Trade Dress.
"Licensed Master Service Marks": The service marks AT&T and AT&T with a
fanciful globe design as identified in Schedule A (and as such service marks
may be modified or supplemented as contemplated by Section 4.2 or Section 4.3).
Registrations and applications covering the Licensed Master Service Marks in
the Licensed Territory are set forth in Schedule B of this Agreement, as it may
be amended from time to time. The listing of goods or services in the
specification of any of these registrations or applications which are outside
the scope of services licensed under this Agreement shall not be
3
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Exhibit D
construed as inclusion of such goods or services in the license granted by this
Agreement. It is understood that the only services licensed under this
Agreement are as expressly set forth in this Agreement.
"Licensed Services": The services described in Schedule F attached
hereto.
"Licensed Territory": Antigua and Barbuda, Argentina, Bahamas, Barbados,
Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic, Ecuador,
Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, St. Kitts and Nevis, Trinidad and Tobago
and Uruguay.
"Licensed Trade Dress": The general image, appearance or dress of the
marketing of services performed under the Licensed Master Service Marks and the
Licensed Ancillary Service Marks consisting of colors, designs, configurations,
publication formats, lettering and the like as set forth in Schedule D attached
hereto, and such other trade dress and get-up as may be added thereto or
substituted therefor in accordance with this Agreement.
"Licensee": As defined in the first paragraph hereof.
"Licensee Brand Efforts": Marketing communications activities developed
in support of specific Licensee products and services, such as advertising,
direct mail and promotions for specific Licensed Services or rates, or for any
activity not specified in this Agreement.
"Licensor": As defined in the first paragraph hereof.
"Managed Network Services" means the provision of (a) service to a
customer consisting solely of the provisioning and maintenance of the logical
and physical elements of the customer's wide area communications network, and,
to the extent relating to a
4
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Exhibit D
customer's wide area communications network, directly related planning, design,
installation, maintenance and ongoing life cycle support functions, and (b)
equipment on the customer's premises at the interface between a wide area
communications network and the remainder of the customer's networking
environment insofar as the equipment so provided facilitates (i) the
maintenance of the customer's wide area communication services, (ii) the
recording of performance data with respect to the customer's wide area
communications services, (iii) the provisioning of new wide area communications
services to the customer or changes in the parameters of the wide area
communications services provided to the customer, or (iv) the integration of
multiple wide area communications services, but excluding in the case of clause
(a) or (b) any such service or equipment that materially extends services
beyond the interface described above further into the customer's non-wide area
communications network.
"Mark": Any name, brand, mark, trademark, service mark, trade dress,
trade name, business name or other indicia of origin.
"Marketing Materials": Any and all materials, whether written, audio,
visual or in any other medium, used by Licensee to market, advertise or
otherwise offer or provide any Licensed Service under the Licensed Marks.
"Marketing Specifications": Licensor's standards and guidelines relating
to the permitted use, depiction and graphic display of the Licensed Marks that
are contained in Schedule E hereto, and those standards and guidelines relating
to such use, depiction and graphic display that Licensor shall provide to
Licensee from time to time.
"Material": As defined in Section 21 hereof.
5
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Exhibit D
"Merger Agreement": The Agreement and Plan of Merger among AT&T Corp.,
Kiri Inc., Frantis, Inc. and FirstCom Corporation, dated as of November 1,
1999.
"Minimum Guarantee": As defined in Section 5.1(b) hereof.
"Monitoring Services": As defined in Section 5.3(a) hereof.
"New York Courts": As defined in Section 19 hereof.
"Nonexclusive Services": As defined in Schedule F hereto.
"Payment Period": Each period of six (6) full calendar months or portion
thereof during the term of this Agreement, commencing on the first day of the
first month after the Effective Date.
"Payments": As defined in Section 22.1 hereof.
"Person": Any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or without
share capital, unincorporated association, trust, trustee, executor,
administrator or other legal personal representative, regulatory body or
agency, government or governmental agency, authority or entity however designed
or constituted.
"Proprietary Information": Any information that is so designated by the
party disclosing it or deemed to be such under this Agreement.
"Quality Control Representatives": Representatives of Licensor appointed
in accordance with Section 8 hereof.
"Registered User Application": An application by the parties to the
appropriate Regulatory Authority in the Licensed Territory where an owner of a
Mark (i) licenses a licensee to use the registered Mark, under conditions in
which the nature and quality of the
6
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Exhibit D
products and/or services offered under the Mark are required to be subject to
quality control by the owner, in accordance with local law and practice for
acceptable trademark licensing to ensure the validity and enforceability of the
Mark licensed and (ii) allows the licensee to be recorded by that
administrative agency as a permitted user of the Licensed Marks.
"Regulatory Approval": Any governmental or regulatory approval, consent
or authorization or waiver required to be obtained from or any filing required
to be made with or notice required to be given to any governmental or
Regulatory Authority, commission, tribunal, ministry, official or agency.
"Regulatory Authority": Any applicable regulatory, administrative or
governmental entity, authority, commission, tribunal, official or agency,
including without limitation the Export Licensing Office of the U.S. Department
of Commerce.
"Request": As defined in Section 20.2 hereof.
"Respondent": As defined in Section 20.2 hereof.
"Second Cure Period": As defined in Section 9.2 hereof.
"Service Specifications": The standards of quality relating to Marketing
Specifications, technical performance, customer service, and customer
satisfaction, including technical network performance, marketing, design, and
use of Marketing Materials, advertising and promotion that will be set forth in
Schedule E to this Agreement (and as they may be amended, modified or
supplemented from time to time in accordance with this Agreement).
"Significant Breach by Licensee": As defined in Section 12 hereof.
7
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Exhibit D
"Subsidiary": With respect to a party, any Person in which the party
directly owns more than 50% of the voting rights.
"Successor": With respect to any party, any successor, monitor,
coordinator, transferee or assignee, including without limitation any receiver,
debtor in possession, trustee, conservator or similar Person with respect to
such party or such party's assets.
"Technical Information": Information provided by either party under this
Agreement, whether Proprietary Information or otherwise.
2. Scope of License
2.1 Grant of License.
(a) Subject to the terms and conditions of this Agreement, Licensor
hereby grants to Licensee a non-exclusive, non-transferable, non-sublicensable
(except as provided herein) license to use the Licensed Marks solely in
connection with the marketing, advertising, promotion and provision of the
Licensed Services in the Licensed Territory. Licensee may use the Licensed
Marks in marketing, advertising and promotion outside the Licensed Territory so
long as such marketing, advertising and promotion relates to the provision of
Licensed Services in the Licensed Territory. The foregoing notwithstanding, the
rights granted herein do not include the right to use the Licensed Marks in
connection with the marketing, advertising, promotion or provision of any
services through the global venture between Licensor and British
Telecommunications plc, which shall be covered by separate agreements with such
global venture.
Licensor and its other Affiliates retain all rights to use the Licensed
Marks in the Licensed Territory. The Licensed Marks may not be used by Licensee
in connection with
8
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Exhibit D
any service except as expressly set forth in this Agreement. Licensee shall not
use the Licensed Marks, or any other Mark of Licensor, or any confusingly
similar Marks in connection with any service or product not within the scope of
this Agreement without Licensor's express written consent.
Licensee may sublicense the rights granted in this Section 2.1(a) to its
Subsidiaries in connection with their operations in the Licensed Territory,
provided that:
(i) such Subsidiaries meet and continue to meet the criteria set
forth in Schedule G of this Agreement;
(ii) such Subsidiaries enter a written agreement with Licensee in
which such Subsidiaries agree to assume all of the same obligations as
Licensee (except for the obligation to make payments pursuant to Section
5.1, as such payments will be made by Licensee) and which is otherwise
consistent with this Agreement; and
(iii) Licensee notifies Licensor within ten (10) days each time a
sublicense is granted and furnishes Licensor with a copy of the relevant
sublicense agreement.
(b) Subject to the terms and conditions of this Agreement and provided
that at least half of the Licensed Services offered by Licensee (namely, those
grossing the highest revenue) are in full compliance with the Service
Specifications furnished by Licensor, Licensee shall have a non-exclusive,
non-sublicensable right (except as otherwise provided herein) to use "AT&T" as
part of the corporate name and trade name set forth in Schedule H of this
Agreement for the remainder of the term of this Agreement. By way of example,
if Licensee offers six (6) Licensed Services, the three (3) Licensed Services
grossing the highest revenue for Licensee would have to be compliant with the
9
<PAGE> 373
Exhibit D
Service Specifications in order to use "AT&T" as part of the corporate name and
trade name. The foregoing notwithstanding, if all of the Licensed Services
contemplated by this Agreement will be provided through Subsidiaries of the
Licensee and not by the Licensee itself, then Licensee may, subject to the
terms and conditions of this Agreement, use "AT&T" as part of the corporate and
trade name set forth in Schedule H for the entire term of this Agreement. In
the event that Licensee wishes to have one or more of its Subsidiaries which
has been granted a sublicense to use the Licensed Marks pursuant to Section
2.1(a) use "AT&T" as part of its corporate and trade name, Licensee may request
Licensor's written approval to sublicense such use, and Licensee shall not
unreasonably withhold such written approval, provided that such Subsidiaries
demonstrate to Licensor's satisfaction that at least half of the Licensed
Services (namely, those grossing the highest revenues) offered by such
Subsidiaries are in full compliance with the applicable Service Specifications
and provided that such use is otherwise subject to the terms and conditions and
conditions of this Agreement.
2.2 Use of Licensed Master Service Marks and Development and
Use of Licensed Ancillary Service Marks.
(a) Subject to the terms and conditions of this Agreement, the
Licensed Marks and Licensed Trade Dress shall be used exclusively in connection
with all Licensed Services.
(b) Licensee may use ancillary service marks owned by Licensor with
Licensor's express written consent for one or more service plan names or
feature names. Licensee may develop and use with Licensor's prior written
approval ancillary service marks with respect to one or more service plan names
or feature names, which approval will not be
10
<PAGE> 374
Exhibit D
unreasonably withheld. Such ancillary service marks developed by Licensee and
approved by Licensor shall become Licensed Ancillary Service Marks. Licensee
shall assign to Licensor all rights in and to any such ancillary service marks
developed by Licensee that shall become Licensed Ancillary Service Marks,
including all rights in any application to register or registration of the
Licensed Ancillary Service Marks. Upon the termination of this Agreement,
including termination under any renewal and any transition period provided
under Section 12.3, Licensor shall assign to Licensee, without further
consideration, all of its rights, title and interest in and to such Licensed
Ancillary Service Marks developed by Licensee, including the goodwill attached
thereto, in the Licensed Territory. With the exception of ancillary service
marks developed by Licensee and assigned to Licensor as provided above,
Licensor shall be and remain the owner of all Licensed Ancillary Service Marks,
and any foreign language equivalents thereof, that are not developed by
Licensee.
3. Agreement Personal. In recognition of the unique nature of the
relationship between Licensor and Licensee, the parties agree that the rights,
obligations and benefits of this Agreement shall be personal to Licensee and
its authorized sublicensees, and, Licensor shall not be required to accept
performance from or render performance to an entity other than Licensee and its
authorized sublicensees. In the event of the Bankruptcy of the Licensee or its
sublicensees, this Agreement and any sublicense granted pursuant to this
Agreement may not be assigned or assumed by the Licensee, its sublicensees, or
any Successor, and may be terminated by Licensor pursuant to Section 12.2(c)
hereof,
11
<PAGE> 375
Exhibit D
and the Licensor shall be excused from rendering performance to or accepting
performance from Licensee, its sublicensees or any Successor.
4. Other Marks
4.1 No Other Mark To Be Used. Licensee shall not use any other Mark or
create by use, adoption or practice any alternate Mark or ancillary Mark in
connection with the Exclusive Services, without Licensor's express written
consent. In the marketing of the Licensed Services, any use or display by
Licensee of its corporate, business, trade name, or trading style shall adhere
to the Marketing Specifications of the Service Specifications or shall be with
Licensor's express written consent. So long as Licensee is not providing a
Nonexclusive Service in a particular country in the Licensed Territory using
the Licensed Marks, Licensee may, after consultation with Licensor, use Marks
that are not Licensed Marks on such Nonexclusive Service in such country,
provided that Licensee agrees to conduct reasonable searches to determine the
availability of such Marks prior to commencing use. In the event that Licensee
commences providing a Nonexclusive Service using the Licensed Marks in a
particular country in the Licensed Territory, Licensee shall immediately cease
providing such Nonexclusive Service using other Marks in such country unless
Licensor consents to the continued use of such other Marks.
4.2 Modification of Licensed Service Marks. Modifications to or
replacements of the Licensed Ancillary Service Marks may be initiated by
Licensee, with the concurrence of Licensor as provided in Section 2.2(b), as to
any modification or replacement of the Licensed Ancillary Service Marks as they
are used by Licensee with respect to the Licensed Services.
12
<PAGE> 376
Exhibit D
If Licensor modifies or replaces any of the Licensed Master Service
Marks, Licensed Ancillary Service Marks, or the Licensed Trade Dress as used by
Licensor, Licensee shall agree with Licensor on a program to cease, over a
reasonable period of time, not to exceed one hundred-twenty (120) days, use of
the previous Licensed Mark(s) and to introduce and adopt the modified or
replacement Licensed Mark(s), at Licensee's cost, but without undue expense to
Licensee or disruption to Licensee's business or marketing programs, and
Licensor shall reimburse Licensee from the Brand Fund Fee one-half of such
reasonable costs incurred by Licensee. In either case, such modified or
replaced Licensed Master Service Mark(s), Licensed Ancillary Service Mark(s),
or the Licensed Trade Dress shall be considered the Licensed Mark(s)
contemplated by this Agreement.
If Licensor modifies a Licensed Ancillary Service Mark for certain uses
outside the Licensed Territory but does not terminate all usage of the
unmodified version, Licensee may choose to adopt the modified version but is
not obliged to do so.
4.3 Use of Additional Marks at Licensor's Request. Licensor may, from
time to time, in consultation with Licensee, request Licensee to adopt and use
in addition to the Licensed Master Service Marks, Licensed Ancillary Service
Marks and Licensed Trade Dress, any Mark or Marks used or to be used by
Licensor, including any Marks owned by a third party that Licensor has the
right to use and sublicense, in connection with the marketing and provision of
Licensed Services. Such additional Mark or Marks shall be licensed hereunder on
the same terms as the Licensed Marks. All costs associated with
13
<PAGE> 377
Exhibit D
adopting and using such additional Mark or Marks shall be borne by Licensor,
and shall be paid out of the Brand Fund Fees.
5. Annual Payments.
5.1 Brand Fund Fee. In consideration of the license granted in this
Agreement and for other good and valuable consideration including Licensor
brand building activities in the Licensed Territory, during the term of this
Agreement with respect to each Payment Period, Licensee shall pay Licensor a
Brand Fund Fee, as provided in Section 5.3, which shall be the greater of:
(a)(i) in Years 1 and 2 of this Agreement, four percent (4%) of
Gross Service Revenues from the Licensed Services;
(ii) in Year 3 of this Agreement, three and one-quarter percent
(3.25%) of Gross Service Revenues from Licensed Services;
(iii) in Years 4 and 5, and for each year during the renewal
term, two and one-half percent (2.5%) of Gross Service Revenues
from Licensed Services; and
(b) two million five hundred thousand dollars ($2,500,000) (the
"Minimum Guarantee").
5.2 Accounting. With respect to each Payment Period as defined herein,
Licensee shall furnish to Licensor a statement, in form reasonably acceptable
to Licensor, certified by a responsible officer of Licensee, showing all Gross
Service Revenues during such Payment Period, and the Brand Fund Fee as provided
in Section 5.1. payable
14
<PAGE> 378
Exhibit D
thereon. During the term of this Agreement, such statement shall be furnished
to Licensor not later than forty-five (45) days after the end of each Payment
Period.
5.3 Payment. With respect to each Payment Period as defined herein,
Licensee shall, irrespective of its own business and accounting method, pay
Licensor or Licensor's designee the Brand Fund Fee as provided in Section 5.1,
forty-five (45) days after the end of each Payment Period. The Brand Fund Fee
will be paid in U.S. currency. Licensee agrees that all of the Brand Fund Fees
received for each Payment Period will be designated and spent by Licensor, with
active participation of Licensee's CEO, on the following activities in support
of Licensor's brand strategy and to ensure proper positioning of the Licensee:
(a) the monitoring of the brand, including the development and
implementation of the Service Specifications set forth in Schedule E and
the requirements set forth in Schedule D of this Agreement, customer
satisfaction surveys, market research, and the management of corporate
identity ("Monitoring Services"). Except as provided in the last sentence
of this Section 5.3(a), no more than three million dollars ($3,000,000)
of the Brand Fund Fees shall be used each year of this Agreement for
Monitoring Services. Monitoring Services shall be subject to the
following conditions: (i) payments for Monitoring Services shall only be
made to Persons that are not Affiliates of Licensee or Licensor, (ii)
Monitoring Services shall be obtained on a cost effective basis using a
reasonably competitive process to the extent practicable and (iii)
Monitoring Services shall be implemented through the Communications
Director and his/her team. Following consultation
15
<PAGE> 379
Exhibit D
between Licensor and Licensee's CEO, Brand Fund Fees in excess of
$3,000,000 per year may be designated and spent by Licensor for
Monitoring Services, upon the submission of reasonable supporting
documentation and subject to compliance with the conditions set forth
above in the immediately preceding sentence.
(b) the manpower, including salary and benefits, required to
implement the responsibilities of the Communications Director and his/her
team of five (5) country managers across all of Licensee's
communications, provided that such country managers shall be paid at
competitive rates giving effect to the business conditions in each
country and shall devote, in a manner consistent with the terms of this
Agreement, all of their efforts to support Licensee's business, except
that Licensor shall have the right, with the approval of Licensee's CEO,
which shall not be unreasonably withheld, to use such persons from time
to time to support other Licensor activities in the Latin American
region;
(c) any additional manpower, including salary and benefits, based
on the needs of Licensor and Licensee's business and with the agreement
of Licensee's CEO, required to implement the responsibilities of the
Communications Director and his/her team;
(d) following consultation with Licensee's CEO, the
implementation of activities in support of the Licensed Master Service
Marks ("the Corporate Brand") and the position of the RV, as follows:
corporate events, media placement, creativity/production; brand agency
costs, sponsorships/events, and media relations ("Corporate Brand
Efforts") and
16
<PAGE> 380
Exhibit D
(e) other items specified in this Agreement.
The foregoing obligation shall not apply to Brand Fund Fees received for
the last Payment Period of the renewal term (unless the parties enter a new
service mark license agreement with regard to the Licensed Marks), and shall
immediately cease if this Agreement terminates for any other reason.
5.4 Audit of Licensee's Records. Licensee and any sublicensees shall
keep accurate books and records of all Gross Service Revenues, payments and
Brand Fund Fees, together with such other data as is necessary and material to
determine accurately the amounts payable hereunder. Licensor and Licensor's
designee shall be entitled to inspect, during normal business hours, the books
and records of Licensee and any sublicensees to ensure the proper reporting of
Gross Service Revenues, payments and Brand Fund Fees and Licensee and any
sublicensee's compliance with the terms and conditions of this Agreement. If
such inspection discloses no deficit or a cumulative deficit over the term of
this Agreement through the last Payment Period ending before the date of the
inspection of less than five percent (5%) from the statements provided under
Section 5.2, the cost of such inspection shall be borne by Licensor. If any
such cumulative deficit is five percent (5%) or greater, the cost of such
inspection shall be borne by Licensee or the appropriate sublicensee. Any
payments due under this Section shall be made in accordance with Section 22
hereof.
5.5 Cure or Termination. If Licensee is in default of any payment or
fee due hereunder, Licensee shall have thirty (30) days after receipt of
written notice of such default to it by Licensor to cure said default, failing
which this Agreement shall be subject
17
<PAGE> 381
Exhibit D
to termination by Licensor exercisable thirty (30) days after delivery of
written notice to Licensee. If Licensee is in default two (2) or more times in
any two (2) year period, the Licensor shall have the right to terminate this
Agreement immediately by delivery of written notice to Licensee by Licensor.
6. Brand Support Functions. Upon mutual agreement, Licensor and
Licensee may enter into a separate agreement, whereby Licensee may procure from
Licensor and Licensor would provide to Licensee certain marketing, promotion
and sales support functions in connection with the Licensed Services.
7. Retention of Rights. All existing goodwill in the Licensed Marks
inures to the sole benefit of the Licensor. Licensee's use of the Licensed
Marks and any and all goodwill that derives from such use, shall, except as
provided in Section 2.2(b), inure to the sole benefit of the Licensor. Except
as otherwise expressly provided in this Agreement, Licensor shall retain all
rights in and to the Licensed Marks, including all rights of ownership in and
to the Licensed Marks and the right to license others to use the Licensed Marks
for any product or service in the Licensed Territory and the rest of the
Universe. Licensee shall execute all documents required to effect any transfer
of rights to Licensor.
8. Quality Control.
8.1 General. Licensee acknowledges that the Licensed Services covered
by this Agreement must be of sufficiently high quality as to provide maximum
enhancement to and protection of the Licensed Marks and the goodwill they
symbolize. Licensee further acknowledges that the maintenance of high quality
services is of the essence of this
18
<PAGE> 382
Exhibit D
Agreement and that it will utilize only Marketing Materials which do not
disparage or place in disrepute Licensor, its businesses or its business
reputation, or adversely affect or detract from Licensor's goodwill.
8.2 Service Specifications. Licensee shall use the Licensed Marks only
in accordance with, and in connection with, the marketing and provision of
Licensed Services that meet the Service Specifications. The Service
Specifications shall consist of technical performance, customer service,
customer satisfaction and Marketing Specifications, shall be set forth in
writing by Licensor and become Schedule E to this Agreement, and shall be
defined further as the Licensed Services are developed for introduction and may
evolve to meet market and other needs. The Service Specifications are deemed to
be Proprietary Information under Section 21 hereof. Licensee shall not commence
or continue to offer any Licensed Service under the Licensed Marks unless it
meets each of the relevant Service Specifications. The initial definition of
the Service Specifications will be determined solely by Licensor, following
consultation with Licensee, and shall be provided to Licensee for the countries
of Brazil, Chile, Colombia and Peru within three (3) months of the Effective
Date of this Agreement, and for any other country or jurisdiction in the
Licensed Territory, within three (3) months of written notice to Licensor that
Licensee intends to begin offering the Licensed Services in such country or
jurisdiction. Licensee shall use its commercially reasonable best efforts to
become fully compliant with the relevant Service Specifications within six (6)
months after the delivery of such Service Specifications by Licensor to
Licensee.
8.3 Changes to Service Specifications.
19
<PAGE> 383
Exhibit D
(a) Except with respect to Marketing Specifications, the Service
Specifications may be amended, modified or supplemented from time to time by
Licensor, following consultation with Licensee. Following any such amendment,
modification or supplement to the Service Specifications, Licensee shall within
a reasonable time determined in the reasonable judgment of Licensor following
consultation with Licensee adhere to such amendment, modification or
supplement.
(b) The Marketing Specifications may be amended, modified or
supplemented from time to time by Licensor in its sole discretion. Within sixty
(60) days of Licensor's request to amend, modify, or supplement the Marketing
Specifications, Licensee shall adhere to such amendment, modification or
supplement.
8.4 Quality Service Reviews: Right of Inspection. Licensor shall have
the right to designate from time to time one or more Quality Control
Representatives, who shall have the right at any time upon fifteen (15) days
prior notice to conduct during Licensee's regular business hours an inspection,
test, survey and review of Licensee's facilities and otherwise to determine
compliance with the applicable Service Specifications. Licensee agrees to
furnish to the Quality Control Representatives (i) samples or simulations of
Licensed Services and Marketing Materials that are marketed or provided under
the Licensed Marks as Licensor may request from time to time, for inspections,
surveys, tests and reviews to assure conformance of the Licensed Services and
the Marketing Materials with the applicable Service Specifications and (ii) all
performance data in its control relating to the conformance of such Licensed
Services with the applicable Service Specifications. Licensor may independently
conduct continuous customer satisfaction
20
<PAGE> 384
Exhibit D
surveys to determine if Licensee is meeting the Service Specifications. Any
information obtained by either party or disclosed by one party to the other
party pursuant hereto shall be deemed to be Proprietary Information of the
party obtaining the information or disclosing the information pursuant to
Section 21 hereof. If Licensee has actual knowledge that it is not complying
with any Service Specification it shall notify Licensor and the provisions of
Section 9 shall apply to such noncompliance.
8.5 Communications Director. As set forth in Section 5.3(b) and (c), a
Communications Director and at least five (5) persons reporting to the
Communications Director shall be employed by Licensor at Licensor's sole cost
and expense from the Brand Fund Fee. The Communications Director shall have
several responsibilities relating to Licensee's use of the Licensed Marks,
which shall include: (i) brand management, (ii) marketing communications, (iii)
advertising and direct marketing, (iv) public relations, and (v) the monitoring
of compliance with Service Specifications. The Communications Director shall
(i) review and approve, subject to the concurrence of the Licensor's Vice
President of Communications for Latin America or other Licensor-designated
representative, all Licensee-produced Marketing Materials to ensure adherence
to Licensor's brand positioning, policies and values and shall receive
directions regarding brand position, brand strategy, brand values and
implementation parameters from Licensor's Vice-President of Communications for
Latin America or other Licensor-designated representative; (ii) ensure
coordination and alignment of Licensee's and Licensor's brand activities,
including brand alignment of all of Licensee's corporate communications,
including advertising, sponsorship/events, and identity; (iii) provide
21
<PAGE> 385
Exhibit D
feedback to Licensee on reports required in the Service Specifications and
reporting Licensee's performance with regard to Service Specifications to
Licensor, (iv) planning and execution of public relations and media relations
programs as further described herein, (v) planning and execution of marketing
communications programs as further described herein, and (vi) manage, along
with Licensor's Vice President of Communications for Latin America or other
Licensor-designated representative, the advertising, direct marketing and
public relations brand agencies used by Licensee. All activities relating to
the Corporate Brand Efforts that are funded by the Brand Fund Fee shall be
planned and implemented in the Latin American region by the Licensor's Latin
America Communications Group with the participation of Licensee's CEO and the
Communications Director. The parties agree that all communications efforts,
whether Corporate Brand Efforts or Licensee Brand Efforts, shall be aligned to
Licensor's brand positioning and strategy, but their implementation shall
ensure relevancy to the markets to which they will be targeted. The
Communications Director shall also attend all Marketing Task Force or similar
meetings of Licensor and Licensee, and will attend relevant marketing and
strategy meetings of both Licensor and Licensee. The Communications Director
will work closely with Licensee's CEO and his/her senior management team and
the Licensor's Vice President of Communications for Latin America in
coordinating the overall alignment of Licensee's and Licensor's brand building
activities in the Licensed Territory. Specifically, Licensee's CEO and his/her
senior management team shall provide the Communications Director with the
Licensee's business direction, strategies and plans for the Communications
Director's use in the planning and execution of marketing
22
<PAGE> 386
Exhibit D
communications, public relations and media relations programs which support
Licensee's business goals. Communications programs developed for Licensee Brand
Efforts shall be approved by Licensee's senior management team. Public
relations and media relations programs developed for Licensee Brand Efforts
shall be approved by Licensee's CEO. Licensor and Licensee shall jointly
evaluate the performance of the Communications Director, and Licensor's Vice
President of Communications for Latin America or other Licensor-designated
representative shall provide performance reviews to the Communications
Director. After consultation with Licensee, Licensor will have the sole right
to replace the Communications Director as well as any person reporting to the
Communications Director who was designated by Licensor. Licensee's CEO shall
contact Licensor's Vice President for Latin America regarding problems or
concerns which may arise from time to time with regard to the Communications
Director and his/her team, and Licensor's Vice President for Latin America
shall consult with Licensee's CEO regarding the appropriate corrective measures
to be taken. Funding for Corporate Brand Efforts in Latin America will be
defined and managed by Licensor with the active participation of Licensor's
Communications Director and Licensee's CEO. Licensee shall use brand agencies
designated by Licensor provided that their cost, service and quality are
competitive with local first class international agencies operating in Latin
America. The Licensor's Vice President of Communications for Latin America or
other Licensor-designated representative shall oversee the performance of and
shall have responsibility for employing any corrective measures required with
regard to the brand agencies, but Licensee's CEO and his/her senior management
team shall provide input to Licensor in
23
<PAGE> 387
Exhibit D
connection with the evaluation of the brand agencies. In the event that one or
more of the brand agencies designated by Licensor do not meet or continue to
meet relevant cost, service and quality criteria after corrective measures are
implemented, Licensor's Vice President of Communications for Latin America or
other Licensor-designated representative, with Licensee CEO's active
participation, shall select alternative agencies. Licensee's CEO and his/her
senior management team shall communicate directly with the Communications
Director to enable the effective performance of his/her responsibilities and
management of issues related to the Licensed Marks.
8.6 Costs. Each party shall bear its own costs associated with, and all
risk of loss and damage resulting from, all inspections, surveys, tests and
reviews under this Section. Except as otherwise agreed herein, Licensee shall
bear the costs for marketing communications, public relations and local
advertising; while Licensor shall bear the cost of regional advertising in
Latin America from the Brand Fund Fee.
8.7 Sponsorship. Licensee shall not use the Licensed Marks to sponsor,
endorse, or claim affiliation with any event, meeting, charitable endeavor or
any other undertaking without the express written permission of Licensor. Any
breach of this provision shall be deemed a Significant Breach by Licensee.
9. Remedies for Noncompliance with Service Specifications.
9.1 Initial Cure Period. If Licensor becomes aware that Licensee is not
complying with any Service Specifications, or otherwise is in breach as defined
by Sections 12.2(d) or (e), Licensor shall notify Licensee in writing, setting
forth, in reasonable detail, a written description of the noncompliance and any
suggestions for
24
<PAGE> 388
Exhibit D
curing such noncompliance. Licensee shall have sixty (60) days from receipt of
the description of noncompliance to correct such noncompliance, in the case of
all Service Specifications, except those Service Specifications relating to
Marketing Specifications (an "Initial Cure Period"). In the case of Licensee's
noncompliance with respect to Service Specifications relating to Marketing
Materials or Marketing Specifications, or where the Licensee otherwise is in
breach as defined by Sections 12.2(a) or (f), Licensee shall immediately cease
using any and all Marketing Materials which are in noncompliance with Service
Specifications relating to Marketing Materials or Marketing Specifications,
cease any other activity in noncompliance with these Service Specifications,
and withdraw all Marketing Material in noncompliance with the Marketing
Specifications. If there is any other noncompliance with respect to Service
Specifications or if the Licensee is otherwise in breach as defined in Sections
12.2(a) or (f), and such breach continues beyond a twenty (20) day period,
Licensee shall within a reasonable time but in any event within sixty (60) days
of the end of such twenty (20) day period either comply with the Service
Specifications or shall be deemed to be in breach of this Agreement.
9.2 Second Cure Period. If the noncompliance with the technical
performance, customer service or customer satisfaction Service Specifications
other than Marketing Specifications is not cured within the Initial Cure
Period, either party may notify the other party thereof, setting forth, in
detail, the reasons for noncompliance. Within ninety (90) days of receipt of
any such notification, Licensor and Licensee shall create a mutually
acceptable, detailed plan to rectify such noncompliance and Licensee and
Licensor shall agree upon a reasonable and prompt timetable (the "Second Cure
Period") to develop and
25
<PAGE> 389
Exhibit D
implement this plan. Each party shall use all reasonable efforts to develop and
implement this plan.
9.3 Final Cure Period. If the noncompliance with the technical
performance, customer service or customer satisfaction Service Specifications
continues beyond the Second Cure Period, or if the parties are unable to reach
agreement on a plan within the ninety (90) day time period set forth in Section
9.2 hereof and the Licensee is still in noncompliance, either party may notify
the other party thereof and Licensee shall either cease offering the Licensed
Service(s) which is or are not in compliance until it can comply with the
Service Specifications or be deemed to be in breach of this Agreement.
9.4 Potential Injury to Persons or Property. Notwithstanding the
foregoing, in the event that Licensor reasonably determines that any
noncompliance with any Service Specification creates a material threat of
personal injury or injury to property of any third party, upon written notice
thereof by Licensor to Licensee, Licensee shall either cease offering the
applicable Licensed Service under the Licensed Marks until it can comply with
the Service Specifications or be deemed to be in breach of this Agreement.
9.5 Costs. Except as otherwise expressly provided herein, all costs
relating to effecting cures, including Licensor's and any consulting firm's
and/or arbitrator's time and expenses and any additional monitoring required,
shall be borne by Licensee.
10. Protection of Licensed Marks.
10.1 Ownership and Rights. Except as otherwise expressly provided in
Section 2.2(b) Licensee acknowledges that Licensor is the sole owner of all
rights, title and interest in and to the Licensed Marks. Licensee admits the
validity of, and agrees not to challenge
26
<PAGE> 390
Exhibit D
the ownership or validity of the Licensed Marks. Licensee shall take no action
with respect to obtaining intellectual property rights in the Licensed Marks
without the approval of Licensor. Licensor represents and warrants that the use
of the Licensed Master Service Marks by the Licensee for the Licensed Services
does not infringe the registered marks of any third party. Licensor shall use
reasonable efforts to ensure that each Licensed Ancillary Service Mark (other
than those Licensed Ancillary Service Marks developed by Licensee as provided
in Section 2.2) is a Mark which is available for use and registration in the
Licensed Territory for the particular service at issue. Licensee shall not
disparage or adversely affect the validity of the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or the Licensed Trade Dress.
Licensee will not grant or attempt to grant a security interest in the Licensed
Master Service Marks, the Licensed Ancillary Service Marks, or the Licensed
Trade Dress, or this Agreement, or to record any such security interest in the
Licensed Territory or elsewhere against any trademark or service mark
application or registration belonging to Licensor. Licensee agrees to execute
all documents including a Registered User Application reasonably requested by
Licensor to effect further registration, maintenance and renewal of the
Licensed Master Service Marks and the Licensed Ancillary Service Marks and,
where applicable, to record Licensee as a registered user of the Licensed
Master Service Marks and the Licensed Ancillary Service Marks. For purposes of
this Agreement, Licensee shall be considered a "registered user" of the
Licensed Master Service Marks and Licensed Ancillary Service Marks under the
laws of the countries in the Licensed Territory, from time to time applicable.
27
<PAGE> 391
Exhibit D
10.2 Similar Marks. Licensee further agrees not to use, acquire or
register in any country any Mark resembling or confusingly similar or deceptive
or misleading with respect to the Licensed Marks and not to use or register the
Licensed Marks or any part thereof as part of its corporate or trade name
except as authorized in this Agreement. Licensee further agrees not to use or
register in any country any Mark which dilutes the Licensed Marks. If any
application for registration is or has been filed in any country or political
entity by Licensee which relates to any Mark which, in the sole opinion of
Licensor acting in good faith, is confusingly similar, deceptive or misleading
with respect to the Licensed Master Service Marks, the Licensed Ancillary
Service Marks, or the Licensed Trade Dress, or which dilutes the Licensed
Master Service Marks, the Licensed Ancillary Service Marks, or the Licensed
Trade Dress, Licensee shall, within a reasonable time, but in any event within
30 days of written request from Licensor, at Licensor's sole discretion acting
in good faith, immediately abandon any such application or registration or
assign it to Licensor. If Licensee uses any Mark which, in the sole opinion of
Licensor acting in good faith, is confusingly similar, deceptive or misleading
with respect to the Licensed Master Service Marks, the Licensed Ancillary
Service Marks, or the Licensed Trade Dress, or which dilutes the Licensed
Master Service Marks, the Licensed Ancillary Service Marks, or the Licensed
Trade Dress, or if Licensee uses the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress in connection
with any product or in connection with any service not specifically authorized
hereunder, Licensee shall, within a reasonable time, but in any event within
thirty (30) days of receiving written request from Licensor, permanently cease
such use. Licensee shall reimburse Licensor
28
<PAGE> 392
Exhibit D
for all the costs and expenses of any litigation, opposition, cancellation or
related legal proceedings, including legal fees, instigated by Licensor or its
authorized representative, in connection with any such use, registration or
application.
10.3 Infringement. In the event that Licensee learns of any infringement
or threatened infringement of the Licensed Marks or any unfair competition,
passing-off or dilution with respect to the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress, or any third
party alleges or claims that either the Licensed Master Service Marks, the
Licensed Ancillary Service Marks, or the Licensed Trade Dress are liable to
cause deception or confusion to the public, or are liable to dilute or infringe
any right of such third party, Licensee shall immediately notify Licensor or
its authorized representative giving particulars thereof and Licensee shall
provide necessary information and assistance to Licensor or its authorized
representatives in the event that Licensor decides that proceedings should be
commenced or defended.
Licensor shall have exclusive control of any litigation, opposition,
cancellation or related legal proceedings, or the settlement or compromise of
any claim. The decision whether to bring, defend, maintain or settle any such
proceedings shall be at the exclusive option and expense of Licensor and all
recoveries shall belong exclusively to Licensor and all reasonable expenses or
losses of Licensee in connection therewith shall be paid by Licensor to
Licensee. Licensee will not initiate any such litigation, opposition,
cancellation or related legal proceedings in its own name but, at Licensor's
request, agrees to be joined as a party in any action taken by Licensor to
enforce its rights in the Licensed Master Service Marks, the Licensed Ancillary
Service Marks, or the Licensed Trade Dress.
29
<PAGE> 393
Exhibit D
Licensor shall reimburse Licensee for all reasonable expenses of Licensee
solely in its role as a party in the action. Nothing in this Agreement shall
require or be deemed to require Licensor to enforce the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or the Licensed Trade Dress.
In the event of any claim, action, proceeding or suit by a third party
against Licensee alleging an infringement by any of the Licensed Marks or
copyright, by reason of the use, in accordance with the Service Specifications,
of the Licensed Master Service Marks, the Licensed Ancillary Service Marks, or
the Licensed Trade Dress in association with the Licensed Service(s), Licensor,
at its expense, will defend Licensee subject to the following conditions:
Licensor will reimburse Licensee for any reasonable costs, expenses, and
legal fees incurred in connection with obtaining advice concerning its
liability with respect to the claim, action, proceeding or suit, but not legal
fees, costs and expenses involved in connection with the defense of the claim,
action, proceeding or suit, unless incurred at Licensor's written request or
authorization in which case Licensor will promptly reimburse Licensee in full
for such amounts. Licensor also will indemnify Licensee against any liability
(including any fines, penalties and punitive damages) assessed against Licensee
by final judgment or order from which no appeal lies or the time for appeal has
expired on account of such infringement or violation arising out of such use.
10.4 Compliance With Laws. In the performance of this Agreement,
Licensee and Licensor shall comply with all applicable laws and regulations,
including those laws and regulations particularly pertaining to the proper use
and designation of Marks in the
30
<PAGE> 394
Exhibit D
countries in the Licensed Territory. Should either party be or become aware of
any applicable laws or regulations which are inconsistent with the provisions
of this Agreement, such party shall promptly notify the other of such
inconsistency. In such event, Licensor may, at its option, either waive the
performance of such inconsistent provisions or negotiate with Licensee to make
changes in such provisions to comply with applicable laws and regulations.
11. No Transfer of Licensed Rights.
11.1 No Sublicensing; Assignment; Rights to Marketing Materials and
Trade Dress. Licensee shall not, except as provided in Section 2.1, (i) assign,
license, transfer or part with any of its rights or obligations hereunder
(whether by amalgamation, merger, consolidation, sale or otherwise), or (ii)
grant or purport to grant any sublicense in respect of the Licensed Marks.
11.2 Copyright License. Licensee acknowledges that the Marketing
Materials and all proprietary rights therein are owned by or licensed to and
reserved to Licensor and they are valid. Licensor hereby grants Licensee a
royalty-free, non-exclusive, copyright license in the Licensed Territory to
reproduce, distribute, display, perform and create derivative works from all
Marketing Materials in connection with the provision of Licensed Services
pursuant to this Agreement. Licensee shall neither acquire nor assert
copyright, patent, industrial design, service mark or trademark ownership or
any other proprietary rights in and to the Marketing Materials or in any
derivation, adaptation or variation thereof. Any and all trademarks, service
marks, copyrights (subject to any moral rights of Licensee which may not be
assigned by operation of applicable law), or related rights accruing to
31
<PAGE> 395
Exhibit D
Licensee in the Marketing Materials by virtue of its sale, distribution,
performance or provision of the services in the Licensed Territory shall vest
automatically at the time of accrual solely and exclusively in Licensor.
Licensee shall sign all documents requested by Licensor to effectuate the
transfer of these rights to Licensor, failing which Licensor may, and Licensee
hereby grants Licensor the right to, execute documents on behalf of Licensee to
secure or effectuate such rights. In the event this Agreement is terminated,
canceled or expires, Licensee shall immediately upon such termination,
cancellation or expiration cease all use in any manner of such Marketing
Materials and shall assign any and all right, title and interest in and to any
and all trademarks, service marks, copyrights, (subject to any moral rights of
Licensee which may not be assigned by operation of applicable law) and other
related proprietary rights in the Marketing Materials or in any derivation,
adaptation or variation thereof the Licensee owns to Licensor.
11.3 Trade Dress. Licensee shall assign to Licensor all rights, title,
interest and related goodwill in and to any Licensed Trade Dress it develops or
uses in connection with the provision of services under this Agreement. Such
assignment shall be made on a non-fee, royalty-free basis.
12. Terms and Termination.
12.1 Term.
(a) Unless earlier terminated in accordance with this Section
12, the initial term of this Agreement shall be five (5) years from the
Effective Date. This Agreement shall automatically be renewed at the end of the
initial term for an additional five (5) year term,
32
<PAGE> 396
Exhibit D
provided that Licensee is not in default pursuant to Section 5 or in breach
pursuant to Section 12.2.
(b) Licensor in its sole discretion may terminate this Agreement if
Licensor and/or its other Affiliates cease to own, directly and indirectly, a
majority of the voting power of Licensee.
(c) All sublicenses granted hereunder shall terminate upon the
termination of this Agreement.
(d) This Agreement shall terminate in the event of the termination for
failure of Licensee to perform under the Nancy Investment Agreement or other
agreements related thereto.
12.2 Breach by Licensee. Licensor may terminate this Agreement at any
time in the event of a Significant Breach by Licensee. A "Significant Breach by
Licensee" shall mean, after exhaustion of any applicable cure provisions set
forth in Sections 9 or 5 hereof, any of the following:
(a) Licensee's use of any Mark (including the Licensed Master Service
Marks, the Licensed Ancillary Service Marks, or Licensed Trade Dress) contrary
to this Agreement including any use which disparages or places in disrepute
Licensor, its businesses, or its business reputation, or adversely affects or
detracts from Licensor's goodwill;
(b) Licensee's refusing or neglecting a request by Licensor for access
to Licensee's facilities or Marketing Materials, which continues for thirty
(30) days following a written description of the noncompliance and any
suggestions for curing such noncompliance;
33
<PAGE> 397
Exhibit D
(c) Licensee's Bankruptcy or Licensee's licensing, assigning,
transferring or parting with (or purporting to license, assign, transfer or
part with) any of the rights granted in this Agreement to others without the
prior written approval of Licensor;
(d) Licensee's failure to maintain the Service Specifications and
other information furnished under this Agreement in confidence or failing to
restrict the transmission of information, products and commodities as required
by this Agreement;
(e) Licensee's failure to abide by the Service Specifications in
the sale, distribution, performance or provision of the Licensed Services,
other than relating to Marketing Materials;
(f) Licensee's failure to abide by the Service Specifications
relating to Marketing Materials in the sale, distribution, performance or
provision of the Licensed Services;
(g) Licensee's failing to make any payment specified in this
Agreement, including without limitation payments required under Sections 4 or 5
or 8 or 9 hereof;
(h) Licensee's failure to abide by Section 8.7 of this Agreement
relating to sponsorship; or
(i) Licensee's failure to obtain the recordal, approval or
permits required under Section 17 hereof.
12.3 Termination Obligations. In the event this Agreement
terminates, expires or is canceled in accordance with Section 12.2 hereunder,
Licensee shall immediately, and permanently cease all use of the Licensed
Marks, the use of "AT&T" as part of its corporate and trade name, and use of
any proprietary materials of Licensor furnished hereunder and shall not use any
confusingly similar name, Mark or trade dress, and
34
<PAGE> 398
Exhibit D
Licensee shall have no further rights under this Agreement. In the event this
Agreement terminates or expires in accordance with any other provision of this
Agreement, Licensee shall have six (6) months to cease all use of the Licensed
Marks and any proprietary materials of Licensor furnished hereunder and to
change its corporate name and to cause its Subsidiaries that are using "AT&T"
as part of their corporate names to change their names, and shall thereafter
not use any confusingly similar name, Mark or trade dress and Licensee shall
have no further rights under this Agreement.
12.4 No Waiver of Rights. In addition to any other provision of
this Section 12, each party will retain all rights to any other remedy it may
have at law or equity for any breach by the other of this Agreement.
13. Indemnity. Licensee shall defend, indemnify and hold
Licensor, its other Affiliates and authorized representatives harmless against
all claims, suits, proceedings, costs, damages and judgments incurred, claimed
or sustained by third parties whether for personal injury, or property damage,
due to Licensee's marketing, sale, or use of services bearing the Licensed
Master Service Marks, the Licensed Ancillary Service Marks, or the Licensed
Trade Dress and shall indemnify Licensor for all damages, losses, costs and
expenses (including reasonable attorneys' fees and expenses) due to such use or
any improper or unauthorized use of the Licensed Marks.
14. Insurance.
14.1 Insurance Policy. Licensee shall maintain, at its own
expense, in full force and effect at all times during which services bearing
the Licensed Master Service Marks, the Licensed Ancillary Service Marks or the
Licensed Trade Dress are being sold, with a
35
<PAGE> 399
Exhibit D
responsible insurance carrier acceptable to Licensor, at least a Five (5)
Million U.S. Dollar (U.S. $5,000,000.00) comprehensive general liability
insurance policy with respect to the services offered under the Licensed Marks.
This insurance shall name Licensor as an insured party, shall be for the
benefit of Licensor and Licensee and shall provide for at least ten (10) days
prior written notice to Licensor and Licensee of the cancellation or any
substantial modification of the policy. This insurance may be obtained for
Licensor by Licensee in conjunction with a policy which covers services and/or
products other than the Licensed Services covered under this Agreement.
14.2 Evidence of Insurance. Licensee shall, from time to time upon
reasonable request by Licensor, promptly furnish or cause to be furnished to
Licensor evidence in form and substance satisfactory to Licensor, of the
maintenance of the insurance required by Section 14.1 hereof, including without
limitation originals or copies of policies, certificates of insurance (with
applicable riders and endorsements) and proof of premium payments.
15. Notices, etc. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to Licensee:
Kiri Inc.
2333 Ponce de Leon Blvd.
Coral Gables, FL 33134
Attn: Chief Executive Officer
36
<PAGE> 400
Exhibit D
General Counsel
Fax No.: 305-774-2001
If to Licensor:
AT&T Corp.
295 N. Maple Avenue
Basking Ridge, New Jersey 07920
Attn: General Counsel
Fax No.: 908-953-8360
and
AT&T Corp.
Frank L. Politano, Esq.
Trademark and Copyright Counsel
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Fax No.: 908-221-5783
or to such other address as such party shall have designated by notice so given
to each other party.
16. Compliance with Law. Nothing in this Agreement shall be
construed to prevent Licensor or Licensee from complying fully with all
applicable laws and regulations, whether now or hereafter in effect.
17. Governmental Licenses, Permits and Approvals. Licensee, at
its expense, shall be responsible for obtaining and maintaining all licenses,
permits and Regulatory Approvals which are required by all Regulatory
Authorities with respect to this Agreement, and to comply with any requirements
of such Regulatory Authorities for the registration, approval or recording of
this Agreement or any related Registered User Applications and for making
payments hereunder. Licensee shall furnish to Licensor written evidence from
such Regulatory Authorities of any such licenses, approvals, permits,
clearances,
37
<PAGE> 401
Exhibit D
authorizations, Regulatory Approvals, registration or recording. Licensor and
Licensee agree that Licensor shall record this License Agreement with the
appropriate authorities in the Licensed Territory where such licenses shall be
recorded, pay the necessary fees and do all that may be required to effect such
recordation and to obtain recognition of Licensee as an authorized or
registered user of the Licensed Marks.
18. Export
Licensee acknowledges that any products, software, and technical
information (including, but not limited to services and training) provided under
this Agreement are subject to U.S. export laws and regulations and any use or
transfer of such products, software, and technical information must be
authorized under those regulations. Licensee agrees that it will not use,
distribute, transfer, or transmit the products, software, or technical
information (even if incorporated into other products) except in compliance with
U.S. export regulations. If requested by Licensor, Licensee also agrees to sign
those export-related documents which may be required for Licensor to comply with
U.S. export regulations. The obligations of this section shall survive and
continue after any termination of rights under this Agreement.
19. Applicable Law; Jurisdiction. The construction, performance
and interpretation of this Agreement shall be governed by the laws of the State
of New York, U.S.A. without giving effect to its principles or rules of
conflicts of law to the extent that such principles or rules would require or
permit the application of the laws of another jurisdiction, provided that if
the foregoing laws should be modified during the term hereof in such a way as
to adversely affect the original intent of the parties, the parties will
38
<PAGE> 402
Exhibit D
negotiate in good faith to amend this Agreement to effectuate their original
intent as closely as possible. Subject to Section 20, Licensee and Licensor
hereby irrevocably and unconditionally consent to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America located in the State of New York (the "New York Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
in a court except in such courts), waives any objection to the laying of venue
of any such litigation in the New York Courts and agrees not to plead or claim
in any New York Court that such litigation brought therein has been brought in
an inconvenient forum. Licensee and Licensor hereby waive any right to a trial
by jury.
20. Dispute Resolution.
20.1 Arbitration. Any dispute, controversy or claim arising out of,
relating to, or in connection with, this Agreement, or the breach, termination
or validity thereof, whether based on contract, tort, statute, fraud,
misrepresentation or any other legal or equitable theory (each a "Claim"),
shall be finally settled by binding arbitration. The arbitration shall be
conducted in accordance with the CPR Rules for Non-Administered Arbitration in
effect at the time of the arbitration, except as they may be modified herein or
by mutual agreement of the parties. The seat of the arbitration shall be New
York City, New York, and it shall be conducted in the English language.
Notwithstanding Section 19 hereof, the arbitration and this clause shall be
governed by Title 9 (Arbitration) of the United States Code. Any request for
interim measures pursuant to Section 23.5 hereof or
39
<PAGE> 403
Exhibit D
otherwise shall not be deemed incompatible with, or a waiver of, this agreement
to arbitrate.
20.2 Number of Arbitrators/Selection. The arbitration shall be
conducted by three arbitrators. The party initiating arbitration (the
"Claimant") shall appoint an arbitrator in its request for arbitration (the
"Request"). The other party (the "Respondent") shall appoint an arbitrator
within 30 days of receipt of the Request and shall notify the Claimant of such
appointment in writing. If within 30 days of receipt of the Request by the
Respondent, either party has not appointed an arbitrator, then that arbitrator
shall be appointed by CPR Institute for Dispute Resolution. The first two
arbitrators appointed in accord with this provision shall appoint a third
arbitrator within 30 days after the Respondent has notified Claimant of the
appointment of the Respondent's arbitrator or, in the event of a failure by a
party to appoint, within 30 days after the CPR Institute for Dispute Resolution
has notified the parties and any arbitrator already appointed of its
appointment of an arbitrator on behalf of the party failing to appoint. When
the third arbitrator has accepted the appointment, the two arbitrators making
the appointment shall promptly notify the parties of the appointment. If the
first two arbitrators appointed fail to appoint a third arbitrator or so to
notify the parties within the time period prescribed above, then the CPR
Institute for Dispute Resolution shall appoint the third arbitrator and shall
promptly notify the parties of the appointment. The third arbitrator shall act
as Chair of the tribunal.
20.3 Certain Procedures. The arbitration panel shall strictly
limit discovery to the production of documents directly relevant to the facts
alleged by the Claimant and the
40
<PAGE> 404
Exhibit D
Respondent, and if depositions are required, each party shall be limited to five
depositions. Each party shall bear its own expenses, but those related to the
compensation of the arbitrators shall be borne equally.
20.4 Arbitral Award. The arbitral award shall be in writing, state
only the damages and injunctive relief granted and be final and binding on the
parties. The parties hereto expressly waive and forgo any right to punitive,
exemplary or similar damages as a result of any Claim. The arbitrators shall
orally state the reasoning on which the arbitral award rests but shall not
state such reasoning in any writing. The arbitration panel shall endeavor to
issue the arbitral award within six months of the Request, but failure to do so
shall not effect the validity of the arbitral award. The parties agree that the
existence and contents of the entire arbitration, including the award, shall be
deemed a compromise of a dispute under Rule 408 of the Federal Rules of
Evidence, shall not be discoverable in any proceeding, shall not be admissible
in any court (except for the enforcement thereof) or arbitration and shall not
bind or collaterally estop either party with respect to any claim or defense
made by any third party.
20.5 Confidentiality of Proceedings. All proceedings in connection
with any arbitration, including its existence, the content of the proceedings
and any decision, shall be kept confidential to the maximum extent possible
consistent with the law. The arbitrator shall issue an order preventing the
parties, CPR Institute for Dispute Resolution and any other participants to the
arbitration from disclosing to any third party any information obtained via the
arbitration, including discovery of documents, evidence, testimony and the
award except as may be required by law.
41
<PAGE> 405
Exhibit D
20.6 Judgment. Judgment upon the decision may be entered by any
court having jurisdiction thereof or having jurisdiction over the relevant
party or its assets, provided that the party entering the award shall request
that the court prevent the award from becoming publicly available except as may
be required by law.
21. Confidentiality of Information and Use Restriction
The Service Specifications disclosed and/or furnished to Licensee by
Licensor under this Agreement and all copies of the Service Specifications made
by Licensee, including translations, compilations and partial copies (the
"Material") shall remain the property of the Licensor and shall be returned to
Licensor upon request. Licensee shall use the Material solely for the purposes
described in this Agreement. Licensee shall hold in confidence during and after
the termination, expiration or cancellation of this Agreement and shall not
disclose such Material to any third party without the prior written consent of
the Licensor.
The Proprietary Information disclosed and/or furnished by one party to
another under this Agreement and all copies thereof made by the receiving
party, including translations, compilations and partial copies shall remain the
property of the disclosing party and shall be returned to the disclosing party
upon request. The receiving party shall use the Proprietary Information solely
for the purposes described in this Agreement. The receiving party shall hold in
confidence during and after the termination, expiration or cancellation of this
Agreement and not disclose, provide, or otherwise make available, in whole or
in part such Proprietary Information to any third party without the prior
written consent of the disclosing party, except Proprietary Information which,
as established by
42
<PAGE> 406
Exhibit D
reasonable proof by the receiving party:
(i) at the time of the alleged disclosure, is known to the
public;
(ii) after the time of disclosure, becomes known to the public
other than by or through a violation of this Agreement by
the receiving party either directly or indirectly;
(iii) at the time of disclosure, is in the possession of the
receiving party and was not acquired directly or indirectly
from the disclosing party;
(iv) after the time of disclosure is lawfully received by the
receiving party from a third party who has lawfully
received it; or
(v) at the time of disclosure, is required to be disclosed by law
or by any government or regulatory agency having
jurisdiction for telecommunication services, the receiving
party making reasonable effort to have the agency retain the
Proprietary Information in confidence.
Both parties shall ensure that only its employees with a need to know
the Proprietary Information shall have access to it and then only if those
employees have entered an appropriate confidentiality and use restriction
agreement obligating them at least to the same extent as the Licensee is
obligated under this Agreement.
The receiving party of the Proprietary Information shall exercise a
standard of care under this Section that is not less than the standard of care
Licensor exercises under its own corporate policy for confidentiality and use
restrictions for its own Proprietary Information.
If and when Licensor receives Proprietary Information of Licensee
through
43
<PAGE> 407
Exhibit D
inspection, test, survey and review of Licensee's facilities and otherwise to
determine compliance with the applicable Service Specifications, Licensor's
non-disclosure requirements hereunder shall be for a period not to exceed three
years from the termination or expiration of this Agreement.
22. Payments.
22.1 Payments. All payments or fees due under this Agreement
("Payments") shall be made on the date that they are due and shall be subject
to a late payment charge equal to the lesser of (i) U.S. dollar LIBOR rate
(London Inter Bank Offer Rate) quoted for sixty (60) day advances (quoted on
TELERATE, a service of Dow Jones) plus 600 basis points starting on the date
the Payment is due plus 600 basis points accruing from the due date to date of
receipt of the balance owed by the Licensee and (ii) the maximum rate permitted
by law. If receipt occurs later than sixty (60) days from the due date, a
weighted average is computed based on successive sixty (60) day rates (e.g., if
a year elapses six rates taken sixty (60) days apart would be averaged.)
22.2 Taxes. All Payments due under this Agreement shall be made in
full without any deduction or withholding whatsoever for taxes or duties
imposed by the countries in the Licensed Territory or any subdivision or local
jurisdiction thereof, unless such withholding or deduction is required by law
in which event Licensee shall pay to Licensor such additional amount so that
the net amount received by Licensor after the deduction or withholding will
equal the full amount which would have been received by it had no such
deduction or withholding been made.
22.3 Payment of Brand Fund Fees. The payment of the Brand Fund
Fees and any
44
<PAGE> 408
Exhibit D
associated late charges under Section 22.1 shall be made via electronic funds
transfer to a bank account designated by Licensee solely for this purpose with
notice to Licensor as to its existence and signing authority, and the funds in
such account shall be accessible solely by the Licensor Vice President for
Latin America and/or other Licensor-designated representative.
23. Miscellaneous.
23.1 Name, Captions. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof.
23.2 Entire Agreement. The provisions of this Agreement (including
the Schedules hereto) contain the entire agreement between the parties relating
to use by Licensee of the Licensed Marks and supersede all prior agreements and
understandings relating to the subject matter hereof. No rights are granted to
use the Licensed Marks except as specifically set forth in this Agreement. In
the event of any conflict between the provisions of this Agreement and
provisions of other agreements involving Licensor and Licensee, the provisions
of this Agreement shall prevail. This Agreement is not a franchise, does not
create a partnership or joint venture and shall not be deemed to constitute an
assignment of any rights of Licensor to Licensee. Licensee is an independent
contractor, not an agent or employee of Licensor, and Licensor is not liable
for any acts or omissions by Licensee. The continuing obligations of Licensee
in this Agreement, including those obligations set forth in Sections 10.2 and
18, shall survive and continue after the expiration, cancellation, or
termination of this Agreement. With respect
45
<PAGE> 409
Exhibit D
to Section 21, the obligations shall survive and continue for a period of three
(3) years following such expiration, cancellation or termination of this
Agreement. Notwithstanding the foregoing, the confidentiality provisions of the
Purchase Agreement are not in any way altered, amended, extended, contracted or
superseded by this Section 23.2 of this Agreement.
23.3 Amendments, Waivers, etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified except by an instrument in
writing signed by the parties.
23.4 Severability. If any term of this Agreement or the
application thereof to any party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such term to the other parties or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
applicable law.
23.5 Specific Performance. The parties acknowledge that money
damages are not an adequate remedy for violations of this Agreement and that
any party may, in its sole discretion, apply to a court of competent
jurisdiction for specific performance, interim or injunctive or such other
relief as such court may deem just and proper in order to enforce this
Agreement or prevent any violation hereof and, to the extent permitted by
applicable law, each party waives any objection to the imposition of such
relief.
23.6 Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise or beginning
of the exercise of any thereof by any
46
<PAGE> 410
Exhibit D
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
23.7 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
23.8 No Third Party Beneficiaries. This Agreement is not intended
to be for the benefit of and shall not be enforceable by any person or entity
who or which is not a party hereto.
23.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
23.10 Further Assurances. Each of the parties shall, and shall
cause its Affiliates to, from time to time, execute and deliver such additional
instruments, documents, conveyances or assurances and take other such actions
as shall be necessary or otherwise reasonably requested by a party, to confirm
and assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby, or
otherwise carry out the intent and purposes of this Agreement.
47
<PAGE> 411
Exhibit D
23.11 Construction of this Agreement. In any construction of
this Agreement, this Agreement shall not be construed against any party based
upon the identity of the drafter of the Agreement or any provision of it.
23.12 Effective Date. This Agreement shall become effective
upon the date of the consummation of the Merger under the Merger Agreement (the
"Effective Date") and shall have no force or effect prior to such time.
48
<PAGE> 412
Exhibit D
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in duplicate originals by its duly authorized
representatives as of the date first stated above.
KIRI INC. AT&T CORP.
By: By:
-------------------------- --------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
Date: Date:
-------------------------- --------------------------
49
<PAGE> 413
Exhibit D
SCHEDULE A
Licensed Master Service Marks
[AT&T LOGO]
--------------------------------------------------------------------
[AT&T AND GLOBE DESIGN LOGO]
[AT&T AND GLOBE DESIGN LOGO]
50
<PAGE> 414
Exhibit D
SCHEDULE B
Registrations for Licensed Master Service Marks
<TABLE>
<CAPTION>
Registration Registration
Or Application Or Application
Country Mark No. Date
- ------- ---- -------------- --------------
<S> <C> <C> <C>
Argentina AT&T 1099877 Feb. 28, 1995
Argentina AT&T & Globe Design 1518137 Apr. 29, 1994
Brazil AT&T 811983030 Aug. 5, 1986
Brazil AT&T & Globe Design 819860573 Mar. 24, 1997
Chile AT&T 389224 Mar. 8, 1993
Chile AT&T & Globe Design 420096 Jan. 18, 1994
Colombia AT&T 112857 Apr. 4, 1986
Colombia AT&T & Globe Design 148388 Jan. 28, 1994
Peru AT&T 2468 Jan. 25, 1984
Peru AT&T & Globe Design 14617 Jun. 2, 1998
</TABLE>
51
<PAGE> 415
Exhibit D
SCHEDULE C1
Licensed Ancillary Service Marks
<TABLE>
<CAPTION>
Restrictions on License
--------------------------------------------
Mark Licensed Territory Licensed Services
- ---- ------------------ -----------------
<S> <C> <C>
IT'S ALL WITHIN YOUR REACH All All
TODO A SEU ALCANCE All Portuguese- All
speaking countries
TODO A TU ALCANCE All Spanish- All
speaking countries
</TABLE>
52
<PAGE> 416
Exhibit D
SCHEDULE C2
Registrations for Licensed Ancillary Service Marks
<TABLE>
<CAPTION>
Registration Registration
Or Application Or Application
Country Mark No. Date
- ------- ---- ------------------- -----------
<S> <C> <C> <C>
Argentina IT'S ALL WITHIN
YOUR REACH 2151848 May 20, 1998
Argentina TODO A TU
ALCANCE 2151851 May 20, 1998
Bolivia IT'S ALL WITHIN
YOUR REACH 6065 May 5, 1998
Bolivia TODO A TU
ALCANCE 6064 May 5, 1998
Brazil IT'S ALL WITHIN
YOUR REACH 819891959 Apr. 22, 1997
Brazil TODO A SEU
ALCANCE 820880574 Jun. 29, 1998
Chile IT'S ALL WITHIN
YOUR REACH 414215 May 8, 1999
Chile TODO A TU
ALCANCE 414213 May 8, 1999
Colombia IT'S ALL WITHIN
YOUR REACH 98028803 May 21, 1999
Colombia TODO A TU
ALCANCE 98028799 May 21, 1999
Peru IT'S ALL WITHIN
YOUR REACH 15536 Sep. 10, 1998
Peru TODO A TU
ALCANCE 15442 Aug. 31, 1998
</TABLE>
53
<PAGE> 417
Exhibit D
SCHEDULE D
Licensed Trade Dress
1. The overall configurations of the AT&T and globe design corporate
signature as set forth more fully in the AT&T document Corporate
Identity Program: Graphic Standards Manual ("Graphic Standards
Manual").
2. The AT&T Garamond typeface, namely AT&T's proprietary typeface used
for all marketing communications materials, including print and
television advertising, promotional brochures, pamphlets and other
Marketing Materials and as set forth in the AT&T document Guidelines
For Print and TV Advertising.
3. The AT&T identification stripes, namely a rectangular band consisting
of three parallel lines: the top line being red (PANTONE(R) 485); the
middle, blue (PANTONE(R) Process Blue); the bottom, black (PANTONE(R)
Process Black), as set forth in the Graphic Standards Manual.
4. The acceptable color applications of the AT&T and globe design
corporate signature as set forth in the Graphic Standards Manual.
54
<PAGE> 418
Exhibit D
SCHEDULE D (CONT.)
Licensed Trade Dress
5. The acceptable graphic techniques relating to the AT&T and globe
design corporate signature as set forth in the Graphic Standards
Manual.
6. The acceptable applications of the AT&T globe design corporate
signature and typography, as well as the visual style and design
techniques (layout) as applied to any product marking, as set forth in
the AT&T document Product Marking Reference Manual.
7. The acceptable applications of the AT&T globe design corporate
signature and typography, as well as the visual style and design
techniques, as applied to business stationery, and as set forth in the
AT&T document Business Stationery Specifications.
8. Nothing in this Schedule shall restrict or limit AT&T's claim of trade
dress rights in or protection of AT&T's Trade Dress.
55
<PAGE> 419
Exhibit D
SCHEDULE E
Service Specifications
56
<PAGE> 420
Exhibit D
SCHEDULE F
Licensed Services
EXCLUSIVE SERVICES
- - Local voice delivered through fixed-line connectivity
- - Domestic long distance
- - International long distance
- - Point-to-point dedicated line
- - Asynchronous Transfer Mode (ATM)
- - Frame relay
- - Internet access
- - 1-800/toll free
- - Packet X.25 (data)
- - Virtual network services (data)
- - Switched digital (data)
NONEXCLUSIVE SERVICES
- - AT&T card services
- - AT&T Direct(R) services
- - E-commerce
- - Web-hosting
- - Fixed wireless for connectivity
- - Voice over Internet Protocol
- - Managed Network Services (as defined herein)
57
<PAGE> 421
Exhibit D
SCHEDULE G
Criteria for Sublicensees
Neither sublicensees nor their affiliates (including any joint venture and
business alliance in which sublicensee is a participant) conduct business or
engage in business practices in any of the following areas:
- Illegal activities;
- Content or practices which demean, ridicule or attack individuals
or groups on the basis of age, color, national origin, race,
religion, sex, sexual orientation or handicap;
- Pornographic, obscene or sexually explicit/suggestive material or
content;
- Material deemed to be harmful to children;
- Tobacco or alcoholic beverages;
- Firearms, ammunition or fireworks;
- Gambling;
- Contraceptives;
- Violence;
- Vulgar or obscene language;
- Solicitation of funds;
- Extreme political or social activism.
58
<PAGE> 422
EXHIBIT E TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 423
EXHIBIT E TO THE
MERGER AGREEMENT
===============================================================================
REGIONAL VEHICLE AGREEMENT
dated as of
________________ ___, 1999
between
AT&T CORP.
and
KIRI INC.
================================================================================
<PAGE> 424
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
SCOPE
1.1 RV Business ....................................................................... 2
ARTICLE II
RV SERVICES
2.1 RV Exclusive Services ............................................................. 2
2.2 RV Non-Exclusive Services ......................................................... 2
2.3 Preferred Supplier to Parent ...................................................... 3
ARTICLE III
EXCLUDED ACTIVITIES
3.1. Excluded Activities ............................................................... 3
ARTICLE IV
GLOBAL VENTURE
4.1. Regional Vehicle's Provision of RV Services to the Global Venture ................. 3
4.2. Regional Vehicle's Distribution of Services of and Purchase of Services from the
Global Venture .................................................................... 3
4.3. Services Reserved to the Global Venture ........................................... 4
4.4. Managed Network Services .......................................................... 4
ARTICLE V AT&T
GLOBAL NETWORK
5.1. AT&T Global Network Services ...................................................... 5
5.2. Regional Vehicle's Provision of Services to the AT&T Global Network ............... 5
5.3. AT&T Global Network Distribution Arrangements ..................................... 5
ARTICLE VI
PARENT ACQUISITIONS, ETC.
6.1. Territory Acquisitions ............................................................ 5
</TABLE>
i
<PAGE> 425
<TABLE>
<S> <C>
6.2. FMV Determination ................................................................. 7
6.3. Easymail Chile .................................................................... 8
ARTICLE VII
TERM 8
7.1. Term .............................................................................. 8
ARTICLE VIII
ARBITRATION
8.1. Arbitration ....................................................................... 9
8.2. Number of Arbitrators/Selection ................................................... 9
8.3. Certain Procedures ................................................................ 9
8.4. Arbitral Award .................................................................... 9
8.5. Confidentiality of Proceedings .................................................... 10
8.6. Judgment .......................................................................... 10
ARTICLE IX
MISCELLANEOUS
9.1. Amendment ......................................................................... 10
9.2. Waiver ............................................................................ 10
9.3. Notices ........................................................................... 10
9.4. Assignment; Binding Effect ........................................................ 11
9.5. Entire Agreement .................................................................. 12
9.6. Governing Law ..................................................................... 12
9.7. Further Assurances ................................................................ 12
9.8. Headings .......................................................................... 12
9.9. Interpretation .................................................................... 12
9.10. Severability ...................................................................... 12
9.11. Enforcement ....................................................................... 12
9.12. Counterparts ...................................................................... 13
</TABLE>
EXHIBITS
Exhibit A Definitions
SCHEDULES
Schedule A-1 RV Exclusive Services
Schedule A-2 Parent Group Activities
Schedule B RV Non-Exclusive Services
Schedule C Excluded Activities
ii
<PAGE> 426
REGIONAL VEHICLE AGREEMENT, dated as of ______ __, 1999, between
AT&T Corp., a New York corporation ("AT&T") and Kiri Inc., a Delaware
corporation ("Regional Vehicle"). Certain capitalized terms used herein without
definition shall have the meanings specified in Exhibit A.
RECITALS
A. Parent, Regional Vehicle, a Delaware Corporation, FirstCom
Corporation, a Texas Corporation (the "Company"), and a subsidiary of Regional
Vehicle ("Merger Sub") have entered into an Agreement and Plan of Merger, dated
November 1, 1999 (the "Merger Agreement"), pursuant to which the Company will
merge with and into Merger Sub (the "Merger"). Immediately following the
Merger, it is intended that, on a fully-diluted basis, (i) the former
shareholders of the Company will own, collectively, approximately 34% of the
shares of common stock of Regional Vehicle, (ii) Parent will own, directly or
indirectly, approximately 60% of the shares of common stock of Regional
Vehicle, and (iii) Promon Tecnologia S.A., or an Affiliate thereof, will own
approximately 6% of the shares of common stock of the Regional Vehicle.
B. Parent and Regional Vehicle anticipate that the establishment of
Regional Vehicle and the commercial arrangements contemplated hereby will
enable the delivery of competitive, comprehensive packages of end-to-end
integrated broadband services to customers in the Territory.
C. Regional Vehicle will benefit from its relationship with Parent
as a result of certain contractual arrangements of Parent, including the
Framework Agreement, dated as of October 23, 1998, among Parent, VLT
Corporation, British Telecommunications PLC, BT (Netherlands) Holdings B.V. and
Thistle B.V. (as amended from time to time, the "Framework Agreement").
Regional Vehicle is also expected to have increased demand for its services as
a result of the commercial arrangements contemplated hereby. Parent will grant
concurrently with the Merger a non-exclusive license to Regional Vehicle to use
certain Brands (the "Licensed Brands") pursuant to the Brand License Agreement.
D. Regional Vehicle shall serve as Parent's strategic vehicle for
in-country investments in the Territory for the provision of broadband
high-speed connectivity to business customers in the Territory and for the
provision of certain other telecommunications services in the Territory, in
each case to the extent set forth in this Agreement.
E. In consideration of the mutual undertakings of the parties
contained herein and as an inducement to the parties to enter into the Merger
Agreement, Regional Vehicle and Parent desire to define the scope of Regional
Vehicle's business and its relationship with Parent and certain Affiliates and
joint ventures of Parent as set forth in this Agreement.
<PAGE> 427
NOW, THEREFORE, in consideration of the mutual promises, covenants
and conditions hereinafter set forth, the sufficiency of which is hereby
acknowledged, intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
SCOPE
1.1. RV Business. (a) Regional Vehicle has been established
primarily to provide broadband, high-speed connectivity to business customers
in the Territory and, in connection therewith, to provide, offer, distribute,
market and sell primarily to business customers RV Exclusive Services and RV
Non-Exclusive Services, own facilities and other assets related thereto and
engage in incidental activities related thereto, in each case in the Territory,
in accordance with the terms of this Agreement. Regional Vehicle may conduct
its business through its Subsidiaries in the Territory, provided that Regional
Vehicle shall cause such Subsidiaries to comply with all of the provisions of
this Agreement applicable to Regional Vehicle as if they were signatories
hereof.
(b) Regional Vehicle shall provide, offer, distribute, market and
sell all of its RV Exclusive Services and RV Non-Exclusive Services under (i)
the Licensed Brands, (ii) Brands specified by the Global Venture, subject to
the prior written consent of the Global Venture, in the case of services
relating to the Global Venture or (iii) subject to the approval of Parent as
provided in the Brand License Agreement, Brands created by Regional Vehicle and
owned by Parent or Regional Vehicle.
ARTICLE II
RV SERVICES
2.1. RV Exclusive Services. The services listed in the Schedule of
RV Exclusive Services attached hereto as Schedule A-1 are referred to herein as
the "RV Exclusive Services." Except as identified in the Schedule of Parent
Group Activities attached hereto as Schedule A-2 hereof or as provided in
Article V, Parent will not, and will cause the other members of the Parent
Group not to, provide, offer, distribute, market or sell RV Exclusive Services
in the Territory unless Regional Vehicle supplies such services to Parent or
such member of the Parent Group.
2.2. RV Non-Exclusive Services. The services listed in the Schedule
of RV Non-Exclusive Services attached hereto as Schedule B may, subject to the
terms of this Agreement, be provided, offered, distributed, marketed or sold by
any Person and such services are referred to
2
<PAGE> 428
herein as the "RV Non-Exclusive Services," and, together with the RV Exclusive
Services, as the "RV Services."
2.3. Preferred Supplier to Parent. The Regional Vehicle shall be a
Preferred Supplier of RV Exclusive Services in the Territory to Parent and its
wholly-owned Subsidiaries, except to the extent Parent and its wholly-owned
Subsidiaries are obligated to purchase such services from the Global Venture.
ARTICLE III
EXCLUDED ACTIVITIES
3.1. Excluded Activities. Regional Vehicle shall not provide,
offer, distribute, market or sell any service listed in the schedule of
Excluded Activities attached hereto as Schedule C or take any other action that
contravenes Section 4.3 relating to the Global Venture (collectively, the
"Excluded Activities").
ARTICLE IV
GLOBAL VENTURE
4.1. Regional Vehicle's Provision of RV Services to the Global
Venture. The Regional Vehicle shall be a Preferred Supplier of RV Services in
the Territory to the Global Venture in accordance with and subject to the
Framework Agreement on commercially reasonable terms as agreed between Regional
Vehicle and the Global Venture.
4.2. Regional Vehicle's Distribution of Services of and Purchase
of Services from the Global Venture. (a) Parent shall request that the Global
Venture grant to Regional Vehicle distribution rights with respect to Global
Business Communications Services of the Global Venture in the Territory on
commercially reasonable terms in accordance with and subject to the terms of
the Framework Agreement.
(b) Regional Vehicle shall purchase all of its requirements for
Global Communications Services from the Global Venture pursuant to commercially
reasonable terms to be set forth in (i) an agreement between the Regional
Vehicle and the Global Venture or (ii) if applicable, an agreement between
Parent and the Global Venture governing the purchase of Global Communications
Services by Parent and its Subsidiaries.
3
<PAGE> 429
(c) Regional Vehicle shall purchase all of its requirements for
International Traffic Termination Services from the Global Venture, provided
that such services are provided by the Global Venture to Regional Vehicle on
commercially reasonable terms.
4.3. Services Reserved to the Global Venture. Unless Regional
Vehicle is a Limited Cross Border Network Services Provider or as otherwise
agreed by Parent and the Global Venture and any other party whose consent may
be required under the Framework Agreement, Regional Vehicle shall not:
(a) offer, sell or distribute Global Business Communications
Services or any services competitive with the Global Business Communications
Services provided through the Global Venture except as permitted pursuant to
Section 4.2;
(b) offer, sell or distribute any Communications Services, except
through the Global Venture, to any Person that is a Qualifying MNC Customer (as
such term is defined in the Framework Agreement)(each such Person, a
"Qualifying MNC"), a list of which Parent has previously delivered to Regional
Vehicle, and which Parent will update periodically;
(c) own, operate, lease or manage Global Network Facilities; or
(d) provide any International Carrier Services.
Regional Vehicle shall be deemed a "Limited Cross Border Network Services
Provider" for so long as Regional Vehicle and any Person in which it has a
direct or indirect equity interest do not derive aggregate annual revenues
("Cross Border Revenues") that exceed $150 million, directly or indirectly,
whether acting alone or in association with, or through one or more Persons,
from Global Business Communications Services and other services provided over a
cross border network owned by Regional Vehicle or its Subsidiaries or provided
by any cross border network, alliance or consortium in which Regional Vehicle
has any direct or indirect equity interest. For purposes of calculating such
aggregate annual revenues, the actual pro rata share of revenues of any Persons
in which Regional Vehicle owns a direct or indirect equity interest shall be
included with respect to any investments in a Person that is not wholly-owned
by the Regional Vehicle. Within 90 days of the end of each Regional Vehicle
fiscal year, Regional Vehicle shall provide Parent with a certificate executed
by the chief executive officer and chief financial officer of Regional Vehicle
certifying the amount of Cross Border Revenues for such fiscal year and setting
forth the breakdown and calculation thereof in reasonable detail.
4.4. Managed Network Services. Regional Vehicle shall not provide
Managed Network Services to any Qualifying MNC except as contracted through the
Global Venture.
4
<PAGE> 430
ARTICLE V
AT&T GLOBAL NETWORK
5.1. AT&T Global Network Services. Any current or future services
provided by any member of the Parent Group using any assets owned or controlled
now or in the future by the AT&T Global Network are referred to herein as the
"AT&T Global Network Services". Notwithstanding Section 2.1, Parent or any
member of the Parent Group may provide, offer, market, distribute or sell to
any Person, and, subject to 5.3, may appoint any Person as a distributor of,
AT&T Global Network Services in the Territory.
5.2. Regional Vehicle's Provision of Services to the AT&T Global
Network. Regional Vehicle shall be a Preferred Supplier of RV Services to the
AT&T Global Network on commercially reasonable terms as agreed between Regional
Vehicle and Parent.
5.3. AT&T Global Network Distribution Arrangements. Promptly after
the execution of this Agreement, Parent will cause the appropriate AT&T Global
Network Person to discuss with Regional Vehicle possible arrangements for the
distribution of AT&T Global Network Services by Regional Vehicle in the
Territory. While the parties have not reached any understanding as to the
outcome of such discussions, they have agreed that Regional Vehicle shall be an
exclusive distributor of AT&T Global Network Services in one or more countries
in the Territory on commercially reasonable terms as may be agreed between
Regional Vehicle and Parent, provided that such exclusive distributorship shall
(i) be subject to Regional Vehicle's ability to meet performance and service
level requirements established by AT&T Global Network; (ii) not limit the
rights of any Person under the Master Services Agreement, dated December 7,
1998 by and between International Business Machines Corporation and AT&T
Solutions, Inc., the Master Asset Purchase Agreement, dated December 7, 1998,
between International Business Machines Corporation and AT&T or any related
agreements, or the ability of any such Person to comply with its obligations
thereunder; and (iii) not limit the rights of any member of the Parent Group or
any AT&T Global Network Person to (x) distribute AT&T Global Network Services
directly to customers in the Territory, (y) have its employees market or sell
such services to customers in the Territory or (z) appoint remarketers or
global value added resellers (VARs) of AT&T Global Network Services.
ARTICLE VI
PARENT ACQUISITIONS, ETC.
6.1. Territory Acquisitions. (a) If (i) a member of the Parent
Group acquires (including as a result of a merger or any other business
combination transaction) an interest in any
5
<PAGE> 431
Person that derived (including through any consolidated Subsidiaries of such
Person) revenues in the immediately preceding fiscal year from assets or
customers in the Territory (such revenues, the "Territory Revenues") (such
Person, an " Acquired Person," and together with its Subsidiaries, if any, an
"Acquired Group"), (ii) more than 50% of such Territory Revenues were derived
from the provision of RV Exclusive Services and (iii) such acquisition would
otherwise result in any member of the Acquired Group becoming a member of the
Parent Group (such case, a "Covered Acquisition"), Parent shall comply with the
provisions of Section 6.1(b).
(b) In the case of a Covered Acquisition, within (i) eighteen months,
if the Territory Revenues of such Acquired Group were greater than 33a% of such
Acquired Group's consolidated gross revenues for its immediately preceding
fiscal year, or (ii) thirty months, if the Territory Revenues of such Acquired
Group were less than 33a% of such Acquired Group's consolidated gross revenues
for its immediately preceding fiscal year, after the acquisition of such
Acquired Person, Parent shall either (x) cause the members of such Acquired
Group to cease in all material respects providing RV Exclusive Services in the
Territory or (y) offer, or cause the relevant member of the Parent Group to
offer, in writing (an "Offer") to sell to the Regional Vehicle for cash that
portion of the Acquired Group's business that primarily relates to the
provision of such RV Exclusive Services in the Territory (the "Offered Assets")
at their Fair Market Value, provided that this Section 6.1(b) shall not apply
if selling such Offered Assets (x) would conflict with or contravene applicable
law or a pre-existing contractual obligation of any member of the Acquired
Group or that is binding on any material assets of such a member and such
obligation is not waived or amended, (y) would result in a tax obligation for
members of the Parent Group that is material in relation to the consideration
paid for the Offered Assets by the relevant member of the Parent Group or (z)
in the case of a business that is not owned by a direct or indirect
substantially wholly-owned Subsidiary of Parent, would, in the good faith
determination of the Board of Directors of any relevant member of a Parent
Group, having received advice of outside counsel with respect to fiduciary
duties to minority shareholders, violate any such fiduciary duties (each of
subsection (x), (y) and (z), an "Offer Exception"), provided further that
Offered Assets shall not include any assets held by a Person that is not
controlled by Parent. Such Offer may be accepted by Regional Vehicle by written
notice to Parent until the later of (A) the one hundred twentieth day after the
date of the Offer and (B) 25 days after the date of determination of the Fair
Market Value of such Offered Assets pursuant to Section 6.3 (such period being
referred to herein as, the "Offer Response Period").
(c) No member of an Acquired Group shall be included in the Parent
Group except as provided below in the case of a Covered Acquisition. In the
case of a Covered Acquisition, no member of an Acquired Group shall be included
as a member of the Parent Group until the later of (i) the day after the
expiration of the Offer Response Period, (ii) two years after such member's
acquisition and (iii) the date of the actual transfer of the Offered Assets to
Regional Vehicle if Regional Vehicle accepts the Offer, provided that, if (x)
Regional Vehicle shall not accept an
6
<PAGE> 432
Offer within the Offer Response Period or (y) a member of a Acquired Group is
subject to an Offer Exception, such member shall not be included as a member of
the Parent Group at any time.
6.2. FMV Determination. (a) Parent shall set forth in any Offer its
determination of the Fair Market Value of the Offered Assets that are the
subject of such Offer. If Regional Vehicle does not agree that the Fair Market
Value set forth in the Offer represents the value Parent could obtain in an
arm's length sale of the Offered Assets to an unaffiliated third party,
Regional Vehicle shall deliver a written notice (an "FMV Notice") to Parent
requesting that a determination of Fair Market Value be made pursuant to this
Section 6.2. If Regional Vehicle does not deliver such FMV Notice within 45
days after the date of the Offer, the Fair Market Value of the Offered Assets
shall be the amount set forth in the Offer.
(b) If Regional Vehicle delivers an FMV Notice, each of Parent and
Regional Vehicle shall retain within 15 days of such delivery, and provide
relevant information to, an internationally recognized investment banking firm
(each, an "appraiser", together the "Initial Appraisers") to determine the Fair
Market Value of the Offered Assets. Within 30 days following the provision of
relevant information by Parent and Regional Vehicle to the Initial Appraisers,
which information shall be provided within 30 days after retention of the
Initial Appraisers, the Initial Appraisers shall submit their determinations of
the Fair Market Value of the Offered Assets to Parent and Regional Vehicle. If
the difference between the determinations submitted by the Initial Appraisers
is less than 20 percent of the lowest of such determinations, then the average
of the determinations submitted by the appraisers shall be deemed to be the
Fair Market Value for the Offered Assets.
(c) If the difference between the determinations submitted by each
appraiser equals or exceeds 20 percent of the lowest of such determinations,
the Initial Appraisers will within 15 days select a third internationally
recognized investment banking firm to make such determination, provided if the
Initial Appraisers cannot agree to a third internationally recognized
investment banking firm, such firm shall be chosen by the CPR Institute for
Dispute Resolution. Regional Vehicle and Parent shall provide information to
the third appraiser within ten days after such appraiser is appointed. The
third appraiser shall submit its determination of the Fair Market Value for the
Offered Assets to Regional Vehicle within 30 days following the provision of
relevant information by Regional Vehicle and Parent. The average of the
determination provided by such third appraiser and the determination submitted
by the Initial Appraisers that is closer to the determination provided by such
third appraiser shall be deemed to be the Fair Market Value of the Offered
Assets, provided, however, that to the extent such average is greater than the
higher price submitted by the Initial Appraisers (the "High Price"), the Fair
Market Value of the Offered Assets shall be the High Price or, to the extent
such average is less than the lower price submitted by the Initial Appraisers
(the "Low Price"), the Fair Market Value of the Offered Assets shall be the Low
Price. The fees and expenses of the Initial Appraisers shall be borne by the
respective
7
<PAGE> 433
parties that appointed them. The fees and expenses of any third
appraiser shall be split equally between Regional Vehicle and Parent.
6.3. Easymail Chile. Prior to any sale or transfer of any interest
in Easymail Chile S.A. (an "Easymail Interest") held by Parent or any
Subsidiaries of Parent (such holder, a "Selling Person") to a Person other than
Parent or another Affiliate of Parent, Parent shall, or cause such Selling
Person to, offer in writing (an "Easymail Offer") to sell to Regional Vehicle
for cash such Easymail Interest at its Fair Market Value, provided that this
Section 6.3 shall not apply if selling such Easymail Interest would conflict
with or contravene applicable law or a pre-existing contractual obligation of
Parent or such Selling Person. The Selling Person shall set forth in any
Easymail Offer its determination of the Fair Market Value of such Easymail
Interest. If Regional Vehicle does not agree that the Fair Market Value set
forth in the Easymail Offer represents the value such Selling Person could
obtain in an arm's length sale of such Easymail Interest to an unaffiliated
third party, Regional Vehicle shall deliver a written notice (an "Easymail FMV
Notice") to Parent requesting that a determination of Fair Market Value be made
in accordance with the procedures set forth in Sections 6.2(b) and 6.2(c). If
Regional Vehicle does not deliver such Easymail FMV Notice within 45 days after
the date of the Easymail Offer, the Fair Market Value of the Easymail Interest
shall be the amount set forth in the Easymail Offer. Otherwise the Fair Market
Value shall be that value determined in accordance with the procedures set
forth in Sections 6.2(b) and 6.2(c), provided that in the case of any Selling
Person other than Parent, a reference to Parent in such Section shall be deemed
to be a reference to such Selling Person and a reference to Offered Assets
shall be deemed to be a reference to such Easymail Interest. Such Easymail
Offer may be accepted by Regional Vehicle by written notice to Parent until the
later of (a) the one hundred twentieth day after the date of the Easymail Offer
and (b) 25 days after the date of determination of the Fair Market Value of
such Easymail Interest in accordance with the procedures set forth in Sections
6.2(b) and 6.2(c) (such period being referred to herein as, the "Easymail Offer
Response Period"). If Regional Vehicle does not accept such Easymail Offer
within the Easymail Offer Response Period, such Selling Person may sell its
Easymail Interest at any time to any Person.
ARTICLE VII
TERM
7.1. Term. The term of this Agreement shall begin on the date
hereof and shall terminate upon mutual agreement of the parties hereto;
provided that Parent may in its sole discretion terminate this Agreement at any
time after the termination of the Brand License Agreement.
8
<PAGE> 434
ARTICLE VIII
ARBITRATION
8.1. Arbitration. Any dispute, controversy or claim arising out
of, relating to, or in connection with, this Agreement, or the breach,
termination or validity thereof, whether based on contract, tort, statute,
fraud, misrepresentation or any other legal or equitable theory (each a
"Claim"), shall be finally settled by binding arbitration. The arbitration
shall be conducted in accordance with the CPR Rules for Non-Administered
Arbitration in effect at the time of the arbitration, except as they may be
modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be New York City, New York, and it shall be conducted in the
English language. Notwithstanding Section 9.6 hereof, the arbitration and this
clause shall be governed by Title 9 (Arbitration) of the United States Code.
Any request for interim measures pursuant to Section 9.11 hereof or otherwise
shall not be deemed incompatible with, or a waiver of, this agreement to
arbitrate.
8.2. Number of Arbitrators/Selection. The arbitration shall be
conducted by three arbitrators. The party initiating arbitration (the
"Claimant") shall appoint an arbitrator in its request for arbitration (the
"Request"). The other party (the "Respondent") shall appoint an arbitrator
within 30 days of receipt of the Request and shall notify the Claimant of such
appointment in writing. If within 30 days of receipt of the Request by the
Respondent, either party has not appointed an arbitrator, then that arbitrator
shall be appointed by CPR Institute for Dispute Resolution. The first two
arbitrators appointed in accord with this provision shall appoint a third
arbitrator within 30 days after the Respondent has notified Claimant of the
appointment of the Respondent's arbitrator or, in the event of a failure by a
party to appoint, within 30 days after the CPR Institute for Dispute Resolution
has notified the parties and any arbitrator already appointed of its
appointment of an arbitrator on behalf of the party failing to appoint. When
the third arbitrator has accepted the appointment, the two arbitrators making
the appointment shall promptly notify the parties of the appointment. If the
first two arbitrators appointed fail to appoint a third arbitrator or so to
notify the parties within the time period prescribed above, then the CPR
Institute for Dispute Resolution shall appoint the third arbitrator and shall
promptly notify the parties of the appointment. The third arbitrator shall act
as Chair of the tribunal.
8.3. Certain Procedures. The arbitration panel shall strictly
limit discovery to the production of documents directly relevant to the facts
alleged by the Claimant and the Respondent, and if depositions are required,
each party shall be limited to five depositions. Each party shall bear its own
expenses, but those related to the compensation of the arbitrators shall be
borne equally.
8.4. Arbitral Award. The arbitral award shall be in writing, state
only the damages and injunctive relief granted and be final and binding on the
parties. The parties hereto expressly
9
<PAGE> 435
waive and forgo any right to punitive, exemplary or similar damages as a result
of any Claim. The arbitrators shall orally state the reasoning on which the
arbitral award rests but shall not state such reasoning in any writing. The
arbitration panel shall endeavor to issue the arbitral award within six months
of the Request, but failure to do so shall not effect the validity of the
arbitral award. The parties agree that the existence and contents of the entire
arbitration, including the award, shall be deemed a compromise of a dispute
under Rule 408 of the Federal Rules of Evidence, shall not be discoverable in
any proceeding, shall not be admissible in any court (except for the
enforcement thereof) or arbitration and shall not bind or collaterally estop
either party with respect to any claim or defense made by any third party.
8.5. Confidentiality of Proceedings. All proceedings in connection
with any arbitration, including its existence, the content of the proceedings
and any decision, shall be kept confidential to the maximum extent possible
consistent with the law. The arbitrator shall issue an order preventing the
parties, CPR Institute for Dispute Resolution and any other participants to the
arbitration from disclosing to any third party any information obtained via the
arbitration, including discovery of documents, evidence, testimony and the
award except as may be required by law.
8.6. Judgment. Judgment upon the decision may be entered by any
court having jurisdiction thereof or having jurisdiction over the relevant
party or its assets, provided that the party entering the award shall request
that the court prevent the award from becoming publicly available except as may
be required by law.
ARTICLE IX
MISCELLANEOUS
9.1. Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties.
9.2. Waiver. No waivers of or consents to departures from the
provisions hereof shall be effective, unless set forth in a writing signed by
Parent and Regional Vehicle. No failure or delay of any party in exercising any
power or right under this Agreement will operate as a waiver thereof, nor will
any single or partial exercise of any right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.
9.3. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier),
10
<PAGE> 436
by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
<TABLE>
<S> <C>
If to Regional Vehicle: If to Parent:
2333 Ponce de Leon Blvd. AT&T Corp.
Coral Gables, FL 33134 295 North Maple Avenue
Room 3353J1
Basking Ridge, NJ 07920
Facsimile: 1-305-774-2001 Facsimile: 1-908-630-1744
Attention: Chief Executive Officer Attention: John Haigh
Vice President --
Strategy and Development
With a copy (which copy shall not With a copy (which copy shall not
constitute notice) to: constitute notice) to:
2333 Ponce de Leon Blvd. AT&T Corp.
Coral Gables, FL 33134 295 North Maple Avenue
Room 1212P2
Basking Ridge, NJ 07920
Facsimile: 1-305-774-2001 Facsimile: 1-908-221-6618
Attention: General Counsel Attention: Marilyn Wasser
Vice President -- Law and
Corporate Secretary
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.4. Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
11
<PAGE> 437
9.5. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the parties with
respect thereto.
9.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its rules of conflict of laws. Subject to Article VIII hereof, each of
Regional Vehicle and Parent hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the courts of the State of New York and
of the United States of America located in the State of New York (the "New York
Courts") for any litigation arising out of or relating to this agreement and
the transactions contemplated hereby (and agrees not to commence any litigation
in a court relating thereto except in such courts), waives any objection to the
laying of venue of any such litigation in the New York Courts and agrees not to
plead or claim in any New York Court that such litigation brought therein has
been brought in an inconvenient forum.
9.7. Further Assurances. Each party hereto shall, and shall cause
each of its Subsidiaries (which, in the case of Parent shall not include
Regional Vehicle or its Subsidiaries) to, from time to time, execute and
deliver such additional instruments, documents, conveyances or assurances and
take such other actions as shall be necessary, or otherwise may reasonably be
requested by the other party hereto, to confirm and assure the rights and
obligations provided for in this Agreement, or otherwise to carry out the
intent and purposes of this Agreement.
9.8. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
9.9. Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
9.10. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.11. Enforcement. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its
12
<PAGE> 438
specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof
in any New York Court, this being in addition to any other remedy to which they
are entitled at law or in equity.
9.12. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]
13
<PAGE> 439
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
AT&T Corp.
-----------------------
By:
Title:
KIRI INC.
----------------------
By:
Title:
14
<PAGE> 440
Exhibit A
to Regional Vehicle Agreement
DEFINITIONS
1. Defined Terms. The following capitalized terms, when used in
this Agreement, shall have the following respective meanings (each such
definition to be equally applicable to the plural and singular forms of the
respective terms so defined):
"Affiliate" means, with respect to any Person, a Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first Person, including but
not limited to a Subsidiary of the first Person, a Person of which the first
Person is a Subsidiary, or another Subsidiary of a Person of which the first
Person is also a Subsidiary.
"Agreement" means this Regional Vehicle Agreement, as the same may
be amended or modified from time to time in accordance with its terms.
"AT&T Global Network" means AT&T Global Network Services Group LLC
or AT&T Global Network Services LLC, any other Person in which such Persons own
any direct or indirect equity interest or any of their respective successors or
assigns. Each of such Persons is sometimes referred to herein as an "AT&T
Global Network Person."
"Brand License Agreement" means that certain Service Mark License
Agreement between Regional Vehicle and Parent (the form of which was attached
as an Exhibit to the Merger Agreement), as amended from time to time.
"Brands" means any name, brand, mark, trademark, service mark, trade
dress, trade name, business name or other indicia of origin.
"Carrier Services" means the provision of carriage, including
hubbing, routing, transit, reorigination and least cost routing on Global
Network Facilities primarily between two or more countries to other
International Carriers.
"Communications Services" shall mean any services and applications,
including enhanced services and applications, that involve the transmission of
voice, data, sound, music, still and moving image or video and other elements
by fixed media (such as wire, cable or fiber), or radio or other wave signal,
and any similar or substitute service available or offered from time to time,
and the business of developing, designing or offering content-based
applications.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of voting securities, by contract or credit arrangement,
as trustee or executor, or otherwise.
Def.-1
<PAGE> 441
"global", when used with respect to Communications Services, shall
mean Communications Services between or among two or more countries.
"Global Business Communications Services" shall mean global
Communications Services provided or targeted to businesses and to their
employees in their capacity as employees.
"Global Communications Services" shall mean current or future (a)
global end-to-end managed and (b) all other global Communications Services of a
type intended for use by end user customers and resellers, but excluding
Satellite & Radio Services, basic switched voice and basic telex.
"Global Network Facilities" shall mean all facilities that support
bandwidth, transmission, signaling, routing, network service intelligence,
network control intelligence, switching and Operational Systems Support
(including any related software support) in connection with the transmission of
voice, data, sound, music, still and moving image, or video and other elements
by fixed media (such as wire, cable or fiber), or radio or other wave signal,
exclusively or predominantly between or among two or more countries (it being
understood that facilities that are predominantly designed to support such
transmission between or among two or more countries may also support, as a
non-predominant use, transmission within one or more of such countries). Global
Network Facilities shall not include any system or systems that provide
Communications Services exclusively within a given country.
"Global Venture" means each of those certain Persons formed for the
provision of certain telecommunications and related services pursuant to the
Framework Agreement. Each of such Persons is sometimes referred to herein as a
"Global Venture Person."
"International Carrier" shall mean a Person which (a) is licensed or
authorized, or is otherwise permitted to provide, or operates where no license
or authorization is required, crossborder Communications Services to the
public, or (b) owns or operates, or is licensed to own or operate, the
underlying facilities used to provide crossborder Communications Services to
the public.
"International Carrier Services" shall mean Carrier Services and
International Traffic Termination Services.
"International Settlement Process" means the system of accounting
and settlement rates for the exchange of international traffic of a type
referred to in Section 64.1001 of the regulations of the FCC and any subsequent
regime for arranging and managing inbound/outbound traffic termination terms
and conditions with an International Carrier.
Def.-2
<PAGE> 442
"International Traffic Termination Services" shall mean the
arrangement, management and delivery of inbound/outbound traffic termination of
all the communications traffic, including voice and Internet Protocol traffic,
of the Parent Group, including through the International Settlement Process and
least cost routing alternatives, but excluding all Global Business
Communications Services.
"Liberty Media" means Liberty Media Corporation and any Person in
which Liberty Media Corporation owns any direct or indirect equity interests.
"Managed Network Services" shall mean the provision of (a) service
to a customer consisting solely of the provisioning and maintenance of the
logical and physical elements of the customer's wide area communications
network, and, to the extent relating to a customer's wide area communications
network, directly related planning, design, installation, maintenance and
ongoing life cycle support functions, and (b) equipment on the customer's
premises at the interface between a wide area communications network and the
remainder of the customer's networking environment insofar as the equipment so
provided facilitates (i) the maintenance of the customer's wide area
communication services, (ii) the recording of performance data with respect to
the customer's wide area communications services, (iii) the provisioning of new
wide area communications services to the customer or changes in the parameters
of the wide area communications services provided to the customer, or (iv) the
integration of multiple wide area communications services, but excluding in the
case of clause (a) or (b) any such service or equipment that materially extends
services beyond the interface described above further into the customer's
non-wide area communications network.
"Media One" means Mediaone Group, Inc., Meteor Acquisition Inc., any
successors thereto and any Person in which Mediaone Group, Inc., Meteor
Acquisition Inc. or any successors or assigns thereof own any direct or
indirect equity interests.
"Operational Support Systems" means the computer systems on which a
Person depends for providing management support of all of its operations,
including service delivery and provision, network usage and control, billing of
customers, network planning, fraud identification, resource planning and
facility management.
"Outsourcing Professional Services" shall mean the provision of
professional services relating to network architecture validation,
implementation, operations and life cycle management, including business
process consulting, migration planning and implementation, but excluding
Managed Network Services, and may include the ownership and acquisition of
assets from and on behalf of customers related to the provision of Outsourcing
Professional Services.
"Outsourcing Services" shall mean Outsourcing Professional Services
and Managed Network Services.
Def.-3
<PAGE> 443
"Parent" means AT&T, provided that Parent shall not include Liberty
Media and Media One.
"Parent Group" means Parent and any Subsidiary of Parent except
Liberty Media and Media One, provided that (a) neither Regional Vehicle and its
Subsidiaries, any Global Venture Person nor any AT&T Global Network Person or
any Subsidiaries thereof shall be included in the Parent Group and (b) no
member of a Territory Acquired Group excluded from Parent Group as provided in
Section 6.1(b) shall be included in the Parent Group.
"Person" means any natural person, firm, partnership, association,
corporation, company, limited liability company, trust, business trust or other
entity.
"Preferred Supplier" to a Person (the "Purchaser") means that, to
the extent that the designated Preferred Supplier is able to provide certain
services, products or facilities to the Purchaser on terms and conditions and
standards at least as favorable regarding price, quality and service as the
Purchaser would be able to obtain in an arm's length transaction with a Person
that is not an Affiliate of the Purchaser, such Purchaser shall not, and shall
cause each of its wholly-owned Subsidiaries not to, purchase such services,
products or facilities from any Person other than the designated Preferred
Supplier unless such Person is also a Preferred Supplier to such Purchaser.
"Satellite & Radio Services" shall mean Communications Services
(other than VSAT services) delivered through satellites using existing and
future satellite constellations and associated ground networks and equipment
through any satellite business and terrestrial radio solutions targeted at
maritime and aeronautical applications using existing and future long, medium
and short-range radio systems.
"Subsidiaries" means each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other equity
interests representing more than 50% of the outstanding voting stock or other
equity interests.
"Systems Integration" shall mean advising clients on how best to use
information technology to achieve their ends, to reengineer business processes
to make organizations work more effectively, specifying, designing or building
or specifying, designing and building integrated business systems for or on
behalf of clients managing the change to such systems for or on behalf of
clients, supporting, maintaining, enhancing, operating or further developing
such systems for or on behalf of clients, providing program or project
management and integration of customer defined individual customer solutions
and providing other related services required or requested by clients in
connection with any of the foregoing. Systems Integration does not include (a)
the underlying capability to provide Communications Services or (b) Outsourcing
Services.
Def.-4
<PAGE> 444
"Territory" means Antigua and Barbuda, Argentina, Bahamas, Barbados,
Bolivia, Brazil, Chile, Colombia, Dominica, Dominican Republic, Ecuador,
Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, Peru, Saint Lucia, Saint
Vincent and the Grenadines, Suriname, St. Kitts and Nevis, Trinidad and Tobago
and Uruguay.
2. Other Defined Terms. All references to "Dollar", "US$" or "$"
shall be deemed to be references to the lawful currency of the United States of
America. The following capitalized terms, when used in this Agreement without
definition, shall have the meanings set forth in the Sections of this Agreement
indicated below:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
appraiser Section 6.2(b)
Acquired Group Section 6.1(a)
Acquired Person Section 6.1(a)
AT&T First Paragraph
AT&T Global Network Services Section 5.1
Claim Section 8.1
Claimant Section 8.2
Company Recital A
Cross Border Revenues Section 4.3
Covered Acquisition Section 6.1(a)
Excluded Activities Section 3.1
FMV Notice Section 6.2(a)
Framework Agreement Recital B
Global Venture Person Definition of Global Venture
High Price Section 6.2(c)
Initial Appraiser Section 6.2(b)
Licensed Brands Recital B
Limited Cross Border Network Section 4.3
Service Provider
Low Price Section 6.2(c)
Merger Recital A
Merger Agreement Recital A
Merger Sub Recital A
New York Courts Section 9.6
Offer Section 6.1(b)
Offered Assets Section 6.1(b)
Offer Exception Section 6.1(b)
Offer Response Period Section 6.1(b)
</TABLE>
Def.-5
<PAGE> 445
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Purchaser Definition of Preferred Supplier
Qualifying MNC Section 4.3(b)
Regional Vehicle First Paragraph
Request Section 8.2
Respondent Section 8.2
RV Exclusive Services Section 2.1
RV Non-Exclusive Services Section 2.2
RV Services Section 2.2
Territory Revenues Section 6.1(a)
</TABLE>
Def.-6
<PAGE> 446
Schedule A-1
to Regional Vehicle Agreement
RV EXCLUSIVE SERVICES
Local voice delivered through fixed-line connectivity
Domestic long distance
International long distance
Point-to-point dedicated line
Asynchronous Transfer Mode (ATM)
Frame relay
Internet access
1-800/toll free
Packet X.25 (data)
Virtual network services (data)
Switched digital (data)
A-1-1
<PAGE> 447
Schedule A-2
to Regional Vehicle Agreement
PARENT GROUP ACTIVITIES
Any services provided by Parent Group using assets that any member of Parent
Group is obligated under the Framework Agreement, as in effect on the date
hereof, to contribute to the Global Venture.
Service provided to customers in connection with the provision of, or pursuant
to contracts for, Outsourcing Services.
A-2-1
<PAGE> 448
Schedule B
to Regional Vehicle Agreement
RV NON-EXCLUSIVE SERVICES
AT&T card services
AT&T Direct(R) services
E-commerce
Web-hosting
Fixed wireless for connectivity
Voice over Internet Protocol
Managed Network Services
B-1
<PAGE> 449
Schedule C
to Regional Vehicle Agreement
EXCLUDED ACTIVITIES
International Carrier Services
Mobile wireless/PCS
Cable and cable telephony
Solution services, including Outsourcing Professional Services, other than
Managed Network Services
Systems Integration
Messaging Services in Chile, to the extent providing such services would cause
a breach of obligations of Parent or any of its Affiliates under the
Shareholders Agreement, dated as of December 9, 1993, among Easymail Chile
S.A., AT&T International, Inc., Inversiones Rapel, S.A. et al or any related
agreements.
C-1
<PAGE> 450
EXHIBIT F TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 451
Exhibit F to Merger Agreement
-----------------------------
Regional Vehicle Revolving Credit Facility
Summary Indicative Terms and Conditions
BORROWER: Regional Vehicle ("RV") or its subsidiaries. AT&T will have
the right to decide whether to lend at either the holding
company or individual operating company level.
LENDER: AT&T or AT&T Subsidiary
FACILITY: US$100 million to be reduced by any new vendor financing
arrangements. AT&T has the option to structure the facility
through debt or redeemable preferred.
PURPOSE: To make loans to RV and its subsidiaries in the Territory (as
defined in the RV Agreement), the proceeds of which are to be
used to (i) fund capital expenditures and working capital
requirements, (ii) pay cash interest and (iii) fund operating
costs.
AVAILABILITY: In multiple drawdowns prior to Maturity, following request by
RV via a borrowing certificate executed by CEO or CFO
(relating to consistency with business plan, absence of
defaults and other conditions to be agreed).
FINAL MATURITY: 24 months from Closing
AMORTIZATION: Single repayment at maturity
INTEREST RATE: To be paid quarterly and calculated (on the basis of a 360-
day year of 30-day months) at 11.0%.
<PAGE> 452
2
Security: - Lender will have the right at any time to obtain a
security interest in the tangible and intangible
assets of FirstCom/Netstream and subsidiaries to
which loans (including Inter-company Loans) have been
extended
- 100% of the capital stock in FirstCom Corporation,
Netstream and its subsidiaries
Financial Covenants: Maximum Capital Expenditures
In any month, not more than 110% of level provided for
in latest Board-approved business plan.
Maximum Total Debt
In any month, not more than 110% of level provided for
in latest Board-approved business plan.
Mandatory Prepayments: Facility to be repaid without penalty from 100% of
proceeds of (i) any capital markets issues, (ii) equity
issues, (iii) international or local bank financings,
and (iv) sales of material assets.
Negative Covenants: Including but not limited to the following:
- Limitation on other indebtedness (permitted local
currency working capital facilities and vendor
financing, etc.)
- Limitation on liens (US$10 million)
- Limitation on leases (US$10 million) - Disposal of
assets (in excess of US$5 million)
- Limitation on investments (US$5 million)
Events of Default: Including but not limited to the following:
- Failure to pay principal or interest when due under
the Facility
- Cross default to other Indebtedness (US$5 million
notional amount)
- Bankruptcy or other insolvency event at any
subsidiary
- Monetary judgments (US$3 million)
- Revocation of material licenses
- Political risk events, such as expropriation/
nationalization, currency inconvertibility/
transferability, war/political violence
<PAGE> 453
EXHIBIT G TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 454
Exhibit G to Agreement
and Plan of Merger
[_______________INC.]
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CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the
Delaware General Corporation Law
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Series A Convertible Preferred Stock
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______________, a Delaware corporation (the "Corporation"), certifies
that pursuant to the authority contained in its Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation"), the Board of Directors of
the Corporation has duly adopted the following recitals and resolution:
WHEREAS, Article FOURTH of the Certificate of Incorporation provides that
the Corporation may issue Preferred Stock, par value $0.001 per share
("Preferred Stock") from time to time in one or more series or classes, having
such voting powers and such designations, preferences and relative,
participating, optional and other special rights and qualifications, limitations
or restrictions, as the Board of Directors determines;
WHEREAS, pursuant to Article FOURTH of the Certificate of Incorporation
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors has adopted the following
resolution creating a series of its Preferred Stock, designated as Series A
Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, par
value $0.001 per share, of the Corporation be hereby created, and that the
voting powers and designation, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:
1. Designation and Amount. This series of Preferred Stock shall be
designated as the Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), and the authorized number of shares constituting such series shall be
1,666,667, par value $0.001 per share.
<PAGE> 455
2. Dividends.
(a) The holders of Series A Preferred Stock shall have the right to
receive, in preference to the holders of Junior Stock, dividends, payable
when and as declared by the Board of Directors of the Corporation out of
assets legally available therefor, as provided in this Section 2(a).
Dividends shall accrue on each share of Series A Preferred Stock at an
annual rate of fifteen percent (15%) on the sum of (i) $8.00 (the "Series A
Purchase Price") and (ii) all accumulated and unpaid dividends accrued
thereon pursuant to this Section 2(a) from the date of issuance thereof
(the "Series A Dividends" and, the sum of the Series A Purchase Price and
Series A Dividends is referred to herein as the "Series A Preference
Amount"). Such dividends will be calculated and, to the extent such
dividends remain unpaid, compounded quarterly in arrears on the first day
of each January, April, July and October of each year prorated on a daily
basis for partial periods. Such dividends shall commence to accrue on each
share of Series A Preferred Stock from the date of issuance of such share
of Series A Preferred Stock whether or not they have been declared and
whether or not there are profits, surplus or other funds legally available
for the payment of dividends and shall continue to accrue until paid out of
assets legally available therefor; provided, however, that for the period
from the Original Issue Date until (and including) the first day of July
2001 (the "PIK Period"), the Corporation shall pay dividends on each
dividend payment date in additional shares of Series A Preferred Stock
(such dividends paid in kind being herein referred to as "PIK Dividend");
and provided further that the amount payable as a PIK Dividend on the final
dividend payment date during the PIK Period shall be adjusted so that the
total number of shares of Series A Preferred Stock paid as PIK Dividends is
equal to _________ (1) and any amount of unpaid dividend resulting from
such adjustment shall accrue as otherwise provided in this Section 2; and
provided further that in the event that the Corporation shall exercise its
right to redeem the Series A Preferred Stock after the closing of a
Strategic Investment as provided in Section 7, then the payment of all PIK
Dividends for the PIK Period shall be accelerated and any PIK Dividends not
previously paid shall be immediately paid to the holders of the Series A
Preferred Stock as described in the next paragraph (notwithstanding any
subsequent conversion pursuant to Section 5 or 6 or redemption pursuant to
Section 8). In addition, the holders of Series A Preferred Stock shall have
the right to receive dividends or other distributions (as defined below),
ratable and equally with the holders of Common Stock, when and as declared
by the Board of Directors of the Corporation out of assets legally
available therefor; provided, however, that each holder of Series A
Preferred Stock shall be entitled to receive dividends or other
distributions on the outstanding shares of Series A Preferred Stock held by
such holder in an amount equal to the product of (i) the per share amount,
if any, of the dividend or
- --------
1. [1,666,667 less amount issued initially]
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<PAGE> 456
other distribution to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which
such shares of Series A Preferred Stock are then convertible
(b) PIK Dividends shall be paid by delivering to the record holders of
Series A Preferred Stock a number of shares of Series A Preferred Stock
determined by dividing the amount of the payment which otherwise would be
payable on the dividend payment date to each respective holder in cash by
the Series A Purchase Price per share. The issuance of any such PIK
Dividend in such amount shall constitute full payment of such dividend.
Fractional shares of Series A Preferred Stock payable as PIK Dividends may
be paid in cash by the Corporation. Any additional shares of Series A
Preferred Stock issued pursuant to this section shall be subject in all
respects, except as to issue date and the date from which dividends accrue
and cumulate as set forth above, to the same terms as the shares of Series
A Preferred Stock originally issued hereunder.
(c) For purposes of this Section 2, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, or the
purchase or redemption of shares of the Corporation for cash or property,
including any such transfer, purchase or redemption by a subsidiary of this
Corporation.
3. Liquidation, Dissolution or Winding Up; Certain Mergers,
Consolidations and Asset Sales.
Upon a liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, (each, a "Liquidation"), each holder of
Series A Preferred Stock shall be entitled, after provision for the payment
of the Corporation's debts and other liabilities, to be paid in cash in
full, before any distribution is made on any Junior Stock, an amount in
cash equal to the Series A Preference Amount of all Series A Preferred
Shares held by such holder. If, upon a Liquidation, the net assets of the
Corporation distributable among the holders of all outstanding Series A
Preferred Stock shall be insufficient to permit the payment of the Series A
Preference Amount in full, then the entire net assets of the Corporation
remaining after the provision for the payment of the Corporation's debts
and other liabilities shall be distributed among the holders of the Series
A Preferred Stock ratably in proportion to the full preferential amounts to
which they would otherwise be respectively entitled on account of their
Series A Preferred Stock. A merger or consolidation of the Corporation
(except one in which the holders of capital stock of the Corporation
immediately prior to such merger or consolidation continue to hold more
than 50% by voting power of the equity interests of the surviving entity),
a single transaction or a series of transactions pursuant to which holders
of capital stock of the Corporation immediately prior to such transaction
or series of transactions do not
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<PAGE> 457
continue to hold more than 50% by voting power of the capital stock after
such transaction or series of transactions, or the sale of all or
substantially all the assets of the Corporation, shall be deemed to be a
Liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or
consolidation), or all consideration payable to the Corporation, together
with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with the foregoing provisions of this Section 3.
4. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted from time to time pursuant to
Section 5 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any
and all matters presented to the stockholders of the Corporation for their
action or consideration except as provided by law, by the provisions of
Subsection 4(b) below or elsewhere in the Corporation's Certificate of
Incorporation, as amended, holders of Series A Preferred Stock shall vote
together with the holders of Common Stock and Preferred Stock as a single
class.
(b) Except as provided by law, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of at
least 75% of the then outstanding shares of Series A Preferred Stock,
voting together as a single class of Preferred Stock:
(i) Amend, repeal, alter or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws,
if such action could have a material adverse effect on the rights,
preferences or privileges of the Series A Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or
series of capital stock having any preference or priority as to
dividends, liquidation preference, assets or voting superior to or on
parity with any such preference or priority of the Series A Preferred
Stock or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable
for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends,
liquidation preference, assets or voting superior to or on parity with
any such preference or priority of the Series A Preferred Stock;
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<PAGE> 458
(iii) Redeem, purchase or otherwise acquire, directly or indirectly,
any Junior Stock; or
(iv) Authorize or effect the declaration or payment of dividends or
other distributions upon any Junior Stock.
5. Optional Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $6.00 by the Series A Conversion
Price in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $6.00. The rate at which shares of Series A Preferred
Stock may be converted into shares of Common Stock shall be subject to
adjustment as provided below.
In the event of a Liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on Liquidation to
the holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to convert
such shares into shares of Common Stock, such holder shall surrender
the certificate or certificates for such shares of Series A
Preferred Stock at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if
the Corporation serves as its own transfer agent), together with
written notice (a "Conversion Demand") that such holder elects to
convert all or any number of the shares of the Series A Preferred
Stock represented by such certificate of certificates. Such
Conversion Demand shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by
the
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<PAGE> 459
registered holder of his or its attorney duly authorized in writing.
The date of receipt of such certificates and Conversion Demand
notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon
as practicable after the Conversion Date, issue and deliver at such
office to such holder of Series A Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting
the conversion of the Series A Preferred Stock, such number of its
duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A
Preferred Stock. Before taking any action which would cause an
adjustment reducing the Series A Conversion Price below the then par
value of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in
order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Series A
Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price shall be made for any declared but unpaid dividends
on the Series A Preferred Stock surrendered for conversion or on the
Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer
be deemed to be outstanding and all rights with respect to such
shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date,
except only the right of the holders thereof to receive shares of
Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock
so converted shall be retired and canceled and shall not be
reissued, and the Corporation (without the need for stockholder
action) may from time to time take such appropriate action as may be
necessary to reduce the authorized Series A Preferred Stock
accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A Preferred
Stock pursuant to this Section 5. The Corporation shall not,
however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares of
Common
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<PAGE> 460
Stock in a name other than that in which the shares of Series A
Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity
requesting such issuance has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(vi) Notwithstanding any other provision hereof, if a conversion
of Series A Preferred Stock is to be made in connection with a
public offering of Common Stock, the conversion of any shares of
Series A Preferred Stock may, at the election of the holder of such
shares, be conditioned upon the consummation of such public offering
in which case such conversion shall not be deemed to be effective
until the consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of Subsections 5(d)-5(g), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in subsection 5(d)(i)(C)(IV)
below.
(B) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(C) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Subsection 5(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock (or, in the case of clause
IV below, options or warrants to purchase shares of Common Stock)
issued or issuable:
(I) upon conversion of any Convertible Securities
outstanding on the Original Issue Date, or upon exercise of any
Options outstanding on the Original Issue Date;
(II) as a dividend or distribution on Series A Preferred
Stock;
(III) by reason of a dividend, stock split, split up or
other distribution on shares of Common Stock that is covered by
Subsection 5(c) or 5(f) below;
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<PAGE> 461
(IV) to employees, directors, officers or managers of, or
consultants to, the Corporation or any of its subsidiaries
pursuant in a plan adopted by the Board of Directors of the
Corporation in good faith; or
(V) to a Strategic Investor in connection with a Strategic
Investment within nine months after the Original Issue Date;
provided that the average daily closing or last sale price per
share of Common Stock for the ninety (90) days immediately
following such Strategic Investment, as reported on a national
securities exchange or NASDAQ, is greater than or equal to
$9.00.
(ii) No Adjustment of Conversion Price. No adjustment in the number
of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made, by adjustment in the Series A Conversion
Price, as applicable, unless the consideration per share (determined
pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Series
A Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
If the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set
forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 5(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Series A Conversion Price,
as applicable, in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(A) No further adjustment in the Series A Conversion Price shall
be made upon the subsequent issue of Convertible Securities or
shares of Common Stock
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<PAGE> 462
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series A Conversion Price
computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any unexercised Option
or any unexercised rights of conversion or exchange under any
Convertible Security, the Series A Conversion Price shall be
readjusted to eliminate the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option or such
Convertible Security.
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, the
Series A Conversion Price then in effect shall forthwith be
readjusted to such Conversion Price as would have been obtained had
the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change
been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D) above
shall have the effect of increasing the Series A Conversion Price to
an amount which exceeds the lower of (i) the Series A Conversion
Price on the original adjustment date, or (ii) the Series A
Conversion Price that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date,
amends the terms of any Options or Convertible Securities (whether
such Options or Convertible Securities were outstanding on the
Original Issue Date or were issued after the Original Issue Date),
then such Options or Convertible Securities, as so amended, shall be
deemed to have been issued after the Original Issue Date and the
provisions of this Subsection 5(d)(iii) shall apply.
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It is expressly acknowledged that options issued to persons
described in Subsection 5(d)(i)(C)(IV) are excluded from the
definition of "Option" as provided in Subsection 5(d)(i)(A).
(iv) Adjustment of Series A Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall at any time after the
Original Issue Date issue Additional Shares of Common Stock without
consideration or for a consideration per share less than the
applicable Series A Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series
A Conversion Price shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) determined by
multiplying such Series A Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock with the aggregate consideration received or
to be received by the Corporation for the total number of Additional
Shares of Common stock so issued would purchase at such Series A
Conversion Price; and (B) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock
so issued; provided that (i) for the purpose of this Subsection
5(d)(iv), all shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding,
and (ii) the number of shares of Common Stock deemed issuable upon
exercise or conversion of such outstanding Options and Convertible
Securities shall not give effect to any adjustments to the
conversion price or conversion rate of such Options of Convertible
Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this
Subsection 5(d), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed
as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding
amounts paid or payable for accrued interest;
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<PAGE> 464
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time
of such issue, as determined in good faith by the Board of
Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other
assets of the Corporation for consideration which covers both,
be the proportion of such consideration so received, computed
as provided in clauses (I) and (II) above, as determined in
good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to Subsection 5(d)(iii),
relating to Options and Convertible Securities, shall be determined
by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock, and such
issuance dates occur within a period of no more than 30 days, then the
Series A Conversion Price shall each be adjusted only once on account of
such issuance, with such adjustment to occur upon the final such issuance
and to give effect to all such issuances as if they occurred on the date
of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect
a subdivision of the outstanding Common Stock, the Series A Conversion Price
then in effect immediately before that subdivision shall each be
proportionately decreased. For example, if there are
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<PAGE> 465
two outstanding shares of Common Stock which are subdivided into a total of
four shares of Common Stock and the Series A Conversion Price in effect
immediately prior to such subdivision is $6.00, then the Series A Conversion
Price after giving effect to such subdivision shall be $3.00. If the
Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the Series A Preferred Stock, the Series A
Conversion Price then in effect immediately before that subdivision shall be
proportionately increased. If the Corporation shall at any time or from time
to time after the Original Issue Date combine the outstanding shares of
Common Stock, the Series A Conversion Price then in effect immediately
before the combination shall each be proportionately increased. For example,
if there are two outstanding shares of Common Stock which are combined into
a total of one share of Common Stock and the Series A Conversion Price in
effect immediately prior to such combination is [$6.00], then the Series A
Conversion Price after giving effect to such combination shall be [$12.00].
If the Corporation shall at any time or from time to time after the Original
Issue Date combine the outstanding shares of Series A Preferred Stock, the
Series A Conversion Price then in effect immediately before the combination
shall be proportionately deceased. Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event the
Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution
payable in Additional Shares of Common Stock, then and in each such event
the Series A Conversion Price then in effect shall each be decreased as of
the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying
the Series A Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the name of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Series A Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter
the Series A Conversion Price shall be adjusted pursuant to this
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<PAGE> 466
paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall
be made if the holders of Series A Preferred Stock simultaneously receive a
dividend or other distribution of shares of Common Stock in a number equal
to the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into
Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock,
then and in each such event provision shall be made so that the holders of
the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had
the Series A Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to
all adjustments called for during such period under this paragraph with
respect to the rights of the holders of the Series A Preferred Stock; and
provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock simultaneously receive a dividend or
other distribution of such securities in an amount equal to the amount of
such securities was they would have received if all outstanding shares of
Series A Preferred Stock had been converted into Common Stock on the date of
such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If the
Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock
dividend, provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the holder
of each such share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of
Common Stock into which such shares of Series A Preferred Stock might have
been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or
13
<PAGE> 467
substantially all of the assets of the Corporation to another corporation
(other than a consolidation, merger or sale which is covered by Subsection
2(b)), each share of Series A Preferred Stock shall thereafter be converted
(or shall be converted into a security which shall be convertible) into the
kind and amount of shares of stock or other securities or property to which
a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case,
appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this
Section 5 set forth with respect to the rights and interest thereafter of
the holders of the Series A Preferred Stock to the end that the provisions
set forth in this Section 5 (including provisions with respect to changes in
and other adjustments of the Series A Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the conversion of the
Series A Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out
of all the provisions of this Section 5 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights
of the holders of the Series A Preferred Stock.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or
cause to be furnished to such holder a similar certificate setting forth (i)
such adjustments and readjustments, (ii) the Series A Conversion Price then
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which then would be received upon the conversion of
Series A Preferred Stock.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
14
<PAGE> 468
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of
Common Stock or a stock dividend or stock distribution thereon), or of
any consolidation or merger of the Corporation into or with another
corporation, or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at
the office of the transfer agent of the Series A Preferred Stock and shall
cause to be mailed to the holders of the Series A Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty
days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding
up.
(m) Notwithstanding anything to the contrary, the provisions of Section
5(d) shall not apply (i) to any share of Series A Preferred Stock held by a
holder other than a 25% Holder or (ii) on or after the fifth anniversary of
the Original Issue Date.
6. Mandatory Conversion.
(a) On the first Business Day following a Mandatory Conversion Period
(the "Mandatory Conversion Date"), all outstanding shares of Series A
Preferred Stock shall automatically be converted into shares of Common Stock
at the then effective conversion rate.
15
<PAGE> 469
(b) All holders of record of shares of Series A Preferred Stock will be
given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all shares of Series A Preferred
Stock pursuant to this Section 6. Such notice shall be sent by first class
or registered mail, postage prepaid, to each record holder of Series A
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock, as the case may be (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock
shall surrender his or its certificate or certificates for all such shares
to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 6. On the Mandatory
Conversion Date, all rights with respect to the Series A Preferred Stock so
converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holder thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock
has been converted, and payment of any declared but unpaid dividends
thereon. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and
the surrender of the certificate or certificates for Series A Preferred
Stock, the Corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection
5(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock which
are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be
deemed to have been retired and canceled and the shares of Series A
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A Preferred
Stock accordingly.
(d) Any Series A Preferred Stock converted pursuant to this Section 6
will be canceled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
16
<PAGE> 470
7. Redemption at Corporation's Option.
(a) The Corporation shall have the right (the "Redemption Right"), in
its sole discretion, to redeem all but not less than all of the outstanding
shares of Series A Preferred Stock in accordance with the further provisions
of this Section 7. The Redemption Rights shall be exercisable (i) at any
time after June 30, 2001 or (ii) at any time not less than ninety (90) and
not more than one hundred and eighty (180) days after the closing of a
Strategic Investment provided that the closing of such Strategic Investment
occurs within nine (9) months after the Original Issue Date. The redemption
price (the "Corporation Redemption Price") of each share of Series A
Preferred Stock redeemed pursuant to the Redemption Right shall be equal to
the Anniversary Redemption Price as of the Corporation Redemption Date, in
the case of clause (i) in the immediately preceding sentence, or the
Strategic Redemption Price in the case of clause (ii) in the immediately
preceding sentence.
(b) The Corporation may elect to exercise its Redemption Right pursuant
to Section 7(a) by mailing written notice (a "Corporation Notice of
Redemption") to each registered holder specifying the time and place of such
redemption and the number of shares of Series A Preferred Stock held by such
holder to be redeemed. Such Corporation Notice of Redemption shall be mailed
by certified mail, return receipt requested, at least 30, and not more than
60 days prior to the date specified for redemption (the "Corporation
Redemption Date"), to each registered holder of the shares of Series A
Preferred Stock at such holder's last address as it appears on the
Corporation's books. At the closing, the Corporation shall pay to each of
the holders of the Series A Preferred Stock called for redemption, against
the Corporation's receipt from such holder of the certificate or
certificates representing the shares of such Series A Preferred Stock then
held by such holder, an amount equal to the aggregate payment due pursuant
to this Section 7 for all such shares, by wire transfer of immediately
available funds, or if such holder shall not have specified wire transfer
instructions to the Corporation prior to the closing, by certified or
official bank check made payable to the order of such holder.
(c) Notwithstanding anything to the contrary contained in this Section
7, the outstanding shares of Series A Preferred Stock shall remain subject
to (i) conversion pursuant to Section 5 and 6 and (ii) redemption pursuant
to Section 8, in each case, at all times on or prior to the Corporation
Redemption Date.
(d) In the case of any redemption pursuant to this Section 7, unless the
Corporation defaults in the payment in full of the Corporation Redemption
Price, dividends on the shares called for redemption shall cease to
accumulate on the applicable Corporation Redemption Date, and all rights of
the holders of the shares of Series A Preferred Stock subject to such
redemption by reason of their ownership of such shares shall cease on such
Corporation Redemption Date, except the right to receive the Corporation
Redemption Price on surrender
17
<PAGE> 471
to the Corporation of the certificates representing such shares. After the
applicable Corporation Redemption Date, the shares shall not be deemed to be
outstanding and shall not be transferable on the books of the Corporation,
except to the Corporation.
(e) Any shares of Series A Preferred Stock redeemed by the Corporation
pursuant to this Section 7 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
8. Redemption at Holder's Option.
(a) Each holder of Series A Preferred Stock shall have the right (the
"Put Right"), in its sole discretion, to require the Corporation to redeem
all or any portion of its outstanding shares of Series A Preferred Stock at
a redemption price (the "Holder Redemption Price") equal to the Series A
Preference Amount as of the Holder Redemption Date in accordance with the
further provisions of this Section 8. The Put Right shall be exercisable for
a period of 70 days after (i) the ninety-first day after the Senior Note
Maturity Date, (ii) any Major Liquidity Event or (iii) a Change of Control.
(b) A holder of Series A Preferred Stock may elect to exercise its Put
Right pursuant to Section 8(a) by mailing written notice (a "Holder
Redemption Notice") to the Corporation by certified mail, return receipt
requested. The Holder Redemption Notice shall specify:
(i) the name of the holder of shares of Series A Preferred Stock
delivering such Holder Redemption Notice;
(ii) that such holder is exercising its option, pursuant to Section 8,
to require the Corporation to redeem shares of Series A Preferred Stock
held by such holder; and
(iii) the number of, and a description of, the shares of Series A
Preferred Stock to be subject to such redemption.
(c) The Corporation shall, within thirty (30) days of receipt of such
Holder Redemption Notice, deliver to the holder exercising its rights to
require redemption of shares pursuant to Section 8(b), a notice (the
"Corporation Notice") specifying the date set for such redemption, which
date shall be no more than thirty (30) days after the Corporation Notice
(the "Holder Redemption Date").
(d) Notwithstanding anything contained in this Section 8 to the
contrary, the Corporation shall not be obligated to redeem shares of Series
A Preferred Stock which are the
18
<PAGE> 472
subject of a Holder Redemption Notice if such redemption would result in a
breach of, or would cause a default or event of default under, the Notes
Indenture.
provided, however, if such breach, event of default or default would not
result from the purchase of any number of shares of Series A Preferred Stock
which is less than the total number of shares the Corporation is obligated
to redeem on the Holder Redemption Date, the Corporation shall purchase on
the Holder Redemption Date the maximum number of shares of Series A
Preferred Stock it may so purchase, allocated among the holders which have
elected to have their shares so repurchased ratably according to the number
of shares so tendered; provided, further, however, the Corporation shall use
its reasonable efforts to cure such default or violation on a timely manner
and remove any associated restrictions or limitations which are applicable
to the rights of the holders of Series A Preferred Stock contained in this
Section 8.
(e) In the case of any redemption pursuant to this Section 8, unless the
Corporation defaults in the payment in full of the Holder Redemption Price,
dividends on the shares called for redemption shall cease to accumulate on
the applicable Holder Redemption Date, and all rights of the holders of the
shares of Series A Preferred Stock subject to such redemption by reason of
their ownership of such shares shall cease on such redemption date, except
the right to receive the Holder Redemption Price on surrender to the
Corporation of the certificates representing such shares. After the
applicable Holder Redemption Date, the shares shall not be deemed to be
outstanding and shall not be transferable on the books of the Corporation,
except to the Corporation.
(f) Any shares of Series A Preferred Stock redeemed by the Corporation
pursuant to this Section 8 shall be canceled and shall have the status of
authorized and unissued preferred stock, without designation as to series.
9. Definitions.
As used in this Certificate of Designation, and unless the context requires
a different meaning, the following terms have the meanings indicated:
(i) "Anniversary Redemption Price" shall mean an amount per share equal
to (a) the Series A Purchase Price plus (b) an amount then necessary to
provide a holder of Series A Preferred Stock with a 25.0% internal rate of
return on such holder's investment in a share of Series A Preferred Stock as
if such holder held such share of Series A Preferred Stock from
____________, 2000. Such internal rate of return shall be determined in
accordance with the following formula:
19
<PAGE> 473
1/N
IRR = (P/I) 1
where:
IRR = Internal Rate of Return.
P = Anniversary Redemption Price.
I - Series A Purchase Price
N = Number of years from the Original Issue Date to the Corporation
Redemption Date, calculated on the basis of a 365-day year.
(ii) "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of
New York are authorized or obligated by law or executive order to close.
(iii)"Change of Control" shall mean a Change of Control as defined in
the Notes Indenture.
(iv) "Common Stock" shall mean the Common Stock of the Corporation, par
value $.001 per share.
(v) "Junior Stock" shall mean any of the Corporation's Common Stock,
and all other equity securities of the Corporation other than the Series A
Preferred Stock.
(vi) "Major Liquidity Event" shall mean (a) a Public Offering or (b) a
Strategic Investment.
(vii) "Mandatory Conversion Period" shall mean, at any time after the
second anniversary of the Original Issue Date, a period of thirty (30)
consecutive trading days during which the daily closing or last sale price
per share of Common Stock, as reported on a national securities exchange or
NASDAQ, is greater than $15.00 per share.
(viii) "NASDAQ" means the National Association of Securities Dealers,
Inc., Automated Quotation System.
(ix) "Notes Indenture" shall mean that certain Indenture, dated as of
October 27, 1997, between FirstCom Corporation, a Texas corporation, and
State Street Bank and Trust Company, N.A., (as Trustee), as in effect on
June 30, 1999 or any supplemental indenture.
20
<PAGE> 474
(x) "Original Issue Date" shall mean the date on which a share of
Series A Preferred Stock was first issued.
(xi) "Public Offering" shall mean the closing of an underwritten public
offering of shares of Common Stock pursuant to an effective registration
statement filed with the Securities and Exchange Commission for a public
offering and sale of securities of the Corporation (other than a
registration statement on Form S-8 or Form S-4, or their successors, or any
other form for a similar limited purpose, or any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation).
(xii) "Senior Note Maturity Date" shall mean the date that the Senior
Notes issued pursuant to the Notes Indenture are paid in full.
(xiii) "Strategic Investment" shall mean the purchase by a Strategic
Investor of thirty-five percent (35%) or more (on an as converted basis) of
the capital stock of the Corporation.
(xiv) "Strategic Investor" shall mean (i) a telecommunications operator
with assets in excess of $2 billion or (ii) an entity with controlling
equity investments in excess of $1 billion in companies operating in the
telecommunications industry; provide that such entity is not a private
equity investment firm or other like entity.
(xv) "Strategic Redemption Price" shall mean $9.00.
(xvi) "25% Holder" shall mean SFG-N Inc., the AIG-GE Capital Latin
American Infrastructure Fund L.P. and/or any of its affiliates and any
holder of not less than twenty-five percent (25%) of the shares of Common
Stock issued or issuable upon conversion of the Series A Preferred Stock.
21
<PAGE> 475
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series A Non-Voting Participating Convertible Preferred Stock to
be duly executed by its Secretary this [___]th day of [______], [_____].
[ INC.]
By
----------------------------
Name:
Title: Secretary
22
<PAGE> 476
ANNEX A TO THE
AGREEMENT AND PLAN OF MERGER
<PAGE> 477
ANNEX A
[Letterhead of FirstCom Corporation]
[Date]
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Agreement and Plan of Merger
Ladies and Gentlemen:
We are furnishing the following representations to you to enable
you to prepare and deliver your tax opinion in accordance with Section 5.2(f)
of the Agreement and Plan of Merger, dated as of November 1, 1999 (the "Merger
Agreement"), by and among AT&T Corp., a New York corporation ("Parent"), Kiri
Inc., a Delaware corporation (the "Buyer"), Frantis, Inc., a Delaware
corporation and wholly-owned subsidiary of the Buyer ("Merger Sub"), and
FirstCom Corporation, a Texas corporation (the "Company"). We understand you
will be relying on such representations in rendering your opinion. Unless
otherwise defined herein, capitalized terms have the meanings ascribed to them
in the Merger Agreement.
The Company hereby represents and covenants that:
1. Neither the Company nor any "related person" (within the
meaning of Treas. Reg. ss. 1.368-1T(e)(2)(ii)) has any plan or intention to
redeem or otherwise acquire any Company Common Stock or Preferred Stock prior
to and in connection with the Merger. No "extraordinary distribution" (within
the meaning of Treas. Reg. ss. 1.368-1T(e)(1)(ii)(A)) with respect to Company
Common Stock or Preferred Stock has or will be made prior to and in connection
with the Merger.
<PAGE> 478
2. The fair market value of the consideration received by the
shareholders of the Company in the Merger will be approximately equal to the
fair market value of the Company Common Stock and the Preferred Stock
surrendered in the Merger. The RV Class A Common Stock issued to shareholders
of the Company in the Merger will have a fair market value, as of the Effective
Time, that is greater than or equal to 50 percent of the fair market value of
all of the formerly outstanding Company Common Stock and Preferred Stock as of
the same time. For purposes of this representation, shares of Company Common
Stock and Preferred Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of RV Class A
Common Stock will be treated as outstanding as of the Effective Time. Moreover,
Company Common Stock and Preferred Stock that is redeemed by the Company prior
to the Merger will be considered as outstanding in making this representation.
3. The liabilities of the Company assumed by Merger Sub in the
Merger and the liabilities to which the assets of the Company transferred in
the Merger are subject were incurred by the Company in the ordinary course of
its business.
4. The Company will pay its own expenses, if any, incurred in
connection with the Merger.
5. There is no intercorporate indebtedness existing between the
Company and the Buyer, or the Company and Merger Sub, that was issued,
acquired, or will be settled at a discount.
6. The Company is not an "investment company" as defined in Sec
tion 368(a)(2)(F)(iii) and (iv) of the Code.
7. The Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
8. Merger Sub will acquire at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross assets
held by the Company immediately prior to the Merger. For purposes of this
representation, amounts paid by the Company to shareholders who receive cash or
other property, Company assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
the Company immediately preceding the Merger will be included as assets of the
Company held immediately prior to the Merger.
9. The fair market value of the assets of the Company transferred
to Merger Sub in the Merger will equal or exceed the sum of the liabilities
assumed by Merger Sub in the Merger plus the amount of liabilities, if any, to
which the transferred assets are subject.
2
<PAGE> 479
10. The Merger will be effected in accordance with the Agreement
and will be effected for bona-fide, non-tax business reasons.
11. None of the compensation received by any stockholder-employee
of the Company in respect of periods that end on or prior to the Closing Date
represents separate consideration for, or is allocable to, any of such
stockholder-employee's Company capital stock. None of the RV Class A Common
Stock that will be received by any Company stockholder-employee in the Merger
represents separately bargained-for consideration that is allocable to any
employment agreement or arrangement. The compensation paid to any
stockholder-employee will be for services actually rendered and will be
determined by bargaining at arm's-length.
The information in this letter is provided in connection with the
preparation of your opinion. We understand that your opinion will be premised
on the basis that all of the facts, representations and assumptions on which
you are relying, whether contained herein or in the documents described herein,
are accurate and complete and will be accurate and complete at the Effective
Time. We further understand that your opinion will be subject to the
qualifications and limitations set forth in your opinion letters.
Very truly yours,
FirstCom Corporation
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
3
<PAGE> 480
[Letterhead of RV]
[Date]
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Agreement and Plan of Merger
Ladies and Gentlemen:
We are furnishing the following representations to you to enable you
to prepare and deliver your tax opinion in accordance with Section 5.2(f) of
the Agreement and Plan of Merger, dated as of November 1, 1999 (the "Merger
Agreement"), by and among AT&T Corp., a New York corporation ("Parent"), Kiri
Inc., a Delaware corporation (the "Buyer"), Frantis, Inc., a Delaware
corporation and wholly-owned subsidiary of the Buyer ("Merger Sub"), and
FirstCom Corporation, a Texas corporation (the "Company"). We understand you
will be relying on such representations in rendering your opinion. Unless
otherwise defined herein, capitalized terms have the meanings ascribed to them
in the Merger Agreement.
The Buyer, on behalf of itself and Merger Sub, hereby represents and
covenants that:
<PAGE> 481
1. Neither the Buyer nor any "related person" (within the meaning
of Treas. Reg. ss. 1.368-1(e)(3)) has any plan or intention to redeem or
otherwise acquire any of the RV Class A Common Stock issued in the Merger.
2. The fair market value of the consideration received by the
shareholders of the Company in the Merger will be approximately equal to the
fair market value of the Company Common Stock and the Preferred Stock
surrendered in the Merger. The RV Class A Common Stock issued to shareholders
of the Company in the Merger will have a fair market value, as of the Effective
Time, that is greater than or equal to 50 percent of the fair market value of
all of the formerly outstanding Company Common Stock and Preferred Stock as of
the same time. For purposes of this representation, shares of Company Common
Stock and Preferred Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of RV Class A
Common Stock will be treated as outstanding as of the Effective Time. Moreover,
Company Common Stock and Preferred Stock that is redeemed by the Company prior
to the Merger will be considered as outstanding in making this representation.
3. Neither the Buyer nor any "related person" (within the meaning
of Treas. Reg. ss. 1.368-1(e)(3)) owns, or has in the last five years owned,
any capital stock of the Company.
4. Prior to and at the Effective Time, the Buyer will be in
"control" of Merger Sub within the meaning of Section 368(c) of the Code.
5. Merger Sub has no plan or intention to issue additional shares
of its stock after the Merger that would result in the Buyer losing "control"
of Merger Sub within the meaning of Section 368(c) of the Code.
6. The Buyer has no plan or intention to liquidate Merger Sub; to
merge Merger Sub with and into another corporation; to sell or otherwise
dispose of the stock of Merger Sub; or to cause Merger Sub to sell or otherwise
dispose of any of the assets of the Company acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code.
7. Following the Merger, Merger Sub will continue the historic
business of the Company or use a significant portion of the Company's historic
business assets in a business (as such terms are defined in Treas. Reg.
1.368-1(d)).
8. The Buyer and Merger Sub will pay their own expenses, if any,
incurred in connection with the Merger.
2
<PAGE> 482
9. There is no intercorporate indebtedness existing between the
Company and the Buyer, or the Company and Merger Sub, that was issued,
acquired, or will be settled at a discount.
10. Neither the Buyer nor Merger Sub is an "investment company" as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
11. The fair market value of the assets of the Company transferred
to Merger Sub will equal or exceed the sum of the liabilities assumed by Merger
Sub plus the amount of liabilities, if any, to which the transferred assets are
subject.
12. Any payment of cash by the Buyer in lieu of fractional shares
of Buyer Common Stock is solely for the purpose of avoiding the expense and
inconvenience to the Buyer of issuing fractional shares and does not represent
separately bargained-for consideration. No shareholder of the Company will
receive cash in an amount equal to or greater than the value of one full share
of Buyer Common Stock.
13. The Merger will be effected in accordance with the Agreement
and will be effected for bona-fide, non-tax business reasons.
14. Merger Sub will acquire at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross assets
held by the Company immediately prior to the Merger. For purposes of this
representation, amounts paid by the Company to shareholders who receive cash or
other property, Company assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
the Company immediately preceding the Merger will be included as assets of the
Company held immediately prior to the Merger.
15. No dividends or distributions will be made to former Company
shareholders by the Buyer, other than regular, normal dividend distributions
made (i) with regard to all shares of Buyer Common Stock or (ii) with regard to
RV Preferred Stock in accordance with its terms.
16. No stock of Merger Sub will be issued in the Merger.
The information in this letter is provided in connection with the
preparation of your opinion. We understand that your opinion will be premised
on the basis that all of the facts, representations and assumptions on which
you are relying, whether contained herein or in the documents described herein,
are accurate and complete and will be accurate and complete at the Effective
Time. We further understand that your opinion will be subject to the
qualifications and limitations set forth in your opinion letters.
3
<PAGE> 483
Very truly yours,
[RV]
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
4
<PAGE> 484
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment")
is entered into as of February 1, 2000 by and among AT&T Corp. ("Parent"), a New
York corporation, AT&T Latin America Corp. ("RV"), a Delaware corporation
(formerly named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware
corporation, and FirstCom Corporation (the "Company"), a Texas Corporation.
RECITALS
A. Parent, RV, Merger Sub and the Company have entered into
an Agreement and Plan of Merger, dated as of November 1, 1999 (the "Merger
Agreement").
B. Each of Parent and the Company desire to extend the date
on which either of them may terminate the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Merger
Agreement.
2. EXTENSION OF DATE. The date of April 30, 2000 appearing in
clause (i) of Section 6.1(b) of the Merger Agreement is hereby amended to read
"May 31, 2000."
3. NO OTHER AMENDMENT OR MODIFICATION. The Merger Agreement
shall remain in full force and effect except as expressly amended or modified
hereby.
4. COUNTERPARTS. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument.
5. EFFECTIVENESS. This Amendment shall be effective only upon
execution and delivery by each of the parties hereto.
[rest of page intentionally left blank; signature page follows]
<PAGE> 485
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first written above.
AT&T Corp.
By: /s/ John A. Haigh
----------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T Latin America Corp.
By: /s/ John A. Haigh
----------------------------------------
Name: John A. Haigh
Title: Vice President
Frantis, Inc.
By: /s/ Fred DiBlasio
----------------------------------------
Name: Fred DiBlasio
Title: President
FirstCom Corporation
By: /s/ Patricio E. Northland
----------------------------------------
Name: Patricio E. Northland
Title: President and Chief Executive Officer
<PAGE> 486
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment") is
entered into as of February 22, 2000 by and among AT&T Corp. ("Parent"), a New
York corporation, AT&T Latin America Corp. ("ATTL"), a Delaware corporation
(formerly named Kiri Inc.), Frantis, Inc.("Merger Sub"), a Delaware
corporation, and FirstCom Corporation (the "Company"), a Texas corporation.
RECITALS
A. Parent, ATTL, Merger Sub and the Company have entered into an
Agreement and Plan of Merger, dated as of November 1, 1999 (as amended, the
"Merger Agreement").
B. ATTL desires to enter into certain agreements (the "Keytech
Acquisition Agreements"), in the forms previously delivered to the Company,
providing for the purchase by ATTL (or one or more affiliates designated by it)
of 100% of the capital stock of Keytech LD S.A. ("Keytech") and certain other
transactions as set forth therein.
C. ATTL and the other parties to the Keytech Acquisition Agreements
anticipate that the closing thereunder will occur prior to the Closing.
D. Pursuant to the Merger Agreement, ATTL requires the consent of
the Company in order to purchase the capital stock of Keytech and to issue
shares of ATTL Class A Common Stock in partial payment therefor, as
contemplated by the Keytech Acquisition Agreements.
E. Assuming that the closing under the Keytech Acquisition
Agreements occurs prior to the Closing, each of Parent, ATTL, Merger Sub and
the Company intend that, immediately following the Effective Time, on a
fully-diluted basis and after giving effect to such closing, (i) the former
shareholders of the Company will own, collectively, approximately 34% of the
shares of common stock of ATTL, in the form of shares of ATTL Class A common
stock ("Class A Common Stock") or ATTL Series A convertible preferred stock, as
the case may be, (ii) Promon will own, directly or indirectly, approximately 6%
of the shares of common stock of ATTL, in the form of Class A Common Stock,
(iii) the former shareholders of Kevin will own, collectively, approximately 1%
of the shares of common stock of ATTL, in the form of Class A Common Stock, a
portion of which will be held in escrow pursuant to an escrow agreement, and
(iv) Parent will own, directly or indirectly, approximately 58% of the shares
of common stock of ATTL, in the form of ATTL Class B common stock (in each case
rounded to nearest integer).
<PAGE> 487
F. Parent, ATTL, Merger Sub and the Company desire to amend
Schedule B to the form of Regional Vehicle Agreement attached as Exhibit E to
the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the respective meanings ascribed to them in the Merger Agreement.
2. Representation and Warranty of Parent. Paragraph (d) of Section
3.2 of the Merger Agreement is hereby deleted and replaced in its entirety by
the following:
"(d) Capitalization. (i) As of February 13, 2000, the
issued and outstanding capital stock of ATTL consisted of 40,000
shares of common stock, par value $.01 per share, all of which
were issued and outstanding, 36,000 of which were owned,
directly or indirectly, by Parent, and 4,000 of which were
owned, directly or indirectly, by Promon. As of the Closing
Date, the aggregate number of issued and outstanding shares of
capital stock of ATTL shall be not more than the sum of (i) the
product of (x) such number of shares of Preferred Stock issued
or accrued as paid-in-kind dividends from November 1, 1999 to
the Closing Date, and (y) 2.077, plus (ii) either 82,026,893, if
the closing shall have occurred under the Keytech Acquisition
Agreements, or 80,848,204, if such closing shall not have
occurred. All issued and outstanding shares of capital stock of
ATTL and of Merger Sub are duly authorized, validly issued,
fully paid, non-assessable and free of pre-emptive rights. As of
the Closing, except for (A) approximately 10% of the outstanding
common stock of ATTL owned by Promon (assuming Promon's
participation in all contributions to the capital of ATTL in
proportion to its percentage interest as of the date hereof),
and (B) if the closing under the Keytech Acquisition Agreements
shall have occurred, 1,178,689 shares of common stock of ATTL
owned by the former shareholders of Keytech and their respective
permitted transferees (including shares held in escrow), as
provided in the Keytech Acquisition Agreements, in each case in
the form of Class A Common Stock, (I) all issued and outstanding
shares of common stock of ATTL are owned, directly or
indirectly, by Parent, in the form of ATTL Class B common stock,
(II) all issued and outstanding shares of capital stock of
Merger Sub are owned directly by ATTL, and (III) all issued and
outstanding shares of capital stock or quotas, as the case may
be, of each member of the Jamtis Group (and Keytech, if the
closing shall have occurred under the Keytech Acquisition
Agreements) are owned directly or indirectly by ATTL, in each
case free and clear of Encumbrances (other than any Encumbrances
created by Promon or
<PAGE> 488
the former shareholders of Keytech as to the shares of Class A
Common Stock owned by them). None of ATTL, Merger Sub, Keytech
or any member of the Jamtis Group has any outstanding bonds,
debentures, notes or other similar obligations, instruments or
securities entitling the holders thereof to vote (or which are
convertible into or exercisable for securities having the right
to vote) with the shareholders of ATTL, Merger Sub, Keytech or
such member on any matter. As of November 1, 1999 and as of the
Closing Date, the amount and ownership of the issued equity
capital of each member of the Jamtis Group are as set forth on
Schedule 3.2(d) of the ATTL Disclosure Letter.
(ii) Except as described in the Merger Agreement, the
Keytech Acquisition Agreements or the ATTL Disclosure Letter,
there are no other shares of capital stock (or quotas, as the
case may be) of ATTL, Merger Sub, Keytech or any member of the
Jamtis Group, no securities of ATTL, Merger Sub, Keytech or any
member of the Jamtis Group convertible or exchangeable for
shares of capital stock or voting securities (or quotas, as the
case may be) of ATTL, Merger Sub, Keytech or any member of the
Jamtis Group, and no existing options, warrants, calls,
subscriptions, convertible securities, or other rights,
agreements or commitments which obligate ATTL, Merger Sub,
Keytech or any member of the Jamtis Group to issue, transfer or
sell any shares of capital stock of ATTL, Merger Sub, Keytech or
any member of the Jamtis Group."
3. Access and Information; Pre-Closing Review. The Company
acknowledges that it has been afforded an adequate opportunity to investigate
the properties, assets, liabilities, personnel and records of Keytech. Prior to
the closing under the Keytech Acquisition Agreements, Parent will use its
reasonable best efforts to assist the Company in obtaining any further
information as to Keytech that the Company may reasonably request. From and
after the date of the closing under the Keytech Acquisition Agreements, Parent
shall, and shall cause its Subsidiaries to, (i) give the Company and its
authorized representatives full access during normal business hours to all
books, records, personnel, research and other consultants, offices and other
facilities and properties of Keytech and Keytech's accountants (and shall use
its reasonable best efforts to give the Company and such representatives access
to such accountants' work papers), (ii) permit the Company to make such copies
and inspections thereof as the Company may reasonably request and (iii) furnish
the Company with such financial and operating data and other information with
respect to the business and properties of Keytech as the Company may from time
to time reasonably request.
<PAGE> 489
4. Consent. The Company hereby gives its consent to ATTL to execute
and deliver the Keytech Acquisition Agreements and to consummate the
transactions contemplated thereby.
5. Regional Vehicle Agreement. Schedule B to the form of Regional
Vehicle Agreement attached as Exhibit E to the Merger Agreement is hereby
amended and restated as set forth in Exhibit A hereto.
6. No Other Amendment or Modification. The Merger Agreement shall
remain in full force and effect except as expressly amended or modified hereby.
7. Counterparts. This Amendment may be executed by one or more of
the parties hereto on any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. Captions. Captions and headings to paragraphs and sections of
this Amendment are included for convenience of reference only and shall not
constitute a part of this Amendment or in any way affect the meaning of any
term or provision of this Amendment.
9. Effectiveness. This Amendment shall be effective only upon
execution and delivery by each of the parties hereto.
[rest of page intentionally left blank; signature page follows]
<PAGE> 490
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above.
AT&T Corp.
By: /s/ John A. Haigh
----------------------------------------
Name: John A. Haigh
Title: Vice President
AT&T Latin America Corp.
By: /s/ John A. Haigh
----------------------------------------
Name: John A. Haigh
Title: President
Frantis, Inc.
By: /s/ Gary Swenson
----------------------------------------
Name: Gary Swenson
Title: Secretary
FirstCom Corporation
By: /s/ Patricio Northland
----------------------------------------
Name: Patricio E. Northland
Title: Chairman, President and CEO
<PAGE> 491
Exhibit A
Schedule B
To Regional Vehicle Agreement
RV NON-EXCLUSIVE SERVICES
AT&T Card Services
AT&T Direct(R) services
E-commerce
Web-hosting
Fixed wireless for connectivity
Voice over Internet Protocol
Managed Network Services
Video conferencing services
<PAGE> 492
ANNEX B
<PAGE> 493
[CIBC WORLD MARKETS LOGO] CIBC World Markets Corp.
425 Lexington Avenue
New York, NY 10017
Tel: 212-856-4000
November 1, 1999
The Board of Directors
FirstCom Corporation
220 Alhambra Circle, Suite 910
Coral Gables, Florida 33134
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness from a
financial point of view to the holders of the common stock of FirstCom
Corporation ("FirstCom") of the FirstCom Equity Ownership (defined below) in
Kiri Inc. ("RV") as provided for in the Agreement and Plan of Merger, dated as
of November 1, 1999 (the "Merger Agreement"), among AT&T Corp. ("AT&T"), RV,
Frantis, Inc., a wholly owned subsidiary of RV ("Merger Sub"), and FirstCom.
The Merger Agreement provides for, among other things, the merger of FirstCom
with and into Merger Sub (the "Merger") pursuant to which the shareholders of
FirstCom collectively will own, on a fully diluted basis, approximately 34.0%
(the "FirstCom Equity Ownership") of the common stock, par value $0.01 per
share, of RV ("RV Common Stock"). Representatives of FirstCom have advised us
that JAMTIS, Inc., an indirect wholly owned subsidiary of AT&T ("JAMTIS"), has
entered into certain agreements to acquire 100% of the outstanding equity
interest in NetStream Telecom Ltda. ("NetStream") and that AT&T intends to
cause JAMTIS to merge with a subsidiary of RV such that NetStream will become
an indirect wholly owned subsidiary of RV (the "NetStream Acquisition").
Representatives of FirstCom also have advised us that, in connection with the
Merger, AT&T and RV will enter into certain agreements relating to, among other
things, the licensing of service marks and the scope of future business
relationships between RV and AT&T and certain affiliates and joint ventures of
AT&T.
In arriving at our Opinion, we:
(a) reviewed the Merger Agreement and certain related documents;
(b) reviewed audited financial statements of FirstCom for the fiscal years
ended December 31, 1997 and December 31, 1998;
(c) reviewed unaudited financial statements of FirstCom for the six months
ended June 30, 1999;
(d) reviewed financial projections prepared by the managements of FirstCom and
AT&T, including estimates as to certain potential operating synergies and
cost savings;
(e) reviewed the historical market prices and trading volume for the common
stock, par value $0.001 per share, of FirstCom (the "FirstCom Common
Stock");
(f) held discussions with the senior managements of FirstCom, NetStream and
AT&T with respect to the businesses and prospects for future growth of
FirstCom, NetStream and RV;
(g) performed a discounted cash flow analysis of FirstCom, NetStream and RV
using certain assumptions of future performance provided to and discussed
with us by the managements of FirstCom and AT&T;
<PAGE> 494
The Board of Directors CIBC World Markets Corp.
FirstCom Corporation
November 1, 1999
Page 2
(h) reviewed and analyzed certain publicly available financial data for
certain companies we deemed comparable to FirstCom, NetStream and RV;
(i) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Merger;
(j) reviewed public information concerning FirstCom;
(k) at the request of FirstCom, approached and held discussions with selected
third parties to solicit indications of interest in the possible
acquisition of FirstCom; and
(l) performed such other analyses and reviewed such other information as we
deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by FirstCom,
NetStream, AT&T and their respective employees, representatives and affiliates.
With respect to forecasts of future financial condition and operating results of
FirstCom, NetStream and RV provided to or discussed with us, including estimates
as to certain potential operating synergies and cost savings (including the
timing, amount and achievability thereof) anticipated by the managements of
FirstCom and AT&T, we assumed, at the direction of the managements of FirstCom
and AT&T, without independent verification or investigation, that such forecasts
were reasonably prepared on bases reflecting the best available information,
estimates and judgments of the managements of FirstCom and AT&T. We also
assumed, at the direction of the management of FirstCom, that the Merger will
qualify as a tax-free reorganization for federal income tax purposes. In
addition, we have assumed, at the direction of the management of FirstCom, that
the Merger and the NetStream Acquisition will be effected in all material
respects in accordance with their respective terms and, to the extent relevant
to our analysis, have evaluated RV pro forma for the Merger and the NetStream
Acquisition. We have neither made nor obtained any independent evaluations or
appraisals of the assets or the liabilities of FirstCom, NetStream, RV or
affiliated entities. We have evaluated the FirstCom Equity Ownership on an
aggregate basis and are not expressing any opinion as to the proportionate
equity ownership of the holders of FirstCom Common Stock and FirstCom preferred
shares in RV. We are not expressing any opinion as to the underlying valuation,
future performance or long-term viability of FirstCom, NetStream or RV, or the
prices at which the FirstCom Common Stock or the RV Common Stock will trade
subsequent to announcement or consummation of the Merger. Our opinion is
necessarily based on the information available to us and general economic,
financial and stock market conditions and circumstances as they exist and can be
evaluated by us on the date hereof. It should be understood that, although
subsequent developments may affect this Opinion, we do not have any obligation
to update, revise or reaffirm the Opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to FirstCom in connection with the Merger
and to the Board of Directors of FirstCom in rendering this Opinion and will
receive a fee for our services, a significant portion of which is contingent
upon consummation of the Merger. We also will receive a fee upon the delivery
of this Opinion. We have in the past provided financial services to FirstCom
and AT&T unrelated to the proposed Merger, for which services we have received
compensation. CIBC World Markets also is currently providing a $10 million
credit facility to a subsidiary of FirstCom. In the
<PAGE> 495
The Board of Directors CIBC World Markets Corp.
FirstCom Corporation
November 1, 1999
Page 3
ordinary course of business, CIBC World Markets and its affiliates may actively
trade securities of FirstCom and AT&T for their own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, and such other factors as we deemed
relevant, it is our opinion that, as of the date hereof, the FirstCom Equity
Ownership in RV is fair to the holders of FirstCom Common Stock from a financial
point of view. This Opinion is for the use of the Board of Directors of FirstCom
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any matters relating to the Merger.
Very truly yours,
/s/ CIBC World Markets Corp.
CIBC WORLD MARKETS CORP.
